Library Release - Dissecting the Price of Luxury Wines

This Library Release was selected in conjunction with the next episode discussing pricing and was initially released on December 2nd, 2020.

Robert and Peter discuss how luxury wines are priced, delving into the core insights from the Pricing Chapter of Peter’s book, Luxury Wine Marketing. They discuss the luxury wine price segments, the types of luxury wine buyers, and how you need everything to be working right to build a luxury wine brand. “You can’t just stick a label on two-buck-chuck and price it at $1,000.”

Detailed Show Notes:

Luxury Wine Marketing (“LWM”) was published in late 2019

It contains industry best practices for how to sell luxury wines vs. more “commercial” wines
Includes new research on the market size, customer segmentation, and frameworks for marketing luxury wines

Wine pricing segments

The overall wine market has an average price of $7-8/bottle
That makes $20+ sometimes classified as “luxury”
In LWM, luxury wine is more of a luxury good - where the product is used to differentiate
$50-99 - affordable luxury
$100-199 - everyday wine for the luxury buyer
$200-499 - special occasion luxury
$500-999 - icon wines
$1,000+ - dream wines

Luxury wine consumer segments

The Wine Collector
The Wine Geek - seeks knowledge
True Luxury Buyer - buys top brands
Aspirational Buyer - looks up to the True Luxury Buyer

Brand impact on price

Dom Perignon is a special occasion wine at $170/bottle vs. if it was $40/bottle
Price signals an element of quality
Price makes some people think it’s better quality

Strategies to launch luxury wines

Build Up - start lower priced and build up
Build down - start higher and build down
Need a good story and quality to back up pricing
E.g., Penfolds - from Grange to $10-15/bottle wines, Grange provides the halo effect for the cheaper wines as people associate themselves with the brand
Luxury branding - using price over value as the luxury driver, e.g., Harlan Estate

Luxury wine demand

Sometimes when you increase the price, you increase the demand
Two types of demand - consumption and investment demand
Wineries want people to drink, not sell the wines, to keep the secondary market high
Still need to have value - quality and reputation of the wines
Burgundy - driven by wine collectors who want the scarce and rare

Tricks and tips for buying luxury wines

Know what you like and target those types of wines
If you want something special - brand strength is essential, a la the gifting culture in China
Follow critics whose palates are similar to yours and track their scores to find values
Check out the best wines from less well-known parts of the world

Winery pricing strategy has four major determinants