This summer, I was privileged to participate in the Beringer Master Series on Food and Wine, a Napa Valley tour of smaller vineyards and fine food. During this spectacular vacation, we were able to meet with owners of a few cult wineries, discuss their wines and their marketing approaches (even on vacation it is hard to stop!). Cult wineries do not espouse any religion, as you might imagine, but rather are wineries producing very limited production (often 500 to 2,000 cases total) of high-quality wines. When I spoke about marketing with the owners of those wineries, such as Spencer and Amizetta Clark of Amizetta Winery, the challenge they face is not how to make sure they sell their wines, but how to make sure that the wines are sold well. That discussion led me to wonder about the marketing of other limited production products such as autographed baseballs, signed prints or Harley Davidson motorcycles. Does loyalty matter? How can you grow customers while producing a limited number of products that are allocated from the time they go to market? While this question seems moot for most marketers, the answers apply equally, I think, to marketers of both scarce and plentiful products.
Traditionally, customer loyalty and retention have significant value to marketers. Loyal customers tend to increase their purchases over time, purchase with less discount, require less customer service and are the best advocates for a companys products and services. In addition, companies with the highest customer retention also tend to have the highest employee retention, as described by Frederick Reichheld in The Loyalty Effect (Harvard Business School Press, 1996). As a result, customer retention is one of the key metrics that a marketer evaluates when determining the relative health of the business.
Now, lets switch gears and examine the cult wine industry. These wineries produce a limited quantity of wine, often selling for more than $100 per bottle. They sell to individual consumers, restaurants, and select wine brokers and distributors. Many times, these wineries have enough demand (through their mailing lists) to sell their entire stock, without needing to discount to brokers and distributors. But the owners know that by only selling to their friends, they risk not gaining exposure to a wider audience. In addition, if their wine drops off the map by being sold only individually, eventually their brands will lose prestige and, eventually, even the friends list will wither and die. Strangely enough, in a business with potential to sell everything to loyal customers, if wineries follow such an approach, it could prove fatal to the business.
In businesses that are driven by a combination of loyalty and prestige, marketing must combine long-term and short-term perspectives to create a meritage of loyalty and expansion marketing (meritage is a wine that is less than 75 percent of any particular grape variety). While this approach may fly in the face of traditional marketing customs, it is required for success. In wine terms, the goal is to create a blend that has a strong first taste and a softer, lasting finish.
In effect, the marketing of scarce commodities such as cult wines is similar to the process of making those wines:
Customer Analysis and Targeting
Wine: In winemaking, the vineyard samples their grapes during the harvest season to determine the optimal picking time. The goal is to select grapes that have concentrated flavor and the right amount of ripeness to make the base for great wine. Different grapes will be harvested at different times, based on the variety and their location in the fields.
Marketing: Marketers, as part of a customer analysis effort, mine through their purchase and attitudinal data in order to determine the relative value of different customer segments. That value is composed of financial metrics, such as purchase frequency and amount, as well as relational and demographic metrics, such as share of wallet and location. Different customers will be contacted at different times in different ways based on their performance on those variables. The goal, as in wine, is to target a group of customers that will produce a profitable and sustainable business.
Developing Strategies to Maximize Value
Wine: In the second step, the grape juice is extracted and stored in French Oak casks for anywhere from six months to three years or more. Over that time, the wine is rotated and sampled to determine readiness for blending and bottling. Then the different varietals are blended to create the actual wine that will be sold at market.
Marketing: From a customer perspective, the extracting or crushing analogy needs softening. Rather, as wine is rotated and sampled to determine readiness, marketers rotate communications and offers to gauge response and to refine their estimates of customer value. Then the different customer segments are blended to make a superior result. Given limited marketing resources, marketers always have to make tradeoff decisions, between different segments to target and between short-term profit and longer-term customer relationship development. Determining the appropriate mix is where art meets science.
Program Development and Execution
Wine: Finally, the resulting blend is aged again, if necessary, then bottled, rested and sent to market. Samples are sent off early, to create word of mouth publicity, and then the rest of the wine is sent to market, reserving a little for the family, staff, media and key opinion leaders. After results arrive, the winery assesses the mix and determines enhancements for the following year.
Marketing: Marketers also follow a path of executing sample mailings to determine early response, and then following up with a broader program to the targeted market. Following program execution, the results arrive and are analyzed to determine response, targeted vs. actual customer segments and profitability with the goal of enhancing the program for the following year.
Given that approach, lets revisit the original question what is the role of loyalty in industries with scarce product?
Loyalty in cult wines is like trusted grapes in winemaking. If you only use grapes from one particular location, then the wine will not grow and improve. Instead, like many winemakers, you begin with a core of trusted grapes and then blend new and exciting varietals to enhance the wine. That way the product continues to grow and improve. In the same way, the core loyal customers of the business must always remain the core of the marketing plan as well. To enhance the plan, new segments and new customers must be sought. The result is a growing, improving business over time.
Now, how do you select the loyal customers who will be permitted to purchase the wines? Remember, all customers are not created equal and, as a result, the marketing plan should seek to distinguish between customers who sample many different alternatives and best customers who rely on the brand for much of their drinking pleasure. By combining research that gauges consumers brand relationship with purchase and profitability data, marketers can develop a model to prioritize customers for product allocation. Then the only challenge is to estimate available inventory and proceed down the list accordingly. The remainder is allocated for media and brokers.
I think winemakers have much to teach marketers. Marketing of scarce products is actually very similar to traditional marketing. Customers are evaluated for brand relationship and profitability and then targeted and contacted on a prioritized basis. The difference is that most contacts in a scarce product industry result in sales. But the principal remains the same: focus on the core of the brands customers, and then add new groups to keep the business growing and vital. New customers are similar to new varietals: they add flavor and excitement to the core business.
Remember though, timely marketing is critical as well, lest the plan age and turn to vinegar.
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