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 ....|
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?
** 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.