This $3,000 Bottle of Whiskey Shows the Power of Scarcity
It sells at a mark-up of over 1,100%
Pappy Van Winkle sounds like a fictional character from a children’s book… It’s not. It’s a Kentucky-born whiskey brand that commands mark-ups of over 1,108% per bottle.
So how does it command such high prices — and why are people more than willing to pay it?
The History of ‘Old Rip Van Winkle’
The brand Pappy Van Winkle was started by Julian Van Winkle Jr. His main business was selling fine decanters, but he bottled a custom-labelled bourbon whiskey on the side to commemorate his father ‘Pappy,’ who was also in the bourbon business. It was a labor of love for Julian Jr, a passion project.
Julian Jr’s big break was in the early ’90s when the Chicago Beverage Testing Institute gave a bottle of 20-year-old Pappy Van Winkle a tasting score of 99 out of 100.
If there’s no such thing as perfection, a score of 99 was as close to perfect as anyone could get, which in turn, put their whiskey on the map. From then on, the Van Winkle family’s bourbon was racking up award after award in multiple tasting competitions. The demand grew from quality.
In 2002, the Buffalo Trace distillery took over operations of the Pappy Van Winkle brand, which skyrocketed exposure and knowledge of the brand outside of Kentucky. Partnering with such a big distillery allowed Pappy Van Winkle to reach a mass audience outside of connoisseurs and local whiskey lovers. In short, it went global.
You may recognise Buffalo Trace as the world’s most awarded distillery, so their reputation helps to uphold the expectations of ‘Pappy’ customers, as well as their commitment to making the bourbon to Pappy’s original recipe.
Each year, the distillery releases a 23-year-old bottle of Pappy Van Winkle bourbon from a tiny supply consisting of just a few casks. This could mean less than 1,000 bottles going into circulation each year… These are highly sought-after commodities.
The Power of Scarcity
This is where my fascination with Pappy Van Winkle began. This time last year, I was in Miami Beach when the owner of the bar, knowing that I liked bourbon, invited me behind the bar to try a few of his favorites.
On a high-shelf was his most coveted possession: A Pappy Van Winkle 23-year-old bourbon whiskey bottle. He was too short to get it and asked me to pull it down. As it descended in my half-sober grip, he told me the price and I felt like I was holding a Royal baby.
It didn’t taste as special as the price made me assume it would, so as a marketer, I thought there must be some other factors driving the price up. There was, that factor was scarcity.
We’ve all heard of supply and demand. As the demand increases, the supply needs to increase to satiate it. However, if the supply can’t increase, the increased demand lifts the retail price.
Handmade or limited edition goods are a perfect example of this. If something is limited or artisan, you can command a higher price than that of a mass-produced alternative — because you’ve created a swarming competition of buyers.
Pappy’s bourbon ensures the supply is always limited, leaving the ever-increasing demand the ability to jack-up the price per bottle. Each year, the only way for consumers to get their hands on this is with a raffle/ballot. You apply for the chance to buy. I myself have tried and lost multiple times.
This tactic can only continue to work because the product is good. You can’t shrink the supply of a bad product, nobody will care. Quality creates demand, so you can’t artificially create scarcity without it.
With that said, there’s as much power in scarcity for the buyer as there is for the seller.
Like eating the table-bread at a three-star Michelin restaurant, it’s more to do with the attaining of that limited experience than the taste itself. You want to go to say that you’ve been there, done that — because most haven’t and never will.