I recently covered some topics of consideration for cellar doors planning to add in a paid component in ‘Adding paid experiences to your cellar door offering: part one’. This is part two where I’ll cover off some of the key points around reimbursement.
It is a huge area of research and is moving very quickly indeed. New data out from Wine Australia suggest that now 52% of cellar doors are charging for tastings – a massive 20% ~ increase from 18 -24 months ago, and this figure increases to 63% for premium tastings (keep in mind that this data was based on 124 survey participants, so it is not a huge sample).
BUT! This is wonderful news! It’s critical for tourism to value their offer and maximise revenue, while developing experiences which are designed to engage and inspire loyalty. And, on an industry wide scale, it demonstrates immense capability for change, which in itself is very promising.
It reasonably follows then that the topic of reimbursement is a complex one!
How are we tackling reimbursement so far? The same piece of research from Wine Australia found the following in relation to standard tasting fees:
- 48% of wineries reimburse on a minimum purchase; with 67% of these nominating a single bottle, and 13% nominated reimbursement ‘any purchase’.
- 30% of wineries don’t reimburse
- 8% of wineries reimburse on a minimum purchase amount
- 1% of wineries reimburse on a wine club sign up
The amount charged for tastings is as follows:
- 57% charged $5
- 33% charged $10
- 10% charged other amounts
While the average cost of ‘premium’ tastings was $19.60 – this ranged from $50 + through to $5.
On reciprocation // It’s important to touch quickly on the idea of reciprocation: For the most part we have relied on the idea that if we provide free tastings, the guests feels incentivised to purchase based on our natural inclination to reciprocate. So, if we add a fee, how does this alter this paradigm? Some ideas are presented below:
The argument for reimbursement // From my experience, this is all about the ‘carrot’. For the guest, the reimbursement is the incentive to take home a bottle of wine and for the producer it is about increasing spend. It is relatively powerful as a sales incentive and I believe this is what underpins the high figure above. It appears to work quite well on $5 and $10 fees, provided that it has been properly costed against other options and it meets the expectations of the business.
I have a client who charges $5 per person and refunds on any purchase of one bottle or more. They champion this approach because for them it’s more valuable to see that bottle walk out the door (even at a discount) than it is to have $5 in the till. It puts the wine on a dinner table somewhere and hopefully inspires a conversation about the experience. This sharing and consuming positions the brand front of mind, so for a business in its first decade, this sharing behaviour is important to reputation building and accumulating word of mouth recommendations. Furthermore, the $5 fee means that when taken off a bottle of wine, it isn’t too detrimental. If they were to increase the fee to $10, it naturally follows that the fee should be reimbursable on two bottles, rather than one. This idea is in consideration at the moment.
It is important to look at the cost of this though: If the bottle is $30, a $5 discount represents a 16% discount. If the customer is assumed to not purchase at all if there were no ‘carrot’, then the cost of the sale is comprised of: labour, overheads, stock *in addition to* the $5 discount. If you’re spending labour, overheads and stock anyway, perhaps offering the $5 is just making things more costly? Or, maybe not – this very much depends on the perception & expectations of each operator.
It seems reasonable to suggest that for fees above $10, the threshold should ideally increase – either triggered by X amount of bottles or X amount of dollars. Another client offers a reimbursement on their $25 premium tasting option on a $200 spend. This works for them as they are a sophisticated, sought after brand that attracts top level buyers. Their wines range from $35 – $110 ~ so this threshold in the scheme of things is quite different to a venue where the average price is lower.
If the wine range is evenly priced, I also support the idea of reimbursing on X number of bottles – from 2-6 seems to be a reasonable approach relative to the fee charged and the cost of the wines.
Overall, reimbursing is something I perceive to be a reasonable fit for businesses feeling their way through the evolution from free to paid experiences. It takes some of the pressure off the sales side of things by constructing a more passive incentive for guests to purchase. It’s also a potential fit for newer brands and venues, where the reputation building is a key component. Anecdotally, it appears to be a more attractive option for visitors in the middle demographics and so, if this is your visitor profile, it could be worth exploring and testing some options. It is in summary, a low risk option that can make visitors feel like they got a good deal; it is imperative however to understand the actual cost.
The case against reimbursement // The argument here is about a few things:
- Valuing your offer and charging accordingly: there is confidence required here that the offer and experience is so well delivered that your guests will purchase wine on top of paying a fee. D’Arenberg offers a good example of this, where the fee is paid on arrival to the venue, distancing the payment from the actual tasting room staff and therefore by the time the tasting is finished the customer is (of course!) ready to spend again.
- If your wine range is in high demand, expensive or rare, this fits with the scarcity model and so is a good fit for flat fee approach. The tasting fee in this case is perceived to be a totally reasonable cost of experiencing the wines, particularly if it’s a wine that many people could not afford to take home.
- It is appropriate when the tasting is more involved than a standard tasting: so if there is food, tours or museum releases included in the fee, then it stands to reason that this shouldn’t qualify for reimbursement. Penfolds Magill for example offers paid tastings of their premium/museum wines as an option beyond their free offer.
So, for wineries considering this model, there are two main questions: ‘do our wines inspire demand to the point where paying to taste them might be considered a privilege and/or good value?’. More importantly though is ‘what can we offer for the fee that delivers value in the mind of the visitor’?
This is where the opportunity lies for producers considering this option. By adding something with high perceived value (cheese is a great example) for a relatively low cost, operators can avoid the expectation of reimbursement, and therefore lock in tasting fees as a legitimate revenue stream.
So, as an overview, I hope this provides some insight into the options and how they are being deployed around the country. In the next part, I’ll introduce some ideas around creating a ‘menu’ of experiences aimed at different segments. Stay tuned!