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Balance Sheet Marketing

What happens when wine purchasing behavior changes from a consumer accepting, “what you sell it for” to instead dictating “this is what I’m willing to spend on it?”  The answer, of course, is the wide gap between pricing and purchasing activity in the luxury segment of the wine market.

However, it’s not like this gap in the market has gone unnoticed.  With all of the press coverage the upper price spectrum of wine is receiving as it languishes on retail shelves, gathers furtive glances on restaurant wine lists, takes a prolonged respite in winery cellars, and goes unacknowledged in waiting list mailers, you might think this price segment was the new, new thing; a drug-addled Hollywood ingénue – the recipient of paparazzi curiosity and unblinking sympathy from the general public, with the attendant macabre press coverage.

Everybody from the Wall Street Journal to Forbes to Fortune to the Santa Rosa Press Democrat has reported on the deathly pallor of the luxury segment of wine pondering if and when it will return to form.

In early August, I wrote a post called “The Setting Sun on Luxury Wine” that presaged much of what I’m writing today: simply, people are no longer paying for things that aren’t justifiable in cost.


Despite my feelings in this regard, most of the wine coverage I’ve seen related to our economic climate continues to explore just two market realities – “the high-end of the wine market will come back,” or “the high-end of the wine market has been forever changed along with people’s perception of value.”

What if it’s neither of those, or, perhaps, both of them?  What if the high-end of the wine market comes back, but in a different form?  Stephen King’s Pet Sematary for the wine world.

I’d like to suggest a hybrid circumstance whereby sales in the upper-end of wine will return, but it will be with significantly more justification and transparency.

In doing so, it will counterbalance what the current popular predictions fail to grasp—Lewin’s Equation.  A psychological equation that indicates B=f(P,E),  in simple terms it explains that, “Behavior is a function of the person and the environment.”

Without trying to get too high-minded, what’s likely to happen is that when the economy does recover, a hybrid reality will occur that accounts for the consumer experience of having gone through the worst economic period of time since the Great Depression, while still satisfying a uniquely American trait of desiring more.

It won’t be an “if this, or that” circumstance.  It’ll be door number three.  I hope … but, luxury wineries need to cooperate.


The problem with wine is that, as a convenient blanket statement, it isn’t branded well on an individual basis so when a consumer goes through their mental cycle to rationalize price versus value for a bottle, they frequently fall back to reasons that are less than rational like, “$40 must be better than $20.”

Unfortunately, not only is that often not the case in terms of the wine quality, but even more egregiously, consumers don’t know “why” one bottle costs $40 and another costs $20, all things considered equal. 

And nobody is stepping up to help them understand, either.

Based on everything I’ve read and heard, I think the upper-end of the wine price spectrum will adjust by price adjusting down incrementally, declassifying wine, and creating second labels, but what if they just accepted a reality of being rational about their pricing?

Help consumers understand why a bottle of wine costs what it does.

Why do this?  It’s no more dangerous than starting a 2nd label and a lot more reasonable.

In a post-recession future, I believe a completely rational wine consumer emerges, one that acts as a function of themselves and their environment, Lewin’s Equation incarnate. 

How does a winery combat this?

They get honest.


I think the first thing a luxury priced winery has to do is engage in what I call “balance sheet marketing.”

It’s simple and at its core it’s highly transparent – luxury wines need to explain, in very clear terms, why their wine is priced the way it is.

There are radically different economic scales for a winery that produces 2500 cases, versus a winery that produces as little as 10,000 cases.  Is there any reason why those reasons can’t be enumerated in the name of justifying cost structures?

Grape contracts, low yields, land lease, business loans, operating costs, French oak, sales and marketing expenses, distribution costs, etc.  It would be my suggestion that a luxury winery list all of the costs out in detail, along with a reasonable margin.  Explain to a customer why, exactly, a wine is priced the way it is.  Make it a part of the story – the winery isn’t trying to make an unreasonable profit, just a fair profit based on the risk and cash outlay that is the wine business.

This way, absent consumer irrationality, potential customers can at least be armed with an understanding, and likely a sympathetic understanding.

I fear, in this new reality, when customers behave as a function of their experience and their environment, when they say, “this is what I’m willing to spend” that absent greater insight into what they are paying for in wine, the hybrid I suggest, than the reality given by the media, of consumers seeking value at lower price points, might be truer than we want to admit.


Posted in, Wine: A Business Doing Pleasure. Permalink | Comments (12) |


On 09/21, 1WineDude wrote:

I’m all for transparency, bro, but in this Brave New World how are wineries going to achieve that and actually reach consumers when they can’t effectively market their brands anyway?

There’s probably a great explanation but on the surface it sounds a little like a Catch 22.

On 09/21, Dr. Horowitz wrote:

I guess some people might use balance sheet rationales to justify their purchase of expensive wine—and the more rationales a company can provide a consumer the better (ipod’s scroll wheel, sleek design, high capacity, white ear buds, etc.)—but I think that the future rock stars who can create a community/groupies (Steve Jobs, Apple Fan Boys, etc.) in the wine industry will have an easier time selling expensive wine.

On 09/21, Jeff wrote:


Thanks for the comments.

Joe, good point, but since wineries don’t market their brands well, isn’t this something to hang your hat on?

As in, “the truth is in the wine and in our business.  Here’s why this $55 Pinot costs that much.”

This gives the winery, after having placed the ensuing story in context, a vehicle to explain why their wine is luxury priced AND worth the cost.

Right now, otherwise, I have no understanding of why it’s $55 relative to another wine that’s $25.

Being in and around wine, you have to realize how much more in tune we are than your average wine consumer.  I know a lot of people that consider themselves wine enthusiasts, but really have no clue what goes on behind the veil.  And, it’s the cluelessness about what’s behind the veil that causes them to skip down a couple of dollar notches and not give it a second thought.

David, I don’t disagree with you, but isn’t this already the main page in the wine marketing playbook—wine clubs, VIP’s, email marketing lists, etc. 

Thanks again, guys!


On 09/21, therydeinside wrote:

But how does justifying a wine price justify quality?  Isn’t it the “quality” of a wine the consumers are ultimately after?

On 09/21, Jeff wrote:

Hi Francesco,

I understand your point about quality, but isn’t that the problem with this whole “trading down” concept?

People are spending less money for wine and not seeing an appreciable drop-off in quality, so why spend more money?

In order to justify why a consumer should spend more money, wineries have to elaborate why their wine costs more—whether that’s in the vineyard or in the winey or based on production qtys.

Why, as a consumer, if I don’t understand the difference between a $25 bottle and a $50 bottle, should I pay double without rationalization for the cost difference?


On 09/21, therydeinside wrote:

But i dont think I would buy a 50 dollar bottle over a 25 dollar bottle just because their land was over priced. I guess they need a mix of both, justifying their cost and justifying their reputation on “quality”.  But who defines quality?  Its a viscous circle and there are way too many angles to take.

On 09/22, .(JavaScript must be enabled to view this email address) wrote:

What you are suggesting is like the art gallery providing how much it cost the artist in paint and canvas for a given painting. Does any buyer of art really care?  What does production cost have to do with scarcity and collect ability?  Do we ask what the clay cost for that 300 year old jug, cast and signed by slave Dave in So. Carolina? 

Very few people who buy luxury goods or who collect art are interested in these facts. Anyone who is, is looking at “value” and this is not what luxury goods are really about.

And, by the way, luxury wines continue to sell quite well, just a few overextended buyers have dropped out. All you need to do is check the recent results at auction houses. Direct to consumers sales are holding up quite well. Luxury wines made it thru two world wars and a great depression in the last century. This downturn is just an over hyped blip.

On 09/25, Dylan wrote:

I’ll have to side with Morton’s reaction to this post. In the luxury market, wine and otherwise, the value has less to do with the cost of materials and more to do with the story/end result.

On 09/25, guided mindfulness meditation wrote:

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On 02/01, mydriasis wrote:

Art Gallery offers you like, and how to paint, and canvas some time T KOS buyers really art artist? Transportation cost is less and ability to do the store? Let us do what is signed as a slave cast and clay pot cost?
Very few people buy luxury goods, or art, they are interested in these facts. Any person on the “value”, which is the real luxury is not looking.
Of course, the wine estate is still very popular. But rather sank last year, all the buyers you need to do is to check the resolution, Lelong home sold directly to consumers is still very good. Century through World War II, the General Assembly and elegant wine kemelesetan slow speculation, but time is short.

On 02/11, .(JavaScript must be enabled to view this email address) wrote:

Balance Sheet Marketing is one of the world good grape
canvas Print

On 08/03, Perfect escorts wrote:

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