I recently spoke to a number of wineries that participated in the annual “Winter Wineland” event sponsored by the Russian River Wine Road. I wanted to get a sense of how wine consumers are spending this year. The responses I got were fairly consistent. “Turnout is down, but sales are up.” This prompted me to ask the question, “Why were sales up?” The answer – strong discounts. Of course! This makes sense. Wine lovers are still wine lovers, but everyone is feeling the pinch to save money so discounts are a natural fit. But, is this good for the winery? Before answering this question, it’s important to explore what prices mean to consumers and how it affects their view of a wine.
Most wineries are now aware of how bottle price affects consumers’ perception of quality. If this is news to you, check out this study from Stanford. This poses a particular question. What affect does discounting have on consumers’ perception of quality? Here is my answer: In a free market economy, consumers perceive the lowest average price to be the right price. I use lowest average price because consumers see “blowouts” and going-out-of-business sales as fundamentally business-based and not a reflection of quality. The price from a winery or from a regular retailer is considered a correct price and reflects the true quality of a wine. Therefore, when a winery discounts its wines on a regular basis, the discounted price becomes the right price and the perception of quality is diminished. This can have long term effects on winery pricing, making it very difficult to then sell the same wine at the pre-discounted price. What is a winery to do in these times that cash flow is so very tight and consumers are looking for bargains?
Give discounts on non-wine charges. The biggest non-wine cost to consumers is the cost of shipping. Giving a discount on shipping protects your bottle price and gives concrete savings to consumers. Consumers know that wineries have little control over shipping costs, so sharing part of the cost puts you in partnership with your customers and lets them know that you are conscious of the extra money they spend to get your wine; we are all in this together. There are different ways to give shipping discounts and the method the winery uses should be based on where the bulk of their customers are located and which customers they want to target. A percentage discount is the easiest from the winery standpoint but gives a better deal to customers that are farther away and may not be perceived as such a value to consumers that are close by or in-state. Another option is to give one discount for in-state sales and another for out of state. While a little more difficult to set up this allows the winery to better target its customers. And don’t forget the value of the word FREE. While the TTB strongly frowns on the word free used in connection with wine, it’s a great tool for non-wine incentives.
Discount Older Vintages. Cleaning out the cellar is a good way to generate cash flow. Consumers generally accept that wineries change their prices slightly with new vintages. Discounting older vintages – even if it is just last year’s – has little effect on the quality perception of current release wines. Since wine is perceived to get better with age, consumers see added value in a wine that has been cellared at the winery. By all means, use discounts on older vintages to generate cash flow.
Connect Discounts to Events. If cash flow is a must have, and the previous two ideas have been tried, then the only option is to discount current wines. The key to this is to connect the discount to a particular event and give the discount an ending date. By connecting the discount to an event the winery can attempt to disconnect the discount from wine quality. This can work as long as the winery provides a strong cutoff date for the sales ending and does not follow the sale event with another sale event. There are many options for sales events in the coming month – Valentines Day, Lunar New Year, Presidents Day, etc. So, get out the calendar and plan your sales events. To make a good event it’s important to let your customers know in advance that you’ll be having a sale. Planning ahead is key.
Even in the uncertainty of the current economy it is possible for wineries to generate good cash flow while protecting the integrity of brand pricing.