Sunday, May 30, 2010

A Jelly Belly Blunder of the Pudding Cup Variety

While perusing my local Kroger grocery store (mine in particular is King Soopers), I saw something that I just needed to purchase, just to see how bad it was (and holding out a small hope that it was amazing). This product was Kroger Jelly Belly pudding cups.

Now there has already been a pretty exhaustive review of the pudding cups from an eating perspective (the consensus: they are terrible), but I wanted to address the branding issues associated with the product, since I feel that it is an excellent case study for what not to do (like, ever) when thinking of partnering with an existing company or venturing in to a new product line.

For my personal encounter with the product, it was selling for $1.04 (not on sale) for a pack of four pudding cups. Since I am a big fan of watermelon Jelly Bellies (I think it is especially great that they are red inside a green outer shell like an actual watermelon), I figured I should try the watermelon pudding. I got 3/4 of the way through it before I felt nauseous and threw the rest of them away. But anyone's personal experience should never be the end-all-be-all of investing (even though this is a private company), or determining whether a product line is successful. Instead, I will look at couple of other reasons why this product line was doomed from the start.

Recognize Your Brand Value

While the company itself has been around since 1869, Jelly Belly is most famous for their jelly beans, and would be considered one of the premier candy makers. Their price point is dramatically higher than most of the other sweet goods you would see, helping to further cultivate their perception as a luxury brand in this space.

Now if one were working with Jelly Belly, and thinking of partnering with another company to make a product (say, Kroger), the first thing that should be going through one's head is how this partnership will impact the consumer's perception of your brand. With any good that commands such a premium to its competitors, perception is HUGE in maintaining this price moat.

Kroger is the store brand for many competing knock-offs of branded items. As such, it is not by any stretch of the imagination a luxury brand. In fact, it's relatively low rent. This creates a dramatic brand dichotomy when you see Kroger right next to Jelly Belly for the pudding cups. Even if the pudding would have been successful, to be associated with a brand most well known for knock-offs is not going to increase the consumer's perception of your brand.

Maintain Price Points That Support Other Products

Whether it be $1.99 or $1.04, these price levels are still fairly low compared to Jelly Belly's other lines. By placing a lower marginal price tag on a product seemingly by a luxury company, you threaten to erode the luxury perception of the other product lines. Thus, even if the pudding was still successful, it could potentially be a negative net present value project when you take in to account the losses from having to lower other products based on a changed consumer perception of the brand.

Luxury automakers like BMW and Mercedes are constantly walking this line when they offer products that cross the lower end of the auto market. While it can boost sales, it also threatens to erode the luxury perception and can hurt future profitability.

Final Take

Obviously Jelly Belly should have just focused on what they were good at. But presuming they did think that they had a good idea with the pudding, they should never have brought Kroger in to the mix, and should have potentially created a separate brand, such that any negative perceptions would not find their way up to the company, and presuming the line was successful, they could begin to put the Jelly Belly name on the product and raise the price.

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