One of the winery questions relates to the retention rate of mailing-list membership:
On average, how many months do wine club / allocated mailing list members stay in your most popular wine club release / mailing list program?Last week, Wine Industry Insight highlighted the results for the surveys from 2015-2019, arranged by grape-growing region. These data are shown in the graph reproduced here, originally sourced from 2019 Insights for Successful Consumer Wine Sales.
There are several things worth noting about these results.
First, the average time for people to stay on a winery mailing list is 29 months, across the 5 regions and 5 surveys. Is 2.5 years a good retention time for mailing-list membership?
The marketing industry has always treated current customers as the “low-hanging fruit”, even suggesting that it costs 5–7 times as much to acquire a new customer as it does to maintain an existing customer relationship (The Wall Street Journal, Nov. 26 2008). The marketers therefore refer to the loss (and replacement) of customers as the “churn rate”.
It is therefore a maxim of successful company growth that retaining the existing customer base is more important than trying to acquire new customers. That is, if the retention rate falls below average then the company cannot be growing. There is the usual 80:20 rule — 80% of your business comes from 20% of your customers — which means that doing something to keep those 20% is more effective than trying to market to new customers.
It is not entirely clear to me that wineries understand these ideas particularly well. If mailing-list people (who are almost always current customers) are being retained for only 2–3 vintages, then this cannot be a Good Thing. How proactive are wineries at increasing their retention rates (or decreasing their churn rates)? It always seems to me that they expend a lot of their efforts on attending wine-tastings of various sorts, which are directed principally at getting new customers (or giving the wine trade free drinks). What are they doing for their current customers, beyond sending an email every now and then?
This is not to say that wineries do nothing, of course. Most wineries offer purchase discounts to their direct customers, for example, and also wines that are not available outside the mailing list. There are even wineries where almost all of their sales come from the mailing list, and there is actually a waiting list for the mailing list; and good luck to them. However, this begs the question of a 2.5-year average retention time. Discounted wine is apparently not enough for most customers to remain interested, at least on its own.
Some wineries also put on special events for existing customers, for example; but this is only effective for those customers who live close enough to attend conveniently. For example, I have always been on mailing-lists where these activities were of no practical relevance to me at all.
This highlights the important point about most of the business coming from the top 20% of the customers. Indeed, it has been suggested that the bottom 20% of the customers can actually be a drain on profit, because it costs more to service them than they bring in as income — the remaining 60% are break-even customers (CFO magazine, January 2009; The Wall Street Journal, June 22 2009). Strategies that target the top 20% (the core customers) are thus the key to financial success — trying to please too many different types of customers can be counter-productive.
This implies spending the effort to identify the top 20%. I am not suggesting that all wineries should conduct what is called a “customer-profitability analysis”, which would result in a “portfolio of needs-based customers”, who will be the profitable ones. However, it would probably pay dividends if the wineries did do it. Their limited resources could then be directed towards servicing and expanding the profitable customer relationships, rather than trying to keep everyone on the mailing list.
This is effectively a Loyalty Program of sorts, which will work only when it somehow enhances the overall value of being associated with the winery, and thereby motivates the loyal buyers to make their next purchase. Sadly, most of my experience with these things (such as frequent-flyer miles) is based on a workplace paying for the service but me getting the loyalty benefits. [Although I did once get free return plane tickets for my daughter and myself, based on the frequency with which we had traveled from Australia to Sweden.]
The second thing to note about the graph data is that the wineries in Washington state do best at retaining members, while the wineries in British Columbia generally do worst.1 It would be interesting to find out whether the winemakers of Washington are doing something different from their compatriots elsewhere. Or perhaps their wine is, in some way, simply more attractive for Direct to Consumer sales?
The third thing to notice is that there is an apparent increase in retention rates through time.2 In particular, the retention rates for the 2018 and 2019 surveys were 2 months longer than they were for 2015 and 2016. Is this cause for optimism? It would be nice to think so.
Later note: these issues are addressed by Rob McMillan in his comment below.
For me, the bottom line here is that a bit more attention to the current customers (mainly Baby Boomers, I guess) might be more effective than trying to woo new customers (eg. Millenials, etc). This will require careful attention to the causes of mailing-list churn, both throughout the wine industry as well as for individual businesses. The marketing people seem to be missing this simple point — the key to successful marketing is less publicity and more targeted selling. Customer relationships are not one-off events — we need to turn it into a long-term relationship (called the “customer lifetime value”).
1 The data are statistically significant: One-way ANOVA F = 10.59, p = 0.0001.
2 The data for the yearly averages are statistically significant: Correlation = 0.90, p = 0.039. The individual data for both Napa and Sonoma counties are also statistically significant.
Thanks to Bob Henry for directing me to this topic and its discussion.