BUSI 520 Week 6 MMGP: Services/Pricing Example

Marketing Management Group Project, Services and Pricing: Charging a Premium for Water

Questions Addressed

• What support services accompany the product?
• How is the product priced, and why?
• What risks does the pricing strategy face?

Support Services

Kotler and Keller (2016) note that even physical products are surrounded by services that add value, and that many of those services are delivered to intermediaries. For a beverage brand, the most important services go to the business buyers identified in the market analysis. Distributors need reliable supply, marketing support that pulls the product through stores and an assurance that the brand will keep selling. Retailers need sell-through data, merchandising and promotions. Venues such as concert halls need a product that fits their setting and sells at event prices. Liquid Death's inclusion of major distributors among the investors in its 2024 funding round suggests that it treats these relationships as strategic rather than transactional (Kirichanskaya, 2024).

Services to consumers are lighter but still matter. The company sells directly online, where shipping, order accuracy and customer service shape the experience, and it sells branded merchandise and limited editions that give fans more ways to engage. Vargo and Lusch (2004) argued that value is always co-created with the customer, and that goods are distribution mechanisms for service. In Liquid Death's case, much of the service it provides is entertainment, the videos, collaborations and jokes that make buying the product part of a shared experience.

Pricing

The group worked through the pricing steps Kotler and Keller (2016) describe.

The pricing objective appears to be maximum market skimming within a premium position rather than maximum market share. Liquid Death's water sells at a price per ounce well above store-brand and mainstream bottled water, closer to that of premium sparkling waters and soft drinks, which signals that it is not competing on price.

Demand for the brand is likely less price-sensitive than demand for water generally, because the brand's buyers are paying for identity and occasion as much as hydration. Zeithaml (1988) found that consumers weigh the benefits they get against the money, time and effort they spend when they judge value, and that what they receive includes intangible attributes such as prestige and image. For the core segments, the brand's image is part of what they receive.

Costs are higher than for plastic-bottled water. Aluminum cans generally cost more per unit than plastic bottles, and heavier packages cost more to ship. The group does not have the company's cost data, so this is an estimate based on the packaging, not a sourced figure. The premium price must cover these costs, distributor and retailer margins, and the company's large marketing budget. A simple way to see the pressure is to remember that the retail shelf price is split several ways: the retailer and distributor each take a margin, and what remains must pay for the can, the water, freight and the marketing that creates demand. A brand that spends heavily on content and collaborations needs a higher price than a store brand simply to stay profitable.

Competitors' prices set a ceiling and a floor. Premium waters and sparkling waters define the range shoppers will accept in a grocery aisle, while beer, hard seltzer and energy drinks define the range at a concert, where the brand often sells for several times its grocery price.

That spread across channels is itself a pricing decision. Kotler and Keller (2016) describe channel and location pricing, in which the same product sells at different prices depending on where and when it is bought. At a festival, the buyer is comparing Liquid Death not with a case of water but with a twelve-dollar beer, and the venue captures much of the difference. In a supermarket, the brand must hold its premium against products sitting a few inches away. Keeping the grocery price high enough to protect the brand's image, while letting venue prices follow the venue's own pricing, lets the brand earn strong margins where its meaning is strongest without looking out of place where it is weakest.

The resulting method is value-based pricing: price set by what the target customers think the product is worth rather than by cost plus markup. Research suggests why this can work. Rao and Monroe (1989) reviewed studies showing that consumers use price as a cue to quality, especially when other cues are weak, and the quality of water is hard to judge. Plassmann et al. (2008) found that when people tasted the same wine labeled with a higher price, they reported enjoying it more, and brain regions associated with experienced pleasantness responded more strongly. A higher price may not only reflect Liquid Death's brand; it may help create the experience buyers pay for.

Risks to the Premium

Three risks stand out. First, as the brand moves deeper into mass retail, it reaches shoppers who compare it directly with cheaper water and may not value its identity. Second, look-alike canned waters could undercut it on price while copying its cues. Third, if the brand's cultural edge fades, the premium loses its foundation, because nothing in the water itself justifies it. Kotler and Keller (2016) warn that frequent price promotions can teach buyers to wait for discounts and erode a brand's reference price. The group therefore recommends that Liquid Death protect its price in its core channels, use limited editions and new flavors rather than discounts to drive excitement, and accept slower growth in mass retail rather than compete on price there.

References

Kirichanskaya, N. (2024, May 16). 'We are still in the early innings': Liquid Death's SVP of strategy. Inside FMCG. https://insidefmcg.com.au/2024/05/16/we-are-still-in-the-early-innings-liquid-deaths-svp-of-strategy/

Kotler, P., & Keller, K. L. (2016). Marketing management (15th ed.). Pearson.

Plassmann, H., O'Doherty, J., Shiv, B., & Rangel, A. (2008). Marketing actions can modulate neural representations of experienced pleasantness. Proceedings of the National Academy of Sciences, 105(3), 1050-1054. https://doi.org/10.1073/pnas.0706929105

Rao, A. R., & Monroe, K. B. (1989). The effect of price, brand name, and store name on buyers' perceptions of product quality: An integrative review. Journal of Marketing Research, 26(3), 351-357. https://doi.org/10.1177/002224378902600309

Vargo, S. L., & Lusch, R. F. (2004). Evolving to a new dominant logic for marketing. Journal of Marketing, 68(1), 1-17. https://doi.org/10.1509/jmkg.68.1.1.24036

Zeithaml, V. A. (1988). Consumer perceptions of price, quality, and value: A means-end model and synthesis of evidence. Journal of Marketing, 52(3), 2-22. https://doi.org/10.1177/002224298805200302