How Price Positioning Impacts Your Bottle Choice
Having supplied bottles to hundreds of wineries over the 25-plus years, I thought it would be useful to review the key marketing elements that need to be assessed in order to make one of the biggest long-term investments you will make for your winery and its brnad. Here, we review the Four Ps of marketing—Product, Price, Place, and Promotion as it relates to your wine or distilled spirit—and how they specifically apply to your bottle purchasing decisions. Of the four Ps, your retail price is arguably the most important since it will help determine the other elements and vice versa. I maintain that the investment price of your bottle is directly related to the retail price of your wine. Unfortunately, however, setting a price for a wine is not easy because it involves intensive market study and competitive research. This paper will look at ways to manage the cost basis and the importance of identifying sooner rather than later where you want your wine to sit on the shelf and how much you need to invest in your packaging to make that happen.
A realistic assessment of the quality of your wine is the obvious first step in marketing your wine. Some wineries conduct focus groups or hire independent agencies to help them arrive at an objective quality judgment. Your wine’s type or style (young and fruity or age worthy and oaked ), personality (based on a particular winemaker; a specific winemaking philosophy, such as organic; or a famous personage), and the location (terroir or famed destination) all play critical roles in understanding and characterizing your product before you can market it. You also need to identify and understand the market segment where your wine is most relevant. For example, a ready-to-drink white might target a different customer than a complex red. This segmentation is necessary in order to help you differentiate your wine from competing brands on the shelf. Only then can you define the image your packaging needs to convey in order to attract that market segment. In other words, determine who will be making the selection before you design your packaging and messaging for them. And differentiation is critical; don’t play follow the leader. Rather, distinguish your wine and packaging with a careful study of your wine/winery’s own personality and characteristics.
This “P” addresses the many avenues your wine can take to get to the consumer’s table: direct-to-consumer (tasting room, in-house sales team, and website) and through a reseller (distributor, wholesaler, on-premise, and retailer). The logistics of getting your wine in the hands of the right people at the right time can account for a large percentage of your total costs and must be carefully monitored as a factor in your pricing strategy. The more direct your sales the more you have to sell yourself and your values through the package. Therefore, offering extra perceived value with a classic or classy bottle is a smart investment.
Small production wineries have historically had a difficult time getting a distributor to represent them, which is a necessity if you want to grow in the US three-tier system. Therefore, many wineries have put more of their resources toward beefing up their direct sales via wine clubs, festivals, and in-person sales to local bars and restaurants, markets, and events. While time-consuming, it’s a strategy that has paid off for many small producers who boast a great product. But it’s important to select a bottle that is unique and recognizable.
This “P” is where all forms of communication come into play, including written, spoken, and visual cues. These communications include everything from point-of-purchase displays, brochures and packaging to print, broadcast, and Internet advertising; direct marketing costs such as e/mailings, ecommerce, telemarketing, etc.; promotional expenses, including social media promotions, contests, tasting events, wine clubs, tie-ins; and PR, including press relations, sponsorships, and community events, among many others. Finally, your image must be consistently carried through in all these communication strategies.
Needless to say, these costs are not inconsequential. Therefore, it helps to map out a detailed framework for your wine, from production through distribution and promotion, with estimated costs at each stage of the plan. But remember your best promotion is the uniqueness of your brand image conveyed through your bottle, which should readily tell your distinctive brand story without the use words. This is what Global Package prides itself on doing really well.
Now comes the hard part: pricing your wine, a fundamental component to its success in the marketplace. If it’s priced too high, you’ll be stuck with unsold inventory; if it’s priced too low, you may see it fly off the shelf, but you may also realize little, if any, profit. Pricing needs to take into account the cost of producing your wine plus a reasonable profit margin. There are dozens of pricing strategies to choose from, and which one you choose will depend on what your goals are. Here’s a short review of some of those strategies when approaching any market channel:
Cost-plus: Here you assess the costs (fixed and variable) to produce your wine and then add a standard percentage of profit (Cost is $10/bottle, plus 20% profit = Price of $12/bottle).
Cost-based: This is a fluctuating price that’s based on the cost of production, distribution, and then on a markup.
Value-based: Here pricing is based on the buyer’s perception, taking into account such factors as quality, prestige, healthfulness, etc., of the value of the wine, rather than on your costs.
Competitive: Your price, whether it’s lower, the same, or higher, is based on what competitors are charging for the same or similar wine. There are several online services that can help you determine competitors’ prices, such as
HYPERLINK “http://www.wine-searcher.com/price-notes.lml” http://www.wine-searcher.com/price-notes.lml and HYPERLINK “http://wineprices.vinfolio.com” http://wineprices.vinfolio.com .
Skimming: This strategy allows you to ‘skim’ the market by layers, initially pricing the wine high to attract affluents and then gradually lower the price to gain a wider market.
Premium: Here the price is set high to reflect the exclusiveness of a wine.
Penetration: The price is set low to increase sales and gain marketshare and, once accomplished, can then be raised.
Psychological: This is a standard pricing strategy based on what ‘looks’ better to the consumer; e.g., $9.99 versus $10.
Discount: A lowered price based on a promotion or advertising campaign.
Bundling: This is a retailer pricing strategy, such as buy-one-get-one-free (BOGOF) bundling.
The underlying premise of pricing a wine is to impart value to the consumer, so it’s essential to know as much as you can about the consumer you’re marketing to. For instance, according to a recent study by Wine Intelligence, the U.S. market can be divided into two simple groups of roughly equal size: the under-45s and the over-45s. The under-45 category, which accounts for approximately 48% of the nation’s wine-drinking population, is comprised of Millennials and Gen Xers, as well as the 21-25 year-old wine drinkers. These younger consumers have very different behavior patterns than their older cohorts in that they’re more likely to try new brands from emerging regions, spend more on a bottle of wine, but drink wine less often (weekly or for special occasions), and purchase a wider repertoire of varietals, such as Pinot Grigio, Malbec, and Sangiovese, and sparkling wines, dessert wines, and port. Most important, these under-45s are actively engaged in the wine experience, participating in tastings, visiting wineries, and attending wine symposia and festivals. Therefore, if you wanted to generally target the under-45 consumer, you could consider pricing your Pinot Noir a bit higher while promoting its suitability for a birthday celebration. Also consider if a retro or nouveaux look might be appealing to this group, which is much less set in tradition.
The over-45 contingent represents 52% of the wine consumers in the U.S. and, while they are possibly less progressive and more cost-conscious, they view wine as an everyday drink and, thus, purchase wine more frequently than the under-45s. Because of family and work obligations, they are also less likely to go out. Therefore, if you’re pricing a Cab or a Zinfandel for this general market, you want to make sure it speaks of value and not premium and pricey. This is the group to give more value for their money.
On the other hand, if your primary sales will occur on-premise in bars and restaurants, your pricing strategy will need to account for the markups these establishments apply. And these resellers also need to be aware of the perceived value of the wine with their markup. On their iPhone or BlackBerry, diners can now find the retail price of a wine being offered and judge whether or not they believe they’re being ‘ripped off.’ Consequently, some restaurants have reduced the huge markups previously seen in the industry to focus more on building trust and loyalty with customers rather than on reaping big profits on their wine sales.
If distributors will play an important role in the sale of your wine, you also need to factor in the costs associated with helping them promote and move your wine off the shelf, since volume is what these folks are all about. This can include a gorgeous bottle as well as carton display costs, shelf-talkers, bottleneckers, banners, etc. These costs, while promotional and not directly related to your wine production costs will cut into your profit margin and, thus, need to be considered. You also should consider other costs, such as free samples, discounts, and other promotional tactics you may employ in the course of selling your wine.
You basically have two routes to grow profits: focus on volume or focus on price. If your strategy is to grow by producing more wine, keep in mind the additional, often significant, sales and marketing expenses that will attend increased production volume. A number of wineries have cut back on volume by eliminating many labels in their portfolio and concentrating on improving their higher-priced, well-established brands. I believe that in order to be profitable in a business that incurs very high product, sales, and marketing costs, this pricing strategy needs to target the highest price tier in the luxury category rather than expanding your product line.
Australia’s Yellow Tail brand offers an instructive case study in pricing. Initially launched in 2001 at the low price of $6 per bottle in the US, sales soared from about 60,000 cases in 2001 to more than 8 million cases today. However, sales have not grown over the past several years due to many factors: the continued strength of the Australian dollar, higher production costs, and tougher competition by a slew of other ‘critter wines.’ To reclaim its momentum, the brand recently launched a $9 million ad campaign promoting Yellow Tail as the “go-to wine, the default option for anyone seeking an everyday wine, something to drink for most occasions.” Even if that strategy falters, it is hard for smaller players to gain traction against such a huge investment. In other words, going against cult brand pricing as an unknown quantity may lead to ruin. In short, knowing the strength of your competitor and developing careful projections is the best way to proceed.
There are so many factors that will impact your pricing decision—what, where, how, and to whom it will be sold—it’s important to have done your homework so that you can more quickly define your optimal bottle package to your suppliers and hit the target the first time. That is why Global Package is here … to simplify the task.