Strategic Product Pricing: A Lesson from Pumpkin Spice Latte

The leaves have turned, there’s a chill in the air, and pumpkin spice is back complete with strategic product pricing. Unfortunately for consumers partial to the flavor, it’s more expensive than ever. But why would it be?

As USA Today reports: “LendingTree has studied the pumpkin spice markup three times since 2020. The pumpkin surcharge totaled 8.8% in 2020 and 14.1% in 2022.”

“The fact that we have consistently seen higher prices for pumpkin items has made it an interesting thing to keep coming back to,” said Matt Schulz, chief credit analyst at LendingTree. “It’s something that kind of takes over our country for a couple of months at this time of year.”

Why do producers upcharge so steeply for these autumnal items? The answer is simpler than you might think and it begins with how we got to where we are today.

A Brief History of Pumpkin Spice

Believe it or not, pumpkin spice is not new. Though the commercial availability of the blend has varied, archaeologists believe it’s been around for more than 3,500 years.

Modern versions  stretch back to the Dutch East India Company, but the most common retail blend came from the spice brand McCormick in 1934. McCormick responded to Libby by introducing canned pumpkin puree used in cooking and baking.

If you don’t enjoy cooking, you’re probably most familiar with the pumpkin spice flavor because of Starbucks. When compared to McCormick’s product, this drink option is a relatively new phenomenon.

As Food & Wine explains: “Although the pumpkin spice latte [PSL] debuted in only 100 Starbucks stores in Vancouver, BC, and Washington, DC, it’s now available as a seasonal menu item around the world and has become Starbucks’ most popular seasonal beverage of all time. Since 2003, Starbucks has sold more than 424 million PSLs in the US alone.”

Pumpkin spice has become a cultural icon and a representation of the season. In fact, the drink’s unforeseen popularity has given rise to an entire market of pumpkin spice products, leading to pumpkin ‘spice-ified’ versions of products as varied as hummus, hard seltzer, marshmallows, and mac and cheese.

In other words, pumpkin spice mania is clearly here to stay. That does not, however, explain the markup that generates more than $500 million annually. What’s the cause of that markup?

Strategic Product Pricing and Promotion

While there is nothing about pumpkin spice products that is more valuable than other ingredients, there are three factors that dictate their pricing: seasonality, an artificial sense of scarcity, and market tolerance.

Seasonality

Strategic product pricing goes hand in hand with seasonal marketing strategies. Seasonality assumes that certain goods see higher demand based on a particular  time of year. Sometimes that involves holidays. Candy canes, Christmas tree-shaped chocolates, and eggnog, for instance, are likely to sell at higher prices during the winter holiday season. After the holidays, these products are sharply discounted, sometimes by as much as 90%. Afterwards, they disappear from the shelves completely. Other times, seasonality involves actual seasons. When it starts to get chilly, winter coats and scarves are in higher demand. Bathing will see a better market share during spring break or summer.

Artificial Sense of Scarcity

Creating an artificial sense of scarcity relates to the idea of seasonality. Scarcity means that only a certain amount of something is available, often for only a certain amount of time. And that perceived scarcity definitely grabs the consumer’s attention.

In other cases, demand is dictated by the producers. Pumpkin spice is a perfect example. Can you find pumpkin spice items in the off-season? Absolutely. But when stores like Starbucks relegate the flavor to specific times of the year, the public perceives scarcity, causing demand for that product to go up. This dynamic leads other producers, by and large, to follow suit.

Market Tolerance

The idea of scarcity feeds directly into what the market will tolerate. People are willing to pay a premium. They know that, while they can get a vanilla latte almost anywhere at any time of year, they probably cannot get a pumpkin spice latte until the fall and this is where strategic product pricing kicks in and shines.

It’s not that Starbucks can’t offer pumpkin spice lattes all year. They absolutely could. The syrup does not cease to exist once all the leaves have fallen and it starts to snow. They make it scarce artificially so they can charge a premium to the tune of millions of dollars every year.

How You Can Leverage Pricing to Drive Profits

You don’t have to be a multinational corporation to benefit from a scarcity-driven product pricing strategy. You just have to pay attention.

When working with a seasonal product or service you can maximize profits by centering marketing efforts around the time the product is most likely  to see demand. This limits your overall marketing expenditures and allows you to capture the best possible ROI.

If you sell tangible products, limit your production efforts to the ramp-up period before your highest season of demand and taper it down towards the end of that season. You will be mirroring the supply and demand of that season. While you might consider having enough product on hand for the whole season, a significant season-end surplus can eat up your profits.

If you’re a producer, make sure to  keep an eye on the pace of sales. If demand is higher than anticipated, don’t immediately ramp up production. The market may react to scarcity by accepting a higher price point. This is yet another example of product pricing strategy.

Lean into scarcity, even if it is artificially induced. There is nothing wrong with producing limited quantities of products. Consider screaming from the rooftops about those limits. You can charge a higher price which  might increase demand for your next limited run. This advice is perhaps best suited for already established businesses and brands with robust word-of-mouth referrals. Without a strong network, these tactics can be risky.

Determining a pricing strategy takes time, consideration, and planning. If you haven’t used a pumpkin spice strategy before, hiring a business consultant could be a worthy investment.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure and each includes a comprehensive customer PowerPoint about the topic):

1. The Sales, Marketing, Advertising & Publicity Bootcamp (Smap)
2. The Start Up/Small Business Advisor
3. Marketing Tips For The New (Or Old!) Business Owner – Part 1

This is an updated version of an article originally published November 5, 2022.] 

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