Sunday, April 11, 2010

A Customer-Centric Approach to Wine Retailing

In the years that I have been observing the marketing initiatives of wine retailers, I have noticed a marked product orientation in their efforts.  That is, marketing, and marketing dialogue, are focused on (i) increasing varietal/producer visibility and acceptability and (ii) crafting paeans to the god-like qualities of winemakers, winery owners, and product reviewers.  I believe that this "product-centric" marketing is a short-sighted strategy for the US market and, in this post, will propose a comprehensive "customer-centric" strategy that is more aligned with current US market conditions.

In a prior post, I reported that 90% of the wine sold in the US was consumed by 20% of the population, that there were 44 million marginal drinkers, and that there was a significant number of non-wine drinkers.  The marketing efforts of retailers, with the cult-like focus on winemaker, varietal, and scores, are targeted at a wine-knowledgeable market and therein lies the problem.  This market is a replacement market and, as such, is inherently slow growth.  That is to say, these purchasers have a finite capacity for wine storage and will only purchase to replace current/foreseen stock depletions.  In limiting their efforts to this market segment, retailers will eventually reach a constancy of sales, with the occasional growth bump as a new customer comes on board.

A clear understanding of the customer environment is a prerequisite for a customer-centric program.  As stated previously, 20% of the population are committed wine drinkers.  These "players" like certain wine styles, varietals, and regions and will continue to buy, albeit at varying paces, regardless of market conditions.  Traditional retailer practices such as in-store wine tastings, mailings of special offers, etc., are relevant here.  These are knowledgeable consumers and the ability to purchase Caymus Special Select at $99 will have a certain resonance.  They will understand, and respond to, a promotion designed around the Wine Spectator Top 100, or a sales strategy based on 90+ point wines.  This is not the high-growth-potential segment of the market, however.  These customers still need to be attended to but as part of a maintenance strategy.  Growth in this segment will occur as a result of new product offerings rather than increasing consumption of already favored products.

The market segments that provide the real growth opportunities for wine retailers are the casual-drinker and non-drinker segments.  These spaces have growth potential in terms of initial conversion as well as upward wine mobility. The non-drinker presents as a conversion opportunity at low intial price points.  That new convert, as well as the casual drinker, are then potential candidates for being moved up the wine escalator (We are all well aware of the tendency of wine drinkers to migrate to higher quality wines the more they are exposed to the culture.).

The keys to this strategy are (i) understanding where your customer stands in the wine pyramid and (ii) devising techniques to get to the non-drinker, and (iii) designing and implementing wine-education programs targeted at moving a class of customer up to the next level in the pyramid (Pyramid here reflects a graphical representation of the size of each market segment with the non-drinkers at the base and the comitted drinker at the top.). So, for example, the accomplished wine drinker can be exposed to high-end tastings and experience-oriented ativities.  The casual drinker could be exposed to mid/high-level tastings, advanced wine concepts, producer/wine region information.  The "newbie" should be the focus of education designed to reduce discomfort: jargon; why wine; what does it mean to be a member of the wine drinking community; selecting wines; etc.

The customer-centric wine retailing strategy thus consists of (i) knowing where your customer/prospect falls on the customer pyramid, (ii) pushing class-specific marketing efforts at that customer/prospect, and (iii) committing to education as the key to growth.

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