Playing To Win
The Strategy Lesson from the Bud Light Fiasco
Last year I wrote a Harvard Business Review piece, co-written with friend and Boston Consulting Group Henderson Institute Chair, Martin Reeves, on Strategy in a Hyperpolitical World. It turned out to be prescient with the Bud Light fiasco happening mere months thereafter. I have decided to elaborate on the subject in my 36thYear III Playing to Win/Practitioner Insights piece, The Strategy Lesson from the Bud Light Fiasco: Don’t Turn Fault Lines into Fissures. You can find the previous 146 PTW/PI here.
The Bud Light Fiasco
As most of the world knows, the fiasco started on April 1, 2023 when Dylan Mulvaney uploaded a Bud Light-sponsored post on Instagram in which she delightedly displayed the personalized cans of beer that Bud Light had sent her to celebrate the first anniversary of her transgender transition (and, presumably, to be displayed in the sponsored post). Bud Light sales immediately plummeted, leveling out (it seems, at least) at a 25% year-over-year drop, which is utterly unheard of in a stable consumer goods category such as beer. By mid-July, Bud Light had lost market share leadership in the US beer market, which it had held since 2001, to Modelo Especial.
I call it a fiasco not because I disapprove of using a transgender spokesperson — I don’t — but because parent Anheuser-Busch’s reaction demonstrates it was a significant error. The CEO issued a semi-apology two weeks later, which actually seemed to anger all sides more. Another two weeks later, he placed the executives responsible for the Mulvaney advertising initiative, Group Marketing VP Daniel Blake and Bud Light Marketing VP Alissa Heinerscheid, on ‘leave of absence.’ And then on July 26, 2023, Anheuser-Busch announced a 2% layoff of US employees due to the weak sales of Bud Light, the highest revenue brand in its entire portfolio.
The Anheuser-Busch reaction makes it clear that the outcome was not intended. Bud Light hadn’t intended to sacrifice one quarter of its current customer base in order to build a new brand image — hence its definition as a fiasco.
The Strategy Lesson
There has been plenty of commentary on political/moral/societal lessons from the fiasco. I will leave those fields to others to comment more thoroughly and insightfully based on their greater subject-matter expertise. I want to focus on the key lesson for strategy — a big one. The Bud Light fiasco has huge implications, in particular for broad-based businesses — like a #1 market share business, such as Bud Light (was).
Segmentation & Strategy
I have discussed the underlying economics of Segmentation & Strategy earlier in this series. To review, the value of a business is proportional to the size of the segment that it can serve with advantage. If with its offering (or suite of offerings), it can serve a large segment, it will be more valuable than if it’s offering only appeals to a small segment. That is why positions like Apple in smartphones or Verizon in US consumer wireless are worth hundreds of billions of dollars while successful but narrow positions like Red Bay Coffee or UNTUCKit are worth a tiny fraction thereof.
But large or small, those segments are not homogenous. They are heterogeneous — with different customers ascribing very different values to the company’s offering, as I illustrated on the graphic, reproduced here from the earlier piece:
At the notional center of a company’s segment is the perfect customer, who values everything about its offering to the maximum. That is, the perfect customer likes everything about the offering and values each attribute a lot. Radiating from the perfect center, are customers who value its offering less and less — either because they value all its attributes at a lower level or value just some of the attributes — or both. They may even like some elements of the offering and wish other elements weren’t part of it. (e.g., I hated the Touch Bar on my previous MacBook Pro — though I loved pretty much everything else about it.) At the edge of its segment, customers are completely indifferent between its offering and that of some competitor, and outside the outer edge, they favor a competitor over the company’s offering because that competitor offers those customers something valuable to them that the company can’t or won’t match.
A company’s goal should be to present an offering — supported by compelling messaging — that has advantaged appeal to the biggest circle possible. That may be a relatively small circle — Red Bay Coffee — or a relatively big one — Starbucks Coffee. But it should be as big a circle as the offering can support.
In pursuing the biggest circle supportable, companies are forever tempted to send different messages to different parts of their audience — whether inside or outside the confines of their current circle — in an attempt to strengthen and/or enlarge their circle.
For example, America is both the home geographic segment for Hollywood stars, such as Leonardo DiCaprio and Jodie Foster and the most important — where they create their brands as actors/actresses playing serious roles in serious Oscar-worthy movies — The Departed, The Revenant, The Silence of the Lambs, The Accused, etc. — and as being social activists for appealing causes such as climate change and social justice. However, their stardom is multijurisdictional, and they (as well as numerous other American movie stars) can’t resist expanding the size and earning power of their overall segment by propagating a different message in other jurisdictions. For example, in Japan they hawk consumer products in cheesy television ad campaigns (e.g., DiCaprio — Jim Beam; Foster — Caffe Latte). Doing cheesy commercials in the US would probably be much more lucrative for them than doing Japanese ads. But that would risk destroying their lofty brands in the eyes of their US segment (that is critical to their stardom, which is the original source of their Japanese pitch-person appeal) — so they don’t do it at all; ever!
But, as we pointed out in our Harvard Business Review article, this kind of thing is getting ever more dangerous with ever increasing transparency, as illustrated by enterprising American websites who circulate the commercials for American viewers in order to mock the many high-minded American stars for being so cravenly money-grubbing.
In this age of fuller transparency, brands must think a lot more thoroughly and carefully about the heterogeneity of their Where to Play (WTP), which hangs together now and produces their current market share. But under its apparently calm surface, that overall share hides fault lines — those customers aren’t all the same even if they buy the same product. If a brand isn’t careful, it can take those fault lines that lie benignly beneath the surface and turn them into giant fissures with its actions. By sending one message to Japanese consumers, DiCaprio, Foster et all can cause their US movie-going fans to think differently (and not in a good way) about their brands. But from what I can see that particular fault line has not turned into a fissure yet (though I predict that in ten years we won’t see DiCaprio and Foster doing cheesy foreign ad campaigns), but it already has for Bud Light.
In a video interview before the fiasco, Bud Light Marketing VP Alissa Heinerscheid was explicit about wanting to send to younger beer drinkers a message of “inclusivity” that “appealed to both men and women” because the core message to its customers featured “fratty, kind of out of touch humor.” But by sending that particular inclusivity message to younger beer drinkers, Bud Light turned a fault line into a fissure between its brand and (apparently) 25% of its customers who didn’t think of themselves as ‘out of touch.’
My guess is that the heterogeneity of Bud Light’s customer base and the fault lines in that base were simply not considered. The naïve idea — not an unusual one but naïve nonetheless — was that Bud Light could keep all its current customers, and, with this terrific new message, could appeal to some new ones (whether light users or non-users). This kind of naivety has always been dangerous. But it has gotten a lot more so in this hyperpolitical and transparent world.
The Particular Challenge for Broad-Based Companies
It is particularly challenging for broad-based companies and going to get more challenging. The broader-based a company is, the greater heterogeneity its customer base is likely to embody. Every company will have heterogeneity in its customer base. But a giant retailer, like Target, will likely have a greater level of heterogeneity in its customer base than tiny LGBTQ+-friendly clothing retailer, WILDFANG. Ultra Right Beer was launched to woo disaffected Bud Light customers and seemed deliriously happy to hit the $1 million mark in sales. But that is one-five thousandth of the (pre-fiasco) sales of Bud Light. With great size comes more dangerous and pronounced fault lines.
That is why broad-based companies in particular need to thoroughly understand the fault lines that run underneath the surface of their customer bases. They need it for proactive and reactive purposes. Bud Light is an example of a proactive instance. Bud Light initiated the Mulvaney campaign of its own volition. It wasn’t put into an awkward position by an outside force. By not understanding its fault lines, it made a relatively huge misstep. But thorough understanding is also critical in reactive situations in which an interest group pressures the company to take a stand that turns a fault line into a fissure. That would be the case for Disney in its scuffle with the State of Florida. The company was pressured by its own Disney employees to take a stand that turned a fault line into a fissure.
To be clear, I am not arguing about the moral or ethical underpinning of the actions of these various organizations. I am arguing that they didn’t spend enough thinking energy on understanding the fault lines within their customer bases before taking irreversible actions. They might have all concluded that the actions were the right thing to do, in the way they took them. But my bet is if that would have understood better where their fault lines ran in advance, they would have figured out in each case a much better way to accomplish their goals.
The modern company has to spend more time and effort on understanding the fault lines running through its customer base. You will never be able to predict entirely how your customer base will react to any particular stimulus, whether proactive or reactive. But a question well worth asking before you take actions is: Are we turning a fault line into a fissure?
It is a bit like the United States Geological Survey, the agency responsible for recording and reporting earthquake activity nationwide. It also maintains the National Seismic Hazard Model, which is the government’s best attempt at providing advance warning of fault lines generating earthquakes. I can’t vouch for its utility, but I like the idea.
Your goal should be to be as conscious and deliberate as possible about disturbing fault lines, versus activating them accidently, as with Bud Light. It is important because I am convinced there is going to be more and more of this kind of pressure on companies.
As is universally the case in business, the better you know your customers, the better chance you will have of success. Arguably, strategists have always understood that fault lines exist, and those fault lines have long defined the boundaries of a company’s served market. Past that edge, customers want something sufficiently different that they choose to purchase from a competitor living on the far side of a fault line. But now you have to look for fault lines within and treat them as if they were insipient fissures, threatening to open and swallow you up. This is not theoretical. Bud Light demonstrates that the threat is real.