on 26 Oct 2017 1:05 PM
  • Marketing
  • supply
  • pricing
  • strategy
  • wine
  • brand building
  • scarcity

News on the 56 years’ low wine production were all over the net these days. Overall, production will fall in 2017 by 8%, with leading producing countries (such as Italy) down 23%. Building value in wines on the long run is a strong imperative, especially in an industry which prides itself of long term vision. Increasing prices may be an answer, but it is not easy. In this article we put in Price Strategy & Management in the context of brand building. 

Of course this decline will affect regions in different ways. Some may loose more than others. Your region may even peak up vs. last year. But imagine a loss of nearly 10% of turnover, because of product shortage. It is not acceptable, and actually dangerous given the thin margins of many brands. Take for instance, Portugal, a wine market were nearly 80% of volumes are under 3 € a bottle.

The reaction when volumes decline is to increase prices at distributor, and by consequence at retail level (to keep the value chain margins). However, the excuse of lower supply is a dangerous argument: next year, if volumes go up (irrespective of the long term trends), your distribution partners will want better deals because production supply is “no longer an issue”. Any negotiation trick will do!

At drinks categories level, the need to build value in wines is even stronger: if wine becomes less visible and more expensive but with little salient relevance, consumers will quench their thirst of good moments or personal reward with other categories such as beer or cocktails. Like it or not, people also drink other things than wine. And perhaps it is no coincidence that craft beers and gins are booming: they are creating “urban” terroirs…

If you need to move prices up, ask yourself “what have I done to deserve a price increase?”. The answer to this question requires an intimate understanding of the price elasticity of your brand, the market price structure and cliffs, as well as bringing to life a solid brand proposition that goes beyond medals - vineyards - tasting notes and family stories. I have nothing against those, but everybody has them. Build your difference.

In a previous article, we have described the “Steps to Pricing Heaven” which includes building a pricing ambition, understanding of price & demand relation of your brand, the value chain and PL tools reckoners and commercial roadmaps to leverage Pricing as a brand builder for your brands and partners.

The call for solid Brand positioning is also crucial: it is the driver that unlocks the desired price roadmap. Alas, too many (wine) houses think that an “emotional benefit” is rubbish – or that clients dictate what a brand offer should be (think of all these exclusive SKUs...). And yet, having a compelling brand proposition is simply answering those questions “why do we love selling our wines – instead of doing something else?”. Understanding consumer motivations and occasions is part of the answer.

Perhaps wine supply is slowly, but steadily changing. The sharp fall of production this year may be a little alarm bell which calls for building brand value to absorb future variations. True, any wine brand is small in the vast sea of wines, but building value with state of the art thinking is the best way to secure long run perspective to the production and people who spend on the brand. Too often, Pricing is seen as complex, confrontational or secretive. Pricing is a reflection and a contributor of brand equity and should be actively used to build brands for the long run. At Brand Reveal we can show you how.

Brand Reveal is a group of drinks specialists based in Porto, Paris and London. We ignite brands through Strategy, Marketing and Commercial.