Purchasing tequila has never been more complicated. The market is flooded with hundreds of different brands and they all seem to be selling traditionally produced tequilas. Prices range from a couple of dollars to thousands of dollars and tequila products are rarely priced according to their fair value.
Anyone who wants to make sure to buy the right tequila for the right price, needs to understand one simple thing:
TEQUILA IS BUSINESS
Brands make their production decisions based on what their ideal client wants to buy. To help consumers understand the business aspect of the industry, I have created our signature Tequila Education-Budget Matrix. The inspiration comes from the Boston Consulting Group’s famous “Growth Share Matrix” where they help companies how to prioritize their businesses. The goal was to create a clean and easy to understand segmentation of the tequila products, so we can assist consumers in creating their Tequila Purchasing Strategy.
Why is “consumer segmentation” important?
Businesses can only be successful if they cater for the specific needs of their consumers. If there is no demand for a certain tequila, then producers stop producing it. This is why it is important to us to support “authentic” tequilas as if consumers make up their preferences based on celebrity and marketing power, authentic producers may be forced to sell their business. There is a danger of losing a very important piece of cultural and historical heritage. We do not judge consumer preference nor individual taste. Mass production methods will exist as long as there are qualifying customers. Every other spirit, wines and beers have low cost and high cost products in their product arsenal and tequila is no exception. In this article we aim to give consumers a “strategy guide” showing the producers own strategy so that consumers can understand the optimal “buying strategy” in each of the four tequila segments.
Smooth Tequila
Consumer Segment: Low Budget, Low Level of Tequila Education.
Size: Estimated over 95% of the market.
Production: In order to be competitive, companies are pressured to look for ways to reduce their production cost (mass production, diffuser, additives) or they are pressured to keep the average cost of their tequila low by blending their tequila with cheaper tequila products.
Pricing: Low to mid tier price range.
Purchase Strategy: Consumers should buy the cheapest products to avoid being overcharged.
Authentic Tequila
Consumer Segment: Low Budget, High Level of Tequila Education.
Size: Estimated approximately 1-2% of the market.
Production: Producers have almost no flexibility to optimize their production cost – only the highest cost, highest quality products can win the respect of the connoisseurs.
Pricing: Mid-tier price range.
Purchase Consideration: Consumers should buy to experience and help preserve cultural and historical authenticity.
Status Tequila
Consumer Segment: High Budget, Low Level of Tequila Education
Size: Estimated approximately 3-4% of the market.
Production: Since producers are not pressured into reducing their production cost it can range from cheap to expensive, but mostly “mass-produced”. What is common however in these tequilas is that the price has no relation to the fair value of the product. The packaging is more important than the tequila inside the bottle.
Pricing: High-Highest tier price range
Purchase Consideration: Consumers should only buy 1 bottle to keep as a souvenir.
Collector’s Tequila
Consumer Segment: High Budget, High Level of Tequila Education.
Size: Estimated a couple of thousands of consumers.
Production: These tequilas are made by the same producers, whose standard product line fall under the “authentic” segment. Collectors are looking for rare, special editions and single barrel tequilas that is different from the producer’s regular line and so have an extra collection value. Since such tequilas are made in smaller quantities and an extra effort (cost) is taken to create them.
Pricing: Upper-Mid to High tier price range.
Purchase Consideration: Consumers should buy to keep for special occasions or “investment”.
How to make better decisions?
We believe the key to making better consumer decisions lies in education. Educated consumers are more likely to pay the fair value for a tequila, whereas the lack of tequila education forces consumers to make decisions based on packaging and pricing – and as a result they are likely being overcharged when making purchases.
Sadly, the average tequila consumer lacks the necessary tequila education. This can be evidenced by the 1-2% market share for authentic tequila products which is extremely low, especially compared to the 13-14% market share of craft beers in the US market, where consumers have a better understanding of the quality differences between beer products. We look forward to change this trend and provide the means for the necessary education worldwide through our specialized courses.