By Ben Zelinskas
Pappy Van Winkle is the most sought after bourbon on the planet. The pre-prohibition style liquor enjoys huge demand from bourbon enthusiasts, bar owners and high-end restaurants around the world. Depending on the make and age, a bottle will run a buyer anywhere from $200 to $2,200, selling as high as $6,000 in the secondary market. That’s if you can find it.
At a time that is being called the bourbon revival and a market that’s seen a flood of new products in the last 15 years, Pappy Van Winkle has achieved divine status in the world of spirits by leveraging a powerful primal response called the Scarcity Effect.
On “Pappy Day” each year, enthusiasts from around the country join lines outside of liquor stores and dispensaries that rival the release of the latest Apple device. Many stores conduct lotteries, sometimes numbering in the thousands of participants, for the chance at buying from a small lot. Some devotees join 10-year waiting lists while others try striking deals with liquor storeowners. Bar owners who want to keep it on the shelf report pricing a two-ounce pour for as high as $100.
On the surface, it’s easy to identify why such a brand has skyrocketed in popularity. For starters, it’s great tasting bourbon. The line of aged Van Winkle products has consistently earned ‘close to perfect’ ratings from the Beverage Tasting Institute. In addition, celebrity endorsements from well-known chefs and TV personalities have further enhanced Pappy’s mystique.
The Old Rip Van Winkle Distillery has been deliberate with their strategy, opting not to scale up production to meet exploding consumer demand. Instead, the company’s business model is leveraging a powerful and primal human response to scarcity.
People place higher value on things that are scarce or won’t be available in the future. It’s a trait that developed during human evolution when times were uncertain and stockpiling resources was a critical survival skill. When available, we hoarded valuable items to get us through lean times.
The last few centuries have done little to alter our behavior. Today, when we encounter items that are scarce, we still feel a heightened sense of urgency that propels us towards action. If we are successful in obtaining a scarce item, our ancient brain responds; the reward center in our brain releases a quick shot of endorphins which provides an instant rush of pleasure. In fact, the possession of a scarce item can be more satisfying than its ultimate consumption.
In the craft beer industry, business models are grounded in scarcity mostly out of necessity. In comparison to mass distribution companies, the quantity of product is noticeably less and distribution stays much closer to the manufacturing facility (100–200 miles). In the case of the Cleveland-based Great Lakes Brewing Company, shortages of its seasonal Christmas Ale have made headline news.
The power of scarcity resides in a limitation of time, access or quantity. In its purest form, it produces a powerful human response that increases perceived value, drives people to action and increases brand equity. Retailers have been using it in highly diluted forms for years, with sales terms like “limited time only” or “limit 4 per customer.”
The challenge in wielding it can be seen in the case of Pappy Van Winkle, where the brand has been extraordinarily disciplined in ignoring the market’s insatiable demand for more.