Today, the NAB published a press release as well as an analysis that simply has left many scratching their heads, and wondering if NAB President David is simply scratching his Rehr.
I find it almost difficult to take what the NAB put forth in a serious manner, and thus almost find myself with writers block because of the vast array of examples that counter the NAB logic (or lack of logic).
In the end, I have decided to simply use what I will call the H2O principle.
In the beginning, a 5 gallon container of Poland Springs water went for about $7.50. People like bottled water, and although the concept of paying for water was foreign to many, there were enough people who felt that the benefits of bottled water were worth it, in particular at offices where people would rather have a bottled product than drink from a fountain.
People found that they enjoyed the bottled water, and soon some people began to put the bottled water coolers in their homes. The price was the same, but people saw a value in it. A family of 5 easily went through a 5 gallon container each week.
As the popularity grew, Poland Springs decided to produce 1 gallon jugs of water for sale at the local super market. The 1 gallon jugs sold for $1.99. Consumers who did not want a cooler at their hose found this solution appealing. Other consumers such as a newly wed couple simply did not consume that kind of volume of water, and a one gallon container was much more reasonable than having several 5 gallon containers sitting in the house. They could fit the 1 gallon container in their refrigerator, and not having to handle and flip those 5 gallon containers was also an added benefit. Sure, on a per gallon basis, the 1 gallon product was slightly more expensive, but the benefits outweighed it such that the consumer felt they were getting value and was satisfied.
Seeing the success of the 1 gallon product, Poland springs quickly developed a 1 liter bottle. The 1 liter bottle sold for $1.59, and while more expensive on a per liter basis than the 1 gallon or 5 gallon container, there was benefit in refrigerator shelf space, as the water no longer had to compete with the milk for that reserved spot for the young bachelorette. Additionally, the single guy did not consume a gallon of water every week, and the gallon containers took up valuable beer space in his fridge. He liked the 1 liter container because it made his life easier.
Poland Springs was now making more people happy with each new launch. The system worked, so they took it a step further, and developed a 16 ounce bottle. The 16 ounce bottle retailed for $1.29, and sure, on a per ounce basis it was more expensive that the liter or the gallon or the 5 gallon, but there was a certain convenience in this size. In fact, the this is what made it popular in convenience stores. Consumers could take their water in the car, and if they had a sudden thirst, they could easily pick up a bottle. They no longer had to have big and gangly liter or gallon containers on their desk, and driving with water became much easier.
Next Poland Springs realized that there was an entire segment of Americans that liked to walk, run, cycle, and work out at the gym. The 16 ounce bottle was a bit big for this, so they developed a 12 ounce bottle of water. This bottle sold for $1.09, and while it was more expensive on a per ounce basis, the convenience of the size actually allowed the bottle to fit into a shorts pocket, or even simply gripped in the hand more comfortably.
Seeing that water was a big business, and that consumers gravitated to the product because they could get exactly what they wanted, other companies arrived on the scene to deliver their own products. Some added special content to their water which carried additional appeal. Now, you could get water with vitamins or natural juices added in. This was special water, and there was a premium cost in bringing it to market. Not all consumers wanted this water, but there were many who did. They would pay some additional money to get this special content. In fact, there were several varieties of special content that could go into water. Individually, these bottles of water would cost $1.79 each, but because there were some synergies in the packaging, a six pack of various content enriched waters could be made available for a very reasonable price.
This example, outlines what consumer interest is all about. It does not simply boil down to the unit cost of an item, but rater what that item is, and what the consumer wants and sees as value. Some want the most bang for their buck. They will buy the water that delivers that for them. Others want water to take in their car, and would rather not swig it from a 1 gallon jug.
Meeting consumer needs starts with having a good product. From that point price, convenience, value, and many other factors come into play. Sirius and XM have delivered an unprecedented amount of choice and value to the consumer with their tiered and Al La Carte pricing. These companies clearly understand that today’s consumer sees value in differing ways, and in the end, they have delivered your water however you may want it.
Position - Long Sirius, Long XM