Wineries are interested in exchanging ideas on best practices for building and growing their wine clubs. One question that is often raised is the impact, if any, that the current economic climate (dare we say recesson) has on club attrition. The general consensus seemes to be that there is infact, an increase in club member cancellations. The question is what could be done about this!!!
This leads to a question on how price elastic was the demand for club membership. First a quick review of macro economics:
Price elasticity is a measure of how much demand changes with a change in price. In a perfectly elastic product, a 10% change in price results in a 10% change in demand in the opposite direction. That is an increase in price, results in a decrease in demand. Products that are easily substituitable tend to be very elastic (think fast food) while products that aren’t easy to substitute for are inelastic (think gasoline).
If the product is price inelastic, the seller is able to raise the price without losing customers. This is because the demand for the product has no correlation to the price. For example, demand for food is relatively inelastic because people need to eat to survive.
It is difficult to predict how people will react to changes in price. Therefore, it is important to know the price elasticity of your product.
The Price Elasticity Of The Wine
Okay back to wine. I’d suggest that wine club memberships are substituitable, and therefore elastic. So if demand is shrinking because disposal income is well, less disposable, then it flows that a reduction in price could stem the decline. I suggested that if you normally have a 3 bottle club, you might want to proactively think of offering a one time recession buster 2 bottle offer, or some other price reduction. Of course, you do not want to reduce the price of the wine, or increase the discount. Maybe free shipping would work.
Some people feel they would wait until a customer contacted them before making an offer. I think the primary question is this; what is more important, maintaining the Average Order Value of the club, or keeping as many members as possible. That’s the question, you need to provide the answer.
More about price elasticity in alcoholic drinks here.
More on the state of the wine industry and wine industry trends in 2020 here.