AwardBest

The best rice you've ever had — guaranteed.

Is AwardBest's Proposed Price Reasonable?

Posted by James Plamondon on December 06, 2015 . 0 Comments

(This is the first of a series of three articles exploring AwardBest's pricing, profitability, and potential growth, respectively.)

A couple of days ago, the Phnom Penh Post (Cambodia's premier English language daily newspaper) published a piece on AwardBest's "ultra-premium" strategy. Written by the Post's Business Editor, Cam McGrath, the piece — titled Going Against the Grain — raised two questions:

  1. Is there a market, in the USA, for gourmet rice priced at $10/pound ($22/kg)?
  2. Given the high costs of freezing, frozen transportation, and frozen storage, would frozen rice be profitable even at that higher price?

This blog post answers the first question: Will American consumers pay $20 for a two-pound bag of rice — that is, $10/pound? Later posts will answer the profitability and scalability questions.

To find out, let’s see if there are other similarly-priced rice products being sold on Amazon.com.

Why Amazon? Because that’s where AwardBest expects to sell its rice. Therefore, it is the only pricing data that is relevant. The fact that consumers could buy rice more cheaply at a local grocery store is irrelevant, because we’re not competing against that rice. We’re competing only against other specialty rice that is available on Amazon.

Here are four of the most expensive rice products on Amazon.com, each selected to make a specific point:

#

Name

$/lb

Price

Lbs

Shipping

1

Yamaguchi Prefecture rinse-free rice Hitomebore 5kg 2014

$19

$211.76

11

$89.65

2

Bineshii world famous gourmet wild rice 5-LBS

$14

$68.75

5

$8.95

3

Mac Dougall's Wild Rice, Commercial 4x 25LB

$10

$1,026.65

100

$150.00

4

Ellis Stansel's Gourmet / Popcorn Rice - 2 lb Cloth Bag

$7

$14.95

2

$6.97

 

Let’s look at these products one at a time.

  1. Yamaguchi ($19/lb): This is a Japanese specialty rice. I infer from the shipping charge ($89.65) that each individual bag is shipped directly from Japan. The cost per pound, at $19, is nearly twice what AwardBest expects to charge. The packaging is entirely in Japanese, and the Amazon.com listing is written in very non-native English, so the intended target market for this rice is almost certainly the Japanese ethnic community in America, not Caucasian home gourmets that AwardBest targets. Its price is nearly twice AwardBest's.
  2. Bineshii ($14/lb): Wild rice hand-harvested on lakes, from canoes, by Native Americans. You can’t get much more “specialty” than that. Its price is half-again AwardBest's.
  3. MacDougal’s ($10/lb): Also a wild rice, but my point here is that they’re selling it by the 100-pound lot, despite the huge shipping cost ($150). This shipping cost is more than the price of a 100-pound bag of “commodity” Cambodian Jasmine Rice. You see a lot of this on Amazon, because an American consumer can pay $99 per year for an Amazon Prime membership, and get free shipping, all year, on everything they buy from Amazon. As of late 2014, more than 40% of Amazon customers are Prime members. Hence, domestic shipping costs are irrelevant when selling to Amazon Prime customers
  4. Ellis Stansel ($7/lb): This American-grown fragrant rice sells for $7/pound, which is slightly lower than AwardBest’s proposed price. However, you can see from the product’s reviews that its quality is inconsistent. Those who get their rice when it is fresh — or who remember it fondly — give it very high reviews. However, those who get it later in the year give it very negative reviews (see below). Quick-freezing rice would ensure consistently-high customers experiences and, hence, consistently-high reviews. Its price is nearly as high as AwardBest's, despite suffering from quality problems that AwardBest specifically addresses.

Customer reviews of Ellis Stansel’s rice: Love it (fresh) or hate it (old).

Obviously, there’s also a lot of cheap rice on Amazon. Its best-selling jasmine rice product is Dynasty’s 20-pound bag, priced at $29.16, which is just $1.46/pound. That’s 85% less than AwardBest would charge.

However, AwardBest is not competing with Dynasty, any more than Rolex is competing with Timex, or Lamborghini with Lexus.

Rolex doesn’t sell watches; it sells luxury. Similarly, AwardBest doesn’t sell rice; it sells confidence: confidence that "I, the AwardBest customer, will never risk the embarrassment of serving inferior rice...guaranteed." The less someone knows about rice, the more willing they are to pay extra for such confidence. And the more that they know about jasmine rice, the more they will understand the unique advantage that AwardBest offers.

Even if AwardBest were “merely” sold specialty rice, the data above show that there is a market for specialty rice that is priced at $10/pound on Amazon.

Therefore, AwardBest's proposed price (of $19.95 for a two-pound bag) IS reasonable.

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