Posts Tagged ‘Direct to Consumer’

‘Shipping Included’ – the Future of Direct to Consumer? An interview with Bonny Doon Vineyard

Randall Grahm

Bonny Doon Vineyard has been an innovative leader in the U.S. wine market for 3 decades. With Randall Grahm at the helm, Bonny Doon will boldly dare to go where no Rhone Ranger has gone before.   In January, they caught my attention as they jumped into new ground with revolutionary changes to their wine club. (I am a member.)

(Note – Simple Hedonisms writes primarily for consumers, but with an increase in demand recently for marketing consulting and input, I will occasionally feature a piece like this for the Industry. I hope my consumer readers will find it insightful as well, and share their feedback.)

The Genesis…

Was Meg Houston Maker, author of Maker’s Table and former executive editor of Palate Press. Meg joined Bonny Doon last September as Director of  Direct to Consumer (DTC) sales. Wasting no time, she applied her Ivy League brilliance to  examine Bonny Doon’s historical direct sales performance, review emerging trends in  DTC, and take their  consumer program down a new path.

Wine Clubs – Friend or Foe

One of my most popular articles in 2010 was “ Wine Clubs – A Review of Different Types and Benefits “ focusing on the benefit of Wine Clubs for the

Meg Houston Maker

Meg Houston Maker

consumer. For wineries, a wine club can represent a significant opportunity  in normalizing cash flow and  revenues; it helps to wake up each quarter knowing  ‘X’ percentage of sales are in the bag. (In my ‘other industry’ we call this backlog.) Wine clubs can also represent a high human touch and labor factor, but since they are sold DTC, carry a higher profit margin than distribution sales, so most wineries view Wine Club sales, and members, as very valuable.

Bonny Doon’s Challenge

Bonny Doon has a large, loyal wine club of over 3,000 members. The company has been managing multiple wine club categories at high labor cost and fulfillment complexity. Each shipment  requires considerable consumer interaction to update shipping addresses, credit card numbers, expiration dates, and member shipment customizations.

Additionally, about forty-five percent of members received 2 bottles of wine 6 times per year, and paid $14.25 per shipment for UPS charges. This meant that customers were paying about $86 per year to have a case of wine shipped to them—even though Bonny Doon was subsidizing part of these shipping costs.  (Shipping costs vary widely by state.)

Meg’s goal was to move more wine in the direct channel. To do so, part of the strategy was to encourage members to take more wine per shipment, fewer times per year. Through number crunching and detailed analysis, it became clear that simply sending more bottles per wine club shipment four times per year rather than six would lower the total shipping costs to club members while also reducing the effort needed to process the shipments.  It would also be greener: this change alone meant 31% fewer shipments per year, a substantial carbon savings.

One possible consumer objection to larger shipments, especially in tight times, is  that smaller shipments allow the consumer’s cash payout to be more spread out.  Could the perceived negative of larger shipments be  addressed by capitalizing on people’s general abhorrence of shipping costs?  When Bonny Doon has run ‘shipping included’ offers for orders over a certain dollar threshold—$99 or $129, for example—they see a significant jump in large orders.

Shipping Included, Explained

What does “shipping included” really mean? Free shipping? A hidden cost buried in?  Unfortunately, consumers often think the latter.  So why do wineries use this term? The good people at the ABC , protecting us from harm’s way,  do not allow wineries to say ‘free shipping.’ (Some businesses still do, but that’s technically not allowed and can lead to trouble.) “Shipping included” almost always means free.  But people aren’t sure, which is why you may also see offers like “shipping for $1.”)

Back to Bonny Doon Wine Club & Numbers Analysis

Through detailed analysis, Meg realized that fully subsidizing shipping cost to wine club members might be the answer to shipping more wine in fewer shipments, increasing the volume of wine sent to wine club members and making it easier  to sell the club to new members in the tasting room, online, and at events. And the consumer would win by paying less overall per bottle.

But what about profits? Bonny Doon already has consumer friendly pricing (see my Clos du Gilroy review) and they have to make a profit. Clearly net margins (profits) per transaction would be lower with a higher shipping subsidy. But would net margin dollars, be higher, if overall more bottles of wine were moved to offset the lower transaction margins?

The Math

Lets look at some sample math. (These numbers are my own invention for illustration purposes.)

  • Let’s assume a wine club shipment of 6,000 bottles at $20 a bottle with a 30% margin.
    • This shipment would yield $36,000 profit.
  • Now let’s assume a shipment of 10,000 at $20 a bottle and a 23% margin.
    • This would equal $46,000 net profit—in other words, a lower margin per sale, but a net overall increase in margin dollars.

Now that the onus is on BDV to carry shipping costs, they’re exploring an alternative shipping company to save costs, too, and increase consumer satisfaction.

Results To Date

How has it worked?  So far – wonderfully.  BDV launched a massive communications effort in January to roll out the new shipping-included offer to all existing club members. A key goal was to get those who currently receive 2 bottles six times per year to take 4 bottles four times per year; any who did would pay no shipping fees. The result: Ninety percent of those 2-bottle, six times per year members have agreed to step up to 4 bottles, four times per year.  It’s kind of a no brainer, really, for most. They buy more wine, but this is almost completely offset by the savings of $86 in shipping costs. The net result is that for about $25 more dollars per year, they get four additional bottles of wine.

There are also other inherent benefits of consumers drinking your wine more often: they become brand ambassadors, share the wine with friends, cellar some for later, etc. Broadened impressions and consumer awareness also leads to an increased chance of re-orders, especially when reinforced by other shipping specials, like no-cost shipping for orders over $99.

Why buy plonk wine at Safeway, when for $102 (at the 15% discounted member price of $12.75 per bottle), you can have 8 bottles of Clos du Gilroy Grenache sent to you without a shipping fee? Seriously, consumers, think about it.

Additionally Tasting Room conversions are up significantly since the new club structure was introduced in January.  People are responding well to paying no shipping. I can personally relate. I buy a lot of wine, and have more wine clubs than I should, and paying for shipping is one of my largest mental barriers to buying wine. If I can’t will-call, or if a club threatens me with shipping charges 30 days after release, I don’t join, or I drop the club.

As another reflection of their love for members, no one is being left behind; club members unwilling to convert are allowed to stay status quo, even though it adds complexity.

Conclusion:

As wineries look to grow sales, especially Direct To Consumer, which has been the 2010 mantra, “shipping included” represents a significant shift and potentially positive impact.  For those willing to adopt, it can represent a win both for the consumer and the winery. My hat’s off (and my $$ in wallet) to Bonny Doon for continuing to forge new paths, staying focused on a positive consumer experience, and of course, for making great wines.

Bravo

Thanks for reading! I’d love comments and feedback from both consumers as a Wine Club member, and from Wineries as well.viagra in canada

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