DT-Pro Wine Marketing

A. Direct Marketing Intro

1. Channels for DM

Direct to consumer marketing ("DM") encompasses a number of sales channels by which a winery can make direct sales to its ultimate consumers (i.e. wine drinkers) bypassing the middle men in the relationship such as wholesalers, distributors and retailers. The usual DM channels are:

• Tasting Room/Winery Store: For most wineries, the highest proportion of their DM sales will occur at the winery. In addition, most wine club and email list signups will also occur on site.
• Telephone Sales: Traditional but dropping in favour of web/ecommerce.
• Email List: Exceptionally important, widespread use. Replaced "snail mail" lists.
• Website/E-commerce: Systems range from simple shopping carts to more sophisticated allocation systems which track past customer purchases and allocate future vintage releases based upon past purchasing patterns.
• Wine Club: Provides predictable stream of revenue from best customers. Limited use in BC.

For most wineries, DM will not be the only sales channel. It may not even be a predominant one but it is an important one (particularly in British Columbia) for a number of reasons that will be discussed below.

2. Sales Within DM Channels

A recent DM survey in Wine Business Monthly, August 2008 issue (the "DM Survey") gathered some interesting and useful statistics on DM. For example, for small wineries (less than 10,000 cases - nearly everyone in BC), 52% of total sales were via DM.

The DM Survey also generated a breakdown of DM sales from the various DM channels. For small wineries, the DM sales breakdown was as follows:

More important statistics arose in terms of growth for DM. For example, 97% of wineries felt that they had not maximized their DM sales. Most wineries also reported annual growth in DM sales channels in the past year: 64% reported growth for e-commerce, 79% for wine club and 66% for tasting room sales.

B. Why Direct Marketing is Important

1. Advantages of DM

In most markets, DM has some distinct advantages for a winery over other sales channels:

• DM sales produce much greater profit margin for the winery than other channels because the profit margin between retail and wholesale goes to the winery rather than to intermediaries.
• DM provides direct contact with your end consumers which provides for an unparalleled opportunity to communicate with and receive feedback from your best customers.
• DM provides constant and consistent direct revenue with no payment delays.
• Wine clubs, special events and special DM campaigns can act as paid sampling programs for new products.
• Wine clubs and DM campaigns promote brand loyalty and can increase sales of your products in other channels.
• Typically, customers enrolled in a wine club or as part of your DM database will act as unpaid "brand ambassadors" or "evangelists" - these customers are your biggest fans and will spread the word regarding your products - particularly if you make it easy for them to do so.

In British Columbia, all of these factors apply. In addition and in respect of the first point, DM sales from the winery will avoid BC LDB markups and fees. Instead, these amounts will go right back to the winery.

2. Disadvantages of DM

Despite the obvious benefits of DM as outlined above, there are a few disadvantages:

• Canada has arcane laws which restrict the shipping of wine to another province. There is a debate about the enforceability of these laws. However, this may restrict your DM market. Canadian wineries cannot ship to most U.S. customers.
• The cost of running on-site DM such as a tasting room may be higher than you initially expect. However, if you are located in a "wine tourism" area such as the Okanagan, the return on your investment will likely be worth it.
• There is generally a limit on how far you can expand your DM customer base. Wine clubs, in particular, tend to experience drop-outs after a certain period of time.

C. Implementation of Successful DM

1. Analytics and Data Collection

Wineries that have the most success with DM will generally be fanatical about data collection and generating statistics from your DM data. It is only through analysis of these DM statistics that you will be able to consider strategies for increasing your sales and focusing the most energy and marketing dollars towards your best (and most profitable) customers.

You should have sufficient DM data to be able to do the following:

• Segment customer transactions by average dollar value and frequency from on-site sales, wine club, ecommerce, telephone and email.
• Track all email blasts and identify open rates, click-through rates, conversion rates and average purchase amounts.
• Generate overall % sales data for each DM channel.
• Identify the purchasing patterns and behaviour of your customers. How are they making purchases? What did they buy?
• You should also be able to group your customers into quartiles (groups of 25%) or even deciles (groups of 10%) so that you can focus specific marketing efforts at segments representing your best customers.
• Analysis of this data will often allow you to identify simple additional sales opportunities (low hanging fruit).
• Will enable you to allocate your production to your best customers and time your release dates more effectively.
• For wineries, the 80/20 rule is normally not correct. You will not get 80% of your revenue from your top 20% of customers.

Most integrated winery POS solutions will include analytics capability to enable you to do the above. A BC company based in Abbotsford, Vin65, is actually one of the leading providers of winery sales software in California: vin65.com. They have a comprehensive product which is reasonably priced. If you don't already have an integrated sales software package, you would be wise to consider getting one as these packages will pay for themselves extremely quickly.

Even if you do not have an integrated package, you must track this data yourself. Email blast companies should provide all relevant information automatically. Free analytics software is available for ecommerce sales (e.g. Google Analytics).

2. Customer Service

Your customer's experience in all aspects of DM is key to your continued success and growth in the various DM channels.

At the winery, you must ensure that you have sufficient staff who are properly trained to provide a professional and impressive customer experience to everyone who walks in the door. A memorable visit to the winery is the second most likely factor to increase sales of that winery's products in the future (the most likely factor is a friend's recommendation). Recent surveys have found that between 74-82 percent of winery visitors are likely to purchase the winery's products again.

Winery visitors are generally an affluent, upscale demographic who expect top notch service and an excellent on-site experience. If they don't get it at your winery, they likely will get it at one of the others that they visit ... and that is the winery whose products they are likely to continue to purchase. In this vein, make sure that all guests are: 1) greeted when they enter the winery, 2) offered the opportunity to sign up to an email list, 3) made aware of your wine club, and 4) receive some type of promo material with every purchase. A bonus or commission should be paid to tasting room workers who sign up customers to your wine club.

For off-site DM, you need to make sure that telephones and emails are answered promptly (voice mail will negatively influence sales). Ecommerce systems should be secure and designed to provide confidence in both your products and the purchasing process. Consumers will abandon winery shopping carts if they are not sure that their purchase information is secure or if pricing is unclear with respect to any aspect of the purchase (e.g. product, shipping, taxes).

3. Brand Experience - Tell Your Story

DM gives you an unprecedented opportunity to create and/or reinforce a brand experience for your products with your customers. If you are selling through other channels, you must rely on advertising, promotional material or intermediaries (such as agents and retailers) to create your brand experience for you. However, with DM, you are in direct control of all aspects of the brand.

In this regard, it is essential that you get across the unique and memorable story that is your brand and your wines. In this regard, you need to really emphasize the factors that distinguish your winery from others. For example, you might focus on some or all of the following:

• Tell the story of the winery ... particularly if you are a long established winery or if you have any unique historical stories to tell (e.g. the "Dirty Laundry" winery in the Okanagan has created a brand around the fact that the winery building was in the past used (at separate times) as a brothel and a laundry.
• Tell the story of the founders ... Why did they get into the wine business? Did they do anything interesting previously? Why are they passionate about the business?
• Tell the story of the winemaker and/or consultants ... many sophisticated wine consumers want information on the winemaker's philosophy and approach. If you use consultants, you can also play up their skills and background. It's a good idea to include a summary first with separate details - then you won't alienate less sophisticated buyers but you will provide the information that the wine "geeks" want.
• Tell the story of the vineyards. The same considerations apply here as to your winemakers.
• If you have a spectacular location or winery buildings ... include pictures and a description. Visitors to the winery will remember it if they have already been. Those who have never been will want to visit. You win either way.
• Video works - and is underutilized by BC wineries.

Make sure that the type and amount of information provided matches your brand experience. If your winery brand is more casual, you will obviously provide less technical information than if you have a higher end or cult wine brand.

4. Set Targets

It may seem self-evident but it is critical to set targets for your DM campaign. If, for example, you are currently selling 40% of your wine through DM, you might wish to set a target for increasing that proportion to 50% within the next 3 years. It will be relatively easy to calculate the increased profit that you will make on the conversion of sales over to DM. That will give you and your staff the incentive that they need to implement changes. You should then establish a base line of current statistics for DM sales, create a plan for improving your DM and then carefully track the success of each aspect of the plan against the new sales statistics as they come in.

For example, you may decide that, in order to increase your DM, you need to do the following:

• Implement Formal System for Email Address Collection and Wine Club Signup in the Tasting Room
• Upgrade Website and Shopping Cart System
• Implement Wine Club with 4 Quarterly Shipments
• Increase Frequency of Email Newsletter
• Implement 2 Annual Special Events for Wine Club and Email List Subscribers

You will be able to track the success of each of these initiatives relatively easily with proper data collection and then you can compare each initiative's contribution to the overall improvement in your proportion of DM sales. As the results come in, you can fine tune your campaign and increase efforts in those areas that are paying off the best.

One caveat: even if a wine is in high demand, I never recommend that a winery allocate 100% of sales to DM. Allocating most or all of your wine production to direct marketing is tempting because you obviously make more money selling it that way and have direct control over the winery to consumer relationship. However, you are putting all of your “eggs in one basket” if you do this. If your wine is a “cult” wine or if there is really strong demand for your product, it may work and you may sell out your production quickly with greater profits. But if you have an off production year, get negative press over a release, or have internal sales or shipping problems then you may see a slump in demand and have no other distribution channels to fall back on. I think that it is important, even with “cult” wines, to maintain a broader scope of distribution, particularly restaurants and private retail stores. This will cement the reputation of your brand and provide backup distribution methods. In economically challenging times, it is all the more important to do this.

5. Internal DM Organization, Execution and Follow-up

It will be critical to the success of your DM efforts to assign responsibility within your winery. As DM is both a key to increased short term and long term revenue growth, you should make sure that someone with sufficient responsibility is directing the campaign. It is not appropriate to give responsibility for a DM campaign to a salesperson or to the person responsible for your website. While you will obviously need help from these key staff members, you must assign responsibility to someone in management. Give that person the resources and budget that they need to make it work. It's easy to track expenses for a DM campaign and it's equally easy to see the return on your investment when you measure the expenses against the increases in profit.

A DM campaign that is well organized and well supported within your winery organization will provide exceptional benefits in the long run. Don't jeopardize the opportunity for increased profits and long term revenue growth by having poor organization or by giving responsibility to someone who can't implement the campaign properly.

Finally, as manager or owner, you need to follow-up on the campaign. Make sure that you get progress reports including key statistics. You need to know that the campaign is working. If it's not working or performing below your expectations, find out why and fix things quickly.

D. Getting Your Message Out - New Marketing Channels

While the tasting room is still the foundation for your DM efforts, the fastest growing segment of DM is e-commerce and web sales. Your winery's position and visibility on the internet are critical to maximizing your success in this sales channel which will become increasingly important in the years ahead.

1. Website

I could write an entire separate article on web sites and how important they are for marketing. However, for present purposes, I'll restrict my comments to web sites as they relate to DM. Here are a few things you should check:

• Is a contact number (preferably toll-free) displayed on every page?
• Can visitors sign up for your email list on every page?
• Is navigation easy? It should be one click from anywhere on the site to signup for your wine club or to order wine.
• Do you have a professional shopping cart that is integrated into your site? At a minimum, it should be: easy to order wine, identify product prices, and figure out shipping costs.
• Do you have professional credit card processing that works in real time? PayPal is not okay as the only card processing option. Similarly, customers should not have to call in with credit card numbers (unless they want to).
• Is it easy to get help from within the shopping cart/ordering system?
• Are shipping policies and delivery dates easy to identify?
• Is your privacy policy clearly identified?
• Do you have proper sales follow-up? Confirmation of order emails? Shipping notification emails?
• Does a customer automatically get added to your email newsletter list?
• Does your system check destinations and ensure shipping compliance with all relevant laws?

It is sometimes forgotten but your website is your primary method of distributing marketing material. It's primary purpose has to be to help you sell your wine. Make sure that it is easy for customers to buy wine: safely and securely.

2. SEM/SEO

Your website is useless if your customers can't find it. That's like getting a phone listing for your winery and making it unlisted.

SEO (search engine optimization) services are what you need to make sure that your site displays properly on search engines for the most common search terms used by your potential customers. SEM (search engine marketing) services are what you need if you would like to actively market and advertise your winery and wines on the search engines.  I have written an entire separate paper on these topics which is available here: Internet & Search Engine Marketing for Wineries.

SEO and SEM are integral and important parts of a sophisticated DM campaign. Every winery should be conscious of their internet visibility and take steps to correct any problems. Please read the SEO/SEM paper for further details.

3. Internet clubs/stores/consolidators

Buying wine online from third party retailers such as stores (jjbuckley.com, lawineco.com, thewineclub.com), clubs (oregonpinotnoir.com, cawineclub.com) or consolidators (wine.com, amazon.com) is already huge business in the U.S., despite a morass of inconsistent state to state shipping regulations. Canada has not yet seen major moves to online retailing, mostly because of our government controlled retail and distribution system.

However, online retailing is permitted (with some limitations) in B.C. and several other provinces. Make no mistake, there will be a movement towards online retailing of wine. Wineries will want to watch developments in these areas carefully because inclusion of your product in some of these channels can lead to subsequent DM sales and generally will enhance the presence and recognition of your brand. However, it is important to take account of reputation here and to watch markups and discounts carefully as you do not want to channel product into an unproven or unprofessional online site, particularly if that means sacrificing the availability of product in more lucrative channels.

4. Smart Phones/PDAs

Smart phones and PDAs let potential customers access your site and find/order your wines right from their phones. They also let customers search wine reviews and ratings while in a store or at your winery. Phones with GPS capability can also be used to find your winery and tasting room.

This immediacy of information means that issues relating both to the usability of your web site and your internet visibility will become more and more important as the use of these phones increases. If you fix any problematic issues now, your winery will be well positioned to take advantage of these technologies as they become more widespread.

5. Video

Video has been used to great effect on some U.S. winery web sites. For example, have a look at the use of video on the Robert Mondavi web site: go to http://www.robertmondavi.com , then look under "winemaking" then "winegrowing" (incidentally, while the video is good, it is a major mistake that you cannot easily link to it).

Video hasn't been used so much in Canada to date. However, the use of video on the web is expanding rapidly. Video is becoming pervasive and is expected by many savvy web users. For wineries, video has tremendous possibilities because it allows the winery to present its unique story in a particularly compelling and personal way - the user can see the vineyards, the winemaker and the winery - he or she can make a personal connection between the wine and the winery.

If your winery has a brand that is unusual or if you have a unique historical story to associate with your winery, then this is the perfect way to do it. There are a lot of Okanagan wineries, in particular, that could really take advantage of video to expand the story behind their brands.

6. Blogs & RSS Feeds

Blogs are web sites that are regularly updated with news or thoughts on a particular topic. For example, many wine writers maintain blogs (see www.winespectator.com/Wine/Free/WS_Blogs for examples) and some wineries also do (e.g. blog.m2wines.com). RSS feeds are similar to blogs in that they contain similar content but the content is distributed "out" automatically to those who have subscribed to your feed.

You may doubt whether your customers are sufficiently interested in your winery and wine to warrant a continuous stream of consciousness about your winery or its winemaking. Depending upon your winery and particularly, on a presence of tech savvy staff, it may or may not be appropriate or worthwhile to implement these technologies. However, there are certain benefits which are worth considering. Blogs and RSS feeds can:

• Provide a big boost to your winery's visibility on the internet including considerable SEO improvement (see topic above).
• Provide timely information and updates to your most devoted consumers if you produce wine that is in high demand or which has a fanatical following.
• Really assist with media exposure for your winery. The media use the internet to a disproportionately high extent. If you want media attention, this is a good way to get it.

7. Social Networks

Social networking sites are tools like Facebook (www.facebook.com ) and LinkedIn (www.linkedin.com) which create communities on the internet and allow users to post information about themselves for social or business purposes. These tools provide significant marketing potential because users often volunteer incredibly valuable personal information (such as whether they are wine drinkers). As a result, it is possible to market and advertise to very specific demographic groups on these sites. In addition, it is possible to create various sub-communities (such as "BC Wine Lovers" on Facebook) which also define members interests in exceptionally relevant ways.  The complete marketing potential of social networking sites has yet to be fully determined.

While LinkedIn is primarily a business networking site, Facebook is proving to be an exceptionally popular and much-loved tool for a younger demographic. If your winery is trying to market to younger wine drinkers, you should not ignore the possibilities of using Facebook as part of your campaign. However, a word of warning ... Facebook users see the site as being a vital part of their personal and social life ... marketing has to be done carefully and subtly in order not to alienate users.

Mark Hicken, BA, LLB.  Juice Wine Marketing Group
T: 604 868 1375 E: This e-mail address is being protected from spambots. You need JavaScript enabled to view it W: http://www.winemarketing.ca