Saturday, April 6, 2013

Why Join a Wine Club that Ships Adult Diapers?

Interesting Gifts

I'm probably not the only man around that has a hard time giving gifts. As Dirty Harry aptly put it, "A man's got to know his limitations," and I understand that about me. Oh sure.... chocolate, flowers, jewelery, wine ... the usual accoutrement I can handle. I'm not a total hack. I don't forget occasions .... well my PDA doesn't forget occasions, but getting something unique and impactful isn't that easy for me.


Well isn't that special ....
I'm not as bad as my dad so that's something. Even as a kid, I knew mom wouldn't understand getting a handheld blow-dryer as a birthday present. Was that supposed to be a signal about the state of her coiffure? My dad was the kindest man I ever knew so I'm guessing it was a practical gift to help her speed up her morning routine (still not a good reason ... I know).  My mom's expression which is still seared into my 7 year old mind was like the woman to the left who was gifted Tae Bo videos. Even I'm smarter than that. A gift has to be something the other person wants or could use.

So that leads to the question of the week: Would you pay to be in a program that automatically charged your credit card and sent a surprise gift that's guaranteed to be 30% off the normal retail price, even if the company running the program had no clue about you or your tastes? Would you pay to be in that program? What if you are a healthy 40 year old and they sent you adult diapers 30% off. Is that a gift with which you'd be happy - even if it's cheap?

That's an apt description of the traditional wine club that still dominates the wine business. It's one screwed up model at this point.


Silicon Valley Bank and Wine Business Monthly have cooperated for the second year to produce a survey of Tasting Room and Wine Club activities**. One of the responses we received that surprised me the most answered the question "Do you give your Wine Club customers choice in the wines they buy?" As you can see in the chart to the left, the alarming answer was 65% of wineries ship whatever they decide. How in the heck did we get here?

Traditional wine clubs were formed decades ago under the premise that the winery can offer a discount to the consumer and still earn more than they would from selling to the distributor. Recognizing the lifetime value of a club member, wineries have for some time now paid tasting room staff incentives to get the tingly tasters into the club. Then, once or twice a year, the club member gets a shipment. Press [F9] on the computer and watch all the credit card receipts transfer into the checking account. Sounds pretty good, until you realize that the average turnover in wine clubs is about 28 months from the just completed survey.... just a little over 2 years.


In the "How Much do Tasting Rooms Make" post from SVB on Wine a couple weeks ago I pointed out the importance of the "Second Sale." The first sale properly cost burdened, is the most expensive. As it relates to wine clubs you probably paid your staff a little extra to get the wine club member in the door. So that was a hard cost of the first sale. The reality is all the profit is made in the second sale and subsequent sales that follow. A wine club with an annual shipment and a 24 month turnover in membership isn't realizing its full value. 

To have a fully viable and profitable wine club, you need to increase the lifetime value of your club members by holding on to them a little longer than you are. That requires an investment in understanding their wants, desires and needs and developing a retention program. That requires another investment but the investment has a return.

One late slide that we put together and wont be included in the upcoming Wine Business Monthly article is this one that shows the annual revenue per wine club member, sorted by those that are given choice and those who aren't. That slide is to the left. It shows customers who are given choice actually buy more wine than those who don't. Should that be a surprise? We don't have the proof in this survey, but it stands to reason members who are given choice are probably also getting some level of engagement as well, and those members are staying in clubs longer. The end result is you have happier customers who are engaged longer in the club for more years, and pay more in each of those years. You are enhancing the lifetime value of the club member. What's not to like about that math?

I might not be great at gift giving, but I know that I wouldn't have a successful business that sold adult diapers to healthy 40 year olds. And if my mom were an Eskimo even my dad wouldn't have gifted my mom ice-cubes. Bottom line - how can wine producers believe its OK to run wine clubs that send their customers products they may or might not want?

What do you think about traditional wine clubs? 
  • Do you have retention programs that work? 
  • Are you measuring growth in lifetime customer value? 
  • Are you paying tasting room staff for new memberships, or are you paying them based on what members order each year?
  • Are you measuring turnover rates? 
  • What stories do you have from your own experiences? 
Please log in to the site and share your thoughts with the community by commenting below. Please help move the wine business in a positive direction by sharing within your own Wine Business circles of friends. I'd love to see a vibrant discussion on this point and the community sharing with each other.

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** Wine Business Monthly will be releasing the findings of the survey in their May edition. We will be sending out the complete deck of charts, graphs and detailed data to the 500+ participants in the survey shortly after the release of the WBM issue, then will be holding a live HD videocast on May 15th to talk about tasting room metrics and best practices. Please tune in.

16 comments:

  1. In addition to not sending wines your club member doesn't want, it might be a good idea not to send those wines to club members that are actually sold in supermarkets and Costco (among others). Offering these wines at discount, but added shipping, provides no value if these customers can buy these wines locally for even less.

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    1. Thanks for commenting LarryTWG. It seems like an obvious point, but only if wine clubs are run with the idea of long term brand building and lifetime customer value versus just shipping cases.

      The first time someone sees a wine in Costco they paid more for in the wine club, they drop the wine club. The most important metric is customer retention in my way of thinking and that practice would run counter to that measurement.

      Secondary point on the same lines, its never good to have people come to the winery tasting room and get a wine at a discount, then find it cheaper on the shelf in a store. That person sees wine that can be easily found which damages perceived value. They can't help but feel like they've been taken by the winery. Not only will they not join a wine club, they won't visit the tasting room, and they wont see the wine as unique or special. When that consumer things about the visit to wine country and your tasting room, they aren't going to feel positive.

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  2. Preaching to the choir!

    I'm over at NakedWines.com so the whole business is built around letting customers pick which wines they get and when they get them.

    And my parents run their vineyard in France the same way (although the concept of wine clubs is pretty non existent in France).

    It makes no sense to spend tons of money acquiring club members and then treating them like second class fanboys who will accept whatever the winery decides to toss them at the end of spring cleaning.

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    1. Thanks for weighing in Ryan. Naked Wines is a slightly different model than the wine club model discussed here even if you are also a producer. It's closer to an evolved negociant. That said, they are part of the 5th Column of wine service providers who are making progress in changing the way e-commerce is done. At this stage, its a closed loop from the perspective of selling wines made by other wineries and I can't say for sure that it will change or or not.

      I can say from the sidelines I've been impressed with the operation thus far. I'll add as well that I am an "Angel" and find some nice everyday drinkers consistently.

      Thanks for the comments.

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  3. I work in a tasting room that pushes its employees to induce customers to sign-up for our wine clubs. We have a personal 'goal' to achieve and are rewarded for achieving goal. We are careful not to offer wines that are available at Costco or most wine shops for that matter. The customer receives a 20% discount on shipments and 30% off on reorders. Shipping is extra. BUT the customer does not get to choose exactly what will be shipped, just generally: white, red, premiun or a mix of "not readily available" wines. Not all of our wines (or any winery's) are good so occasionally people get something they wouldn't have bought otherwise.

    Some clubs offer excellent members-only events. Some club's wines are almost unfailingly good. If one lives close to tasting rooms one will never be disappointed with a purchase AND there will be no shipping to pay. Many wineries offer case or half-case discounts to non-members. If one lives at a distance and is in love with the wines of a certain winery and its events I think that is the person to join a club. Personally I feel very uncomfortable pushing a club particularly to those who can ill-afford it.

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    1. Anon 4:42. Thanks for the comments. It sounds like your club has the rudiments for a good program because you are engaging customers and offering some choice. Relative to sales, I understand not selling something that someone can't afford (like ice cubes to Eskimos). Thankfully that's not our jobs in a service economy. We should be listening for what people desire then helping them meet their goals and wants.

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  4. If you are a small winery, custom shipments are fine. Try having 3,000 club members that choose each shipment. A good idea in theory but it doesn't scale.

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    1. Donnie
      Thanks so much for offering your comment. Your perspective is shared by so many others. From my place, selection of anything is scalable including wine. Zappo's has infinate selections and is scalable. Wine is actually easier because if you have 3,000 club members how many club wines can you offer the the club? Answer: many less than Zappo's.

      Maintaining records on 3,000 people and then emailing them with the choices of wines they might like isn't really that difficult with available CRM software. Knowing if they like red or white, pinot or zinfandel, or only wines with RS is something that can be collected and then you don't offer what they don't want. Pick and place through shipping companies to complete the transaction is also available.

      Delete
  5. No, actually it can scale you just need to have the right software tool. Both Williams Selyem and Kosta Browne each take over 20k orders twice a year through their allocation based software systems whereby customers put together their custom orders from up to nine different wines.

    Each of their ordering processes work seamlessly. I have personally ordered from both of these producers for several years.

    We offer our wine club members a choice, about 1/2 make their own choice - but the revenues are 85% greater for those who chose their wines.

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    1. That is such an awesome stat Anon 9:22. 85% higher revenues when offering choice. I'm most impressed that you are actually measuring that. Thanks for commenting.

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    2. Just a bottles/order issue, the average $$/bottle remains the same in the process. Besides driving much higher revenues, it's easier for us operationally for our customers to put together their own wine orders for their wine club shipments as most all orders are placed online. We're happy to take a phone order but that's less than 10% of the time. Also, once someone places an order, we know they are continuing with the wine club, our money is in the bank and we have fewer manual processes to deal with including bad/expired credit cards, etc.

      All the way around it's a superior process. Add that many of our customers would Never allow us to pick their wines.

      Oh, and we measure Everything all the time, it's how we're wired. :)

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    3. Thanks Anon 10:28 ........ do you mind if I just call you 10:20?

      I appreciate that there are some wineries that understand and are applying more current thought. I wish I could point to a single winery that really had the DtC part of the business wired. We are all still groping in the dark looking for leadership.

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  6. This has been one of the most obvious flaws I've noticed in the way wine clubs are structured, and it's always been quite amazing to me that wineries can't offer choices. Seems so obvious.

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  7. Thanks for logging in and the comments Michael. We are an industry steeped in tradition. Sometime, the steeping can cook our goose.

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  8. Wow - I thought I was the only one who was a bit frustrated by wine clubs choosing which wines to send you. I have never seen a club wine I received at Costco, but I would really, really like to have a choice. Thanks for your great blog!

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    1. Its what we are going to have to get to in order to increase the number of months people stay in the wine clubs. Thanks for logging in and offering your thoughts.

      Delete

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