Posts tagged pricing
As a huge wine non-snob, my first stop in the grocery store is always the wine discount shelf. The way I look at it, it’s like the store paid me to age their wine. Win-win!
During a recent trip, however, my interests in wine and marketing collided as I spotted two wines from the same brand, Mia’s Playground, sporting wildly different labels. As you can see in the photo, their Cabernet, on the left, has a fun, playful, non-intimidating label, while the chardonnay on the right has a more serious, formal design.
I’d never heard of Mia’s Playground wine, but at $4.99, pretty much any wine is worth a shot. A quick web search shows that Mia’s chardonnay usually retails for $16, while their Cabernet goes for about $15. That’s a pretty steep discount, and makes the differences in the labels even more interesting. Why are two wines priced similarly yet sporting different label designs, and why are they both heavily discounted? Is this Mia’s A/B test gone horribly wrong? Are they trying to position the different varietals for different market segments?
As I thought about it more, I wondered if the label even makes a difference. I was confident that it did, but as a quant, I needed to see the numbers…
What Do the Academics Say?
Since wine is a $32.5 billion industry in the US alone, it’s no surprise that plenty of research has been put into wine marketing. Think about the logistics of the typical wine purchase: it’s highly-subjective, there are tons of choices, even at small stores, and each wine has a new vintage every year. As a wine consumer, you’d probably lean towards known wines that you’re familiar with (which just increases the marketing efforts required by competing wines) or, without additional information (like reviews or Wine Spectator scores), you’d just choose the one with the best marketing+price combo.
Here are a few tidbits from some semi-recent studies that show how much impact labels have on wine sales:
- From a 2007 UC Berkeley study: “…the illustration used on the label had the greatest impact on both purchase intent and perceptions of brand personality.”
- A 2007 study from University of Reims, France, found “that when the label is authentic, young consumers don’t see any risk buying the wine because the presence of the label is a definitive indication of the product’s authenticity.”
- A paper presented at the 2010 International Academy of Wine Business Research Conference stated that “packaging can be related to between 26% and 42% of predicted price differences.”
To add some confusion to the mix, or just to show that even the consumers themselves don’t know what they want, I found these two conclusions from separate Cal Poly studies:
- One study found that “Americans did not rank ‘has an animal on it’ as a desirable feature but two of the top three brands, Yellow Tail and Toasted Head, had an animal on them.”
- Another study found that “there is little to no correlation between wine label design aesthetics and price.” However, this study focused more on font, colors, and layout over label content, and was written by an undergrad (gasp!). One interesting finding of their research was that tasting scores by Robert Parker were higher for wines with labels that were designed in a top-to-bottom format over a left-to-right format. What’s up with that?
Where Was I?
OK, I’m off the rails here. Back to Mia.
As I started writing this post and googling “Mia’s Playground,” I learned a few things:
- There’s an iPhone app with the same name, but geared towards two- to five-year-olds. Let’s hope this isn’t Mia’s version of Joe the Camel marketing cigarettes to kids…
- The brand is produced by Don Sebastiani & Sons.
Having worked a stint in the wine industry consulting for Robert Mondavi Wines, I immediately recognized Sebastiani as one of the biggest wine producers in the US. With 1.3 million cases sold in 2011, that puts them at #14 on the Wine Business Monthly list of the largest North American wine producers. Sebastiani’s website has them at 2 million cases in 2007, so the Great Recession has, apparently, not been kind.
Their most-recognizable brand is probably Smoking Loon, but their website shows nine brands, of which Mia’s Playground is not seen. Digging deeper, I found that Mia is actually Don Sebastiani’s daughter, and that her name also adorns a wine-based cooking sauce.
$15 is “Luxury” Wine?
Marketing plays a huge role in the wine industry, obviously. This wine industry publicist says that 2% of a wine’s retail price is dedicated to marketing, which translates into $650 million spent on wine marketing in the US. With that amount of spend, there’s definitely room for consultants, focus groups, and, yes, even A/B testing.
More googling seems to indicate that Mia’s Playground switched label designs with the 2005 or 2006 vintage from the fun version to the serious version, maybe in an attempt to spur sales or justify the price.
Sadly for Mia, a wine priced at $15-16 is considered an “ultra-premium” wine by the Wine Communications Group. (Other sources peg $15 as either “luxury” or “super-premium,” so this segmentation system is clearly unclear.)
It’s very telling about the US wine consumers’ palate (or wallet) that 94% of wine sold is under $14 per bottle. Or, maybe it’s indicating that, for those who are willing to spend more than $15 for a bottle of wine, price ceases to be a key decision-making factor? Either that, or I’ve been over-paying for wine for the past 10 years.
Mia may have simply been another victim of the Great Recession, since the timing fits perfectly. As the economy started to slow, and instead of lowering the price, Mia tried to up-level her brand with a serious label befitting a $15 wine. With a 2008 vintage hitting the shelves in 2009, and with Sebastiani’s sales dropping 35% between 2007 and 2011, Mia’s bosses may have had to cut under-performing brands.
In any event, wasn’t this a fun exercise!? Let me know what you think with a comment below.
I’d really love to see the sales numbers before and after the label change. But, as a marketer myself, if the change of label had minimal or even negative impact, it was obviously a sales execution problem!
I’ve sent an email to Sebastiani to get the real story on Mia’s Playground and will update this post if/when they respond…
I recently had the opportunity to consult with a local startup around their plans for pricing their cloud-based home health monitoring application. They have an amazing product and great early traction with beta customers, and are now at the point of thinking about pricing as they sell direct and through partners, adding two dimensions to their pricing equation. Adding another dimension is their incorporation of add-on services, and how to pass along those fees while also adding a markup – for both themselves and their partners.
As is usually the case, once they started thinking about their pricing strategy and all of the associated touchpoints, the problem quickly expanded beyond “what do we charge the customer?” to “wow, there’s a lot we didn’t consider!”
Who’s Important? The Customer!
There are a few ways to go about pricing for a cloud-based app, but generally it’s about getting down to the perceived value and making the pricing model match your customers’ or partners’ mindset. If you try to price based on your needs or benefit, you might end up confusing the customers. If they match, that’s rare but fantastic. Always remember that your customers will evaluate your pricing based upon their perspective, not yours.
It’s also important to understand what your customers are using for their perceived model when evaluating your pricing. If you’re selling cars, they expect to see a sticker price and to pay much less than the number they see. If you’re selling mobile apps, they expect it to either be free or close to 99 cents, and they further expect updates to occur frequently. Why? Because that’s how mobile apps are generally offered, and that has become the accepted “model.”
Consider the typical legacy pricing model of days gone by, where you paid a large, up-front fee for the software and any required hardware, then paid additional fees based on number of locations or users. There may even have been recurring fees for add-on services. This model was mostly in favor of the seller, but became the de facto pricing model for both consumer and enterprise software applications.
Enter “the cloud,” where hardware fees disappear and the service becomes more akin to a utility than a product, and where the SaaS trailblazers, like Salesforce.com, set the stage for per-user and ala carte functionality-based subscription pricing. For better or worse, this is now the standard model for pricing cloud-based applications, either enterprise or consumer. It’s not a product, it’s a service. And, it’s not an outright purchase, it’s a recurring utility where I pay for what I use and can turn it off when I no longer need it. Furthermore, especially on the consumer side, people are becoming more and more comfortable with subscription pricing for apps like cloud-based backup, photo storage services, VoIP, and others.
The greatest area where the cloud has turned software pricing on its head is transparency. Skype, Salesforce.com, GoToMeeting, Mozy and other sites tell you up front exactly what their services cost. There’s no dickering, no slimy negotiations with tacky sales reps, and no queasy feeling after you commit that you’ve somehow paid more than the next person. If there’s anything to take away, it’s that your pricing should be front and center on your website! Tell everyone what they get, why it’s amazing, and how much it will cost. Add a few tiers to make it easier to understand.
So what’s the bottom line here? I’m not sure. I know that I want software and apps to be priced based on my perception of value, and that I’m willing to pay a fair price. I naively assume that most people think the same way. I’m willing to pay a subscription for something that I use on a regular basis, but I’m also willing to accept less usability for a lower price (or better yet, free). In the end, I just want a good product at a fair price. Is that too much to ask?
What do you think?