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At What Price, Value?

The fact that wine consumers are “trading down” and buying “value wines” begs the question, “What exactly constitutes a ‘value’ wine and by whose standards?”

A Google search for “value wine” returns millions of possibilities, yet there is not a single definition for what “value” means in the world of wine.

However, in the consumer world, most of us understand what “value” means – it’s the amount of something we give (usually money) that is equal to or better than what we get in exchange – usually a good or service.  That’s pretty easy, right?  Something is a good value when we feel empowered and in charge of the benefits that we will receive in exchange for the money spent; and, those benefits exceed the value of the money.

As quoted by Wine & Spirits Daily, Danny Brager, VP, Beverage Alcohol at Nielsen says in regards to value, “(Value) doesn’t just mean the lowest price. It’s the right product at the right price in the right place as the consumer defines it for him or for herself.”

The net-net is that consumers ultimately decide what makes for a good value.  Given that, what does it say about the consumer view of the luxury-priced wine market when the upper-end has been abandoned so starkly?

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I know the answer and it’s not a dollars and cents issue – it’s perceived value.

The question then becomes, how do wineries address price sensitivity around the mercurial notion of “value” with a consumer defining it for themselves?

I see the delta in between luxury wine pricing versus perceived value as a significant issue that is not going to go away for wineries, regardless of when the luxury portion of the wine market comes back.

An interesting sidebar: a few years ago I stopped for a shoeshine at the airport in Denver.  When I asked the shoeshine guy how much a shine cost he said I could pay what I thought it was worth.  I asked him, “What if I think it’s only worth a dollar?” He said, “That’s fine, but I betcha you’ll think it’s worth more than that.”

He was right. 

He took his time, I intermittently read the sports section and shared some small talk and, ultimately, I received a good shine.  I liked his pluckiness and gave him $11—about 90% more than a fixed price shine might have cost.  Yet, I walked away from the exchange feeling like I received a value.  I paid what I felt it was worth.

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My shoeshine is an interesting example because I was completely in charge of how I paid for perceived value. 

In August I wrote a post called, “The Setting Sun on Luxury Wine” where I suggested that consumers might be tired of paying for something based on the perception that they were paying not just for the wine but also to support an image of a winery lifestyle by the winery.

In September I wrote a follow-up post called, “Balance Sheet Marketing” where I suggested that wineries would do well to provide greater transparency with the cost inputs that go into a bottle of wine and rightsize their pricing accordingly. I said that consumers want to pay what they think something is worth, not what somebody tells them it’s worth.

Both posts had good feedback, but I also received comments that noted that what I was suggesting was out of touch with luxury wine management and marketing.  While that may be true inside the wine business bubble, I happen to live outside the bubble as a consumer.

To reiterate, what I continue to sense is that wine consumers aren’t “trading down” as much as they are simply NOT buying wines that that they deem “not worth the money” and that happens to be wines that are largely over $25.

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How then do wineries above $25 a bottle combat this?  Is it a “You name your price” Priceline.com model like my shoeshine?  Maybe so …

I’ve been keeping an eye on a marketing tactic whereby the customer names their price for goods or services.  It’s been happening with some regularity with results that suggest it’s more than a gimmick.

There are scores of examples—a taxi driver in Vermont, a restaurant in Utah, an advertising agency in New Jersey, the rock band Radiohead and numerous others …

In each of these examples, there isn’t an explicit price structure – the exchange of money is completely voluntary by the consumer and based on what they think the goods and services are worth—what the perceived value is.

And, a funny thing is happening – the goods and services providers are making MORE money. The taxi driver is getting $6 more per fare than standardized fare taxi drivers, the band Radiohead earned more money from their voluntary payment program than they did on the sales of their previous album, the restaurant is running profitably …

These are interesting times for sure, but if I were a winery I wouldn’t be afraid of risking a perfectly profitable sale that occurs infrequently when I could let the consumer determine value frequently. 

Allowing the consumer to name their price, particularly in a tasting room environment, where the customer is under the spell of the experience, might just lead to not only more sales, but greater profit.  And, by using this first person pricing based on the wisdom of your customers, that makes for a compelling pricing story in other sales channels, satisfying my earlier request for greater transparency—the market has determined the wines worth.

A former boss of mine (when I was tap dancing around the notion of wanting to earn more money), said that I was worth exactly as much as somebody was willing to pay me and he would support me if I found somebody willing to pay me more.  It was a hard lesson, but a good lesson.  Ultimately, a “value wine” is what somebody is willing to pay for it. It might be a hard lesson, but a good lesson for wineries to allow consumers to define the value of their wine for themselves.



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Posted in, Good Grape Daily: Pomace & Lees. Permalink | Comments (10) |


Comments

On 10/10, Unplanned Cooking wrote:

You make some great points.  In today’s economy, I’m reluctant to spend more money for a better bottle of wine because it is a luxury—and I can get a decent bottle for less that works well with our lifestyle.  We tend to drink better wines when we go out at night, and more comfortable ones when we’re serving a nice meal at home.

On 10/11, Dr. Horowitz wrote:

http://www.amazon.com/Toward-Anthropological-Theory-Value-Dreams/dp/0312240457#reader

Check out the 3 streams of thought on value on pages 1-2.  This book gets way into the philosophy of value.

On 10/11, jeff wrote:

Jennifer and David—

Thanks for the comments. 

David—judging by the first couple of pages, that is one heady mix of analysis on value ...

Jeff

On 10/11, Thomas Pellechia wrote:

Yes, from the first few pages, that is heady stuff. But I have this feeling that the whole book may sum up one point: “value” is as subjective as “taste.”

On 10/11, Dylan wrote:

If those models interest you, I highly recommend this book: http://www.amazon.com/Free-Future-Radical-Chris-Anderson/dp/1401322905

On 10/20, .(JavaScript must be enabled to view this email address) wrote:

Think that shipping laws are confusing?  Pricing of wine is a state by state law also!

On 10/29, The Wine Mule wrote:

Of course “value” is a subjective idea. And the idea of giving consumers control over what they think consitutes “value” is interesting. Although I can’t help but notice that your examples are of customers pricing services, not actual goods.

I would like to suggest that one reason for people not seeing value in luxury wines is simply because during this decade prices for these wines—kinda like prices for houses!—went up so fast. It wasn’t all that long ago that Caymus Cabernet sold for around $35. Lately, the price has been $60 or more. Even the most unaware wine purchaser’s attention will be caught by a price move like that. And it’s not like the wine is twice as good as it was a decade ago!

(The same argument can be made about Champagne—If memory serves, it was March of 2008 when the shelf price of Pol Roger NV in our store suddenly jumped from $40 to $50. That is not the kind of price move that goes unnoticed!)

On 01/07, cilt wrote:

of price move

On 02/05, Fine Wine Cabinets wrote:

I think good quality wine is worth the money. If you have a good number of friends who are into wine, you can get a discount by buying by the cases. On the other hand many people can’t tell the difference or appreciate it so there is some value in going cheap.

On 10/16, Cara Cepat Menghilangkan Jerawat wrote:

good artikel


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