Tiered wine pricing increases sales by helping winery customers decide what to purchase
Back in my 2009 Wine Economic Outlook: 3rd Quarter Update, I argued that the buying-down phenomenon was due in part to the way we typically market wine—in tiers. And, although this has caused some havoc with high-end wine sales in the last year, pricing wine in tiers is a good thing. Pricing tiers establish a product class and enhance consumer expectations. And, while the recession shuffled the price points for wine purchases (according to the most recent Nielsen Company statistics), it did not change basic consumer buying behavior. In this post, I’ll illustrate how tier pricing is a necessary ingredient for a successful wine marketing strategy.
Tiered pricing = more choices
Tiered pricing is simply offering your products within a set of different price ranges rather than flat, across-the-board pricing. A good example of this strategy was recently demonstrated by Apple, who made a switch in their iTunes marketing plan, changing their long standing policy of a $.99 flat fee for each downloaded song to a tiered-pricing structure of $.69, $.99, and $1.29. Why did Apple make this change? The basic marketing goal behind tiered product offerings is choice. Giving the consumer a number of different product and price offerings enhances sales. Even better than that, tiered prices actually help the consumer decide what to purchase. In the case of iTunes, the newest hit songs are released at $1.29, move to $.99 after they have been released for a while, and eventually end up in the general catalogue at $.69. A new customer to the iTunes website immediately knows which songs are the new releases by the price that is charged.
A medium drink, please…
Buying to the middle is a phenomenon that occurs regularly with tiered pricing. A certain percentage of customers know that they don’t necessarily want the lowest priced tier and are afraid that the highest tier might not be worth the expense. So these people gravitate to the middle. I’ve even read advice columns that suggest that this is how restaurant customers should pick wine from a menu–choose a mid-priced wine instead of the lowest or the highest priced wines. This isn’t how all of us choose our wine, but there is certainly a large segment of these ‘middle ground’ customers.
Some retailers know how to enhance sales to customers in the ‘middle’ group. Ever notice a medium price offering that is closer to either the lower or higher priced tiers? The goal is to have the consumer buy-up to the next tier. More often than not, the middle priced tier will be just under the higher priced tier (for a small charge, you can up-size that medium drink to a large!).
Mind the gap…..
The downside of pricing tiers is that there are dead zones, or gaps in between tiers. This is due to the consumer’s price point perceptions, where sales at a certain price are notably higher than if that product was priced differently (above or below). The other reason for these dead zones is that there needs to be enough ‘space’ between your pricing tiers in order for the customer to differentiate between products. Or, worse, your customers will buy-down to the lower tier since they don’t see a big difference between the two product categories.
Create your own strategy
Implementing a tier pricing strategy involves all aspects of your winery’s marketing plan. For starters:
- What are the wine price points in your marketing area?
- Do you have enough products? You want to be able to fill out each of your product tiers with a good selection.
- Is there enough differentiation between your product lines? Your marketing strategy should reinforce why you are charging different prices for your wine. Labels, signage, displays, tasting fees, etc.
- How many tiers of product will you offer? Certainly no less than three: low, middle and upper price tiers. I always recommend having that over-the-top price tier that makes the lower three tiers look quite reasonable.
Other benefits of this strategy
In addition to providing customers with more choices, enhancing sales, differentiating your products, and creating opportunities for up-selling, there are other benefits for a winery implementing a tier pricing strategy:
- Better match production with sales—your staff will be able to move a product faster or slower, depending on the tier it has been placed in.
- You have the ability to shift older labels down to a different tier as you make room for new products.
- Tiered pricing makes discounting easier and part of the plan, rather than a reaction to current economic conditions.
- Tiered pricing helps you segment your customers’ buying behavior. What percent of your customers buy in the low tier, middle tier, and upper tier?
The Winery Benchmark ™ data is incredibly useful in helping winery owners implement a tier pricing strategy, since it represents the aggregate purchases of over 1 million tasting room customers. If you are not yet a participant, please visit the Winery Benchmark page to find out how you can become a member. Do you have a comment or question you would like to send me directly? Please email me, Steve Richards, at info@wineryprofitability.com or call me at 800-929-7102.
