In a world of near-infinite consumer choice, the market will decide on how most wines are priced. Unfortunately, the decision rarely matches the production costs. So is there a way to escape this trap? Two case studies suggest that throwing the decision open to the market can result in higher prices.
Let the market dictate
Crushpad – a Californian company which gives people the opportunity to make their own wines using Crushpad’s facilities and expertise – have created a wine whose final price will literally be decided by the market. Called ‘Bailout’, the wine is due to be released in August 2009 – and its release price will be tied to the closing value of the Dow Jones Industrial Average.
Noah Dorrance, the marketing director of Crushpad, says the idea came out of a work discussion about the US government bailouts being given to banks and companies in trouble.“We thought, why not do something fun and humorous around that?” says Dorrance. “We have a lot of really great wine in the winery and we had this idea about having a wine that was tied to the price of the Dow.”
The Bailout concept, according to their website, works like this: customers commit to buying bottles of a 2007 Napa Valley Cabernet Sauvignon, of a quality they claim normally retails for $75.00. Crushpad records the closing value of the Dow Jones on the day the customer buys the bottles. Crushpad then takes $2.00 off the bottle for every 100 points the Dow Jones drops between the purchase and the date of release. Depending on how hard the stock market falls, the final price could be as little as $9.00, the price at which the winery says it must legally sell the wine. “The response has been really great,” says Dorrance. “We’ve had lots of people participating and lots of emails saying it’s a great idea.”
Bailout has also given Crushpad a big media boost, as it has received both newspaper and television coverage. This fits with the company’s marketing strategy, which is driven by public relations rather than advertising. They have also, apparently had an investment bank buy one hundred two bottle gift packs for their employees – assuming there are any employees left in August.
Crushpad will also host a Bailout party in Spring 2009, inviting everyone who purchases Bailout bottles to a blending session at its 30,000 square foot winery in San Francisco to help create the final blend. The event will also be streamed live on the Internet.
“Lately we’ve been hearing that people are ‘drinking down’ due to market fears,” said Michael Brill, Crushpad’s founder. “So we figured we’d create our own bailout and enable people to feel good about buying and drinking great wine, no matter what happens to their nest eggs. One day we’ll all look back at this and laugh… we hope.”
Speaking of which, what will Crushpad do if the economy collapses further and Dow Jones plummets to the point where everybody is paying just $9.00 for the wine? “If that’s the case, we’ll all be facing a lot bigger problems than having to sell the wine for $9.00,” says Dorrance.
The Giaconda experience
In the late 1990s, a combination of national export success, money from the dot.com boom and Robert Parker’s glowing reviews of a few key wines, had sent shockwaves of speculation through Australia’s secondary wine market. Producers of wines like Henschke’s Hill of Grace, and the Rockford Basket Press Shiraz watched as their wines were snapped up at release, usually from the winery’s mail order list, and then sold almost immediately at auction for a tidy profit.
Rick Kinzbrunner, the winemaker and owner of Giaconda Wines in Beechworth, Victoria, the producer of one of Australia’s most sought-after Chardonnays, was dismayed when it began to happen to him. He could also see that overall wine prices were becoming unrealistic and that when they plummeted, it could tarnish the market’s image. After a severe frost left him unable to supply his regular mail order customers, he hit on a novel solution to all three problems: he put his wine up for auction on his own Internet site. “It was very successful,” says marketing manager Russell Branton. “Some people paid a higher price than others, but nobody knows what anyone else paid, because there wasn’t a set price. We succeeded in selling all the wine.”
Branton says the value of the auction is it helped Giaconda understand what the market was willing to pay for its wines. The next year, Giaconda released its wines priced about 10% higher than previously. “Certainly now, there is no advantage for people trying to buy off our list and sell on the secondary market.”
The Internet auction never happened again, but Giaconda turned once again to the Internet to solve a problem. The 2003 vintage had been lost to drought and bushfire smoke taint, leaving the winery cash strapped, so the winery offered the 2004 vintage en primeur. “We did offer a substantial discount for people, because they were paying 18 months in advance,” says Russell. “It smoothed the cash flow cycle.”
Customers could elect not to buy in advance, but simply wait for the release. Today, Giaconda continues the practice of both offering en primeur at a discount and then offering the rest of the wine upon release at a higher price. “What we’ve found is that people are happy to buy in advance.”
This article came out in 2009 in Meininger’s Wine Business International. Alas, Crushpad hasn’t survived. It limped along until it was forced to close in 2012.