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DTC wine thoughts served up by Vin65

Andrew Kamphuis
April 8, 2010 | Ecommerce, Marketing | Andrew Kamphuis

Ramping up your Direct-to-Consumer Marketing - Interview With Digital KungFu Master - Paul Mabray

One of the biggest voices in the wine technology space is that of Paul Mabray, CEO of VinTank and founder and former-CEO of Inertia Beverage Group.

Paul is truly visionary and far-from-shy about leading the way to develop, critique and implement ideas and strategies to improve the online wine world. Paul and VinTank are valuable partners of ours as well as close friends.

I had the opportunity to ask Paul a few questions recently and he stayed up way late answering them for us.

Paul, for wineries just getting started or ramping up their direct-to-consumer marketing plans, which key tactics should they prioritize?

I don’t want to start as a broken record but a plan is key. Strategic and tactical. However, the core of all DTC strategies should be customer centric. Google put the power into the consumers hands. Social networks put a megaphone and an interconnectivity never before seen in human history. Both positive and negative consumer reactions to your product can spread like flash fires. Being customer centric is part of the new world. 

Relationship marketing: what are some simple, effective ways to provide personalized touches that can help deepen a winery's relationships with its customers? How does social media, location-based apps like Foursquare play a part in that? Anything in the pipeline that we should watch for?

There are many marketing components that Location Based Service (LBS) like BrightKite, Yelp, Foursquare, Gowalla, et al bring to a winery. But in the end these are just customer connection mediums (adding a new dimension of locality). This could include rewarding visitors when they notify you and the world they are at your location or give them recommendations when they go to other locations. They are just new methods to create deeper engagement with your customers. However, the first statement about whatever strategy or tactic you choose to leverage these platforms, your view still needs to be customer centric. 

You recently tweeted that "Pro-direct doesn't mean anti-distribution" (something to that effect). Tell us more about that.

I’ll break this into two segments of direct: DTT and DTC

DTT provides a healthy route to market for small brands or products. It acts as an incubator for brand building. Remember, wholesalers provide a necessary service to wine brands that have good strong velocity and require high service. However, smaller brands (due to the total quantity worldwide of 55K) and due to the regulations of wholesaler being required to buy the products (no consignment). Excuse me while I geek out on wine industry dynamics and economics. Wine is a what we call a SUPER long tail industry (an amplification of the theory) and only one of four consumer good package industries that has this level of different products (books, movies, music, and wine). We produce at least 250K different wine products per year and far more SKU’s than that (375 ml, 750 ml , etc). This SKU load compounds in the market vintage to vintage and remains alive three to ten years in the market (sometimes more). e.g. 3 years into the future times 250K products equals 750K products! Can you imagine a wine store with 750K products? Or go ten years into the future how about 3M? And unlike the other three super long tail products, who are increasingly being distributed digitally, wine is the only absolute physical product. You can’t deliver wine virtually. Ever. One other unusual aspect about the wine industry’s long tail is the price is not as normalized like other three super long tail products and almost has an inverse pricing structure to the demand curve. e.g. Kistler has far more carrying costs and inventory risk than Mondavi Woodbridge. In essence it is the prohibitive economics of wine buying in the middle tier that create dysfunction. Wholesalers can’t support the product load and would benefit from an alternative channel that allows wineries to build a trade customer base to a level that requires their support and doesn’t force them to take inventory positions until the winery has market penetration and awareness. DTT is key for the health of all tiers of the market. They provide that incubator and pressure relieve valve of product overload for wholesalers. They provide alternative route to market (even to the product level for wineries). And they give restaurants and retailers a more diverse selection to compete in the market to better distinguish themselves to the consumers.

DTC is over demonized by wholesalers. Remember that most consumers buy wine and consume it within 3 hours of purchase. DTC does not support that behavior. However, it does allow consumers to purchase wine they enjoy and if they are in need, they will buy within the local market. It builds awareness and customer loyalty as well. Wineries that have combined DTC and traditional distribution are stronger as brands and the wholesaler pull is better than those without DTC in the market. DTC acts as pull marketing due to the industry dynamics. Also DTC gives back strong margins to wineries to help them become and remain healthy companies. This health allows them to reinvest dollars into sales and marketing efforts THAT SUPPORT wholesalers trade efforts. Wholesalers, don’t you want financially healthy partners?

#NapaValleyTweetup: Tell us about it and how wineries can use tweetups in their marketing strategies.

Tweetups are an interesting marketing vehicle. They can work in many ways but here are two that are most easy to recognize. First, it is an easy way to not only speak with you customers, but to allow them to meet each other and talk amongst themselves. At its core it is community building with your brand as a key element. It is also very obviously a point of purchase catalyst for IN-MARKET as well as DTC purchasing. How else are the consumers in out-of-state markets going to get the wine to taste? The tweetup provides value at all tiers. The winery connects with its customers, creates sales catalysts, and brand equity. The wholesaler gets the benefit of in-market pull. The retailer gets the benefit of in-market pull as well as the opportunity to participate in the conversation with consumers (many theirs). And the consumer gets to interact directly with the winery & retailer, create relationships with other wine consumers, learn about wine and wine tasting, and enjoy an experience.

Which tactics do you recommend to increase a winery's online sales?

  • Invest in the channel (human and financial resources). 
  • Create a customer centric strategy to SUPPORT your ecommerce and more. 
  • Choose your foundation of software partners wisely. The last one is key. Not only do they have to be aligned with your interests, they need to play nice in the sandbox with other best of breed vendors. 
  • Do not let accounting lead the reason for your software decisions. Let sales and marketing lead the decision.
  • For larger wineries, make sure brand ALIGNS its interest with consumer direct. Most sites led by brand managers do NOT take into account web best practices (SEO, conversion, etc) that are healthy for both the brand in market as well as DTC sales.

How do you feel about wine product pages that feature consumer reviews? What do you say to wineries who are afraid to receive lukewarm or negative reviews?

I think consumer reviews are key for helping consumers overcome the friction associated with buying ANY item online. Per, and his class with former Chief Scientist at Amazon) Andreas Weigend, Amazon makes 20-30% of its sales from recommendations. Only 16% of people go to Amazon with explicit intent to buy something. If I were to learn something about e-commerce, I definitely would look to Amazon (I think they know a thing or two). The fear of a negative review is understandable and tactics and methods for addressing low reviews from consumers is as much art as science (no brand wants a product sheet filled with expletives). However, with proper processes, tools and company rules of engagement, even negative comments can be assets to create deeper customer engagement and trust.

Which areas of direct-to-consumer marketing do you see wineries struggling with the most? Why do you think that is? Your advice to them?

E-commerce, Social Media and CRM. It is not a winery’s fault, we just don’t have enough talent in those disciplines to date. Remember online ecommerce has only been really viable for barely 5 years (before that it was viable, but only accessible to 14 states). As a result it is also the least healthy DTC channel for wineries and thus, the least in importance for investment, resources, and understanding. Ironically it is ecommerce that gives the wineries a window to many, many more customers than a tasting room ever could. With the tasting you room you are limited by the amount of people that come to you. The internet gives you access to the world.

Anything else?

I believe the future of wine online starts with the wineries cleaning and solidifying the foundation of our houses. That to me means ensuring customer and product data are ready for tomorrow. If I were to ask a winery to do four things to ensure the health of their brand online it would be:

  • Invest in the channel (I know I said this before but I can’t stress it enough). If you don’t feed it, it will never become healthy and flourish. For that matter, invest properly in DTC in general. It may yield less gross sales, but more than make up for it in net revenue.
  • Create a customer centric strategy. Paraphrased from “One day, 30% of all retail transactions in the US will be online. People will buy from the company with the best service...” I know where I want my partners to be, on the winning side of that 30%.
  • Put your COMPLETE information into (for FREE) to manage your digital footprint. One place, 50+ outlets that you get to control the way your brand is being represented in the digital arena.
  • Start planning your consumer CRM platform to support your consumer centric strategy. IMHO tomorrow’s future of our brands will be built on how well we understand our customer and create service that caters to their preferences while delivering great product. CRM is the foundation to build a customer centric strategy.

Paul, I appreciate your insights and candor here. As always, great info on where wineries should consider looking to increase their DTC sales.  I really appreciate the time you took to share.

Follow Paul on Twitter here, become a fan of Vintank on Facebook and/or contact him via Vintank's website.


John Corcoran's Gravatar
John Corcoran
@ Apr 8, 2010 at 11:36 AM
Another cogent set of questions from Andrew and terrific answers from Paul on the current state of digital wine ecommerce. I've forwarded this to my clients & partners as a must read. The continued efforts in the USA blocking the direct to market efforts of winecos as supported by broad market wholesalers, if ever, are no longer logical or efficient. This isn't an either/or, us or them issue, but it is a let's build a more vibrant wine market issue. I talk to small family wineries on a daily basis who communicate that if they're not constantly in the market working w/distributor parners, their wine isn't selling. Sounds as if a 5 ft supply pipe is being channeled through a 1 inch delivery spigot. The trinity of wine sales has been 'sell, service & deliver.' But, as Pete Blackshaw, EVP of Digital Strategic Services at Nielsen Online, in his 2009 WITS keynote address said: “Service is the new marketing. It’s the most important activity.”

In his 4/6 Ad Age article on new affluents, Tim Arnold opined that "the majority of New Affluents agreed completely that "technology is indispensable to the way I communicate."; and that "they're now demanding from brands is a new and different kind of relationship. And, as supported by these findings, the days of controlled, top-down brand marketing are over, especially for this sector. These wealthy and would-be elites are actually looking for brand interaction -- a dialogue -- based on integrity, authenticity and performance. And not only are they equipped for interaction, they're demanding it." So, yes broadband internet commerce is way and the light. If I were say in a position at SW&S, Charmer or Republic/National I wold be on the phone w/Vin65, w/VinTank. w/Cruvee asking how I could effectively partner in the wine ecommerce marketplace. The idea of obfuscation and obstruction by the few is seems to no longer be a viable business proposition, as it flies in the face of the new customer-centric market realities. So IMHO, DTT & DTT wine ecommerce activity is complementary to broad market wine sales, in that by example and exercise allows each market actor to focus on best practice strengths, while removing historic, inherent wine market inefficiencies ...


Stephen Mutch's Gravatar
Stephen Mutch
@ Apr 8, 2010 at 11:55 AM
I love the focus on customer service and developing a customer centric approach. Direct is all about managing a relaionship DIRECTLY with your customers and as the channel continues to develop and grow, your ability to differentiate will come in your ability to service them!

Ben Simons's Gravatar
Ben Simons
@ Apr 8, 2010 at 1:06 PM
I can willingly admit that I'm still learning when it comes to the intricacies of the three tier system, so forgive me if I'm misrepresenting your point regarding pro-direct not being anti-wholesaler. It seems like you are saying that operating through a distributor makes more sense as a model with larger wineries, while smaller operations are more benefited by being able to market directly to retailers. The result of the smaller wineries being able to directly market to trade would be that they would be able to more efficiently grow their business, thereby moving them into the category of business that would be more benefited by a distributor, and to be a benefit to distributors. Is that an accurate understanding of your point? If so, it makes sense to me. In my limited experience with talking to wineries on this topic, it seems like smaller wineries have to work extremely hard to expand distribution of their wines into new markets.

What opportunities do you feel might be available for distributors to get out in front of the crowd on this issue? It seems like some of these businesses that are working so hard to block efforts to open up direct shipping options could start being proactive in solidifying their value in any system and could come out ahead of the pack. Basically they could quit swimming upstream, and start racing downstream. As I said before, I'm not an expert on this issue, so I'd be interested to know what areas of opportunity that you see.

Also, I completely agree with everything you said regarding customer centric approaches. The online world seems to have thrown a lot of companies into chaos when it comes to customer interaction. I think that the most successful companies in the future will be the ones who view things like customer reviews on their website as opportunities instead of risks. These are the companies who are actively engaging with their customer base on Twitter and in blogs. Paul, the other day you compared Twitter to the telephone, and basically pointed out that it's still the message that matters. Regardless of the technology being used, this has always, and will always be what matters.

tom merle's Gravatar
tom merle
@ Apr 8, 2010 at 2:13 PM
Excellent exchange, guy. Many insights. I was particularly interested in the Tweetup Q&A. And pleased to see Paul coming around to the importance of using alternative channels that "get [the consumer]the wine to taste". If memory serves, which it often doesn't, when Mr. Mabray was at IBC he argued against the significance of would-be consumers sampling the vino. But as I say, I may be misremembering.

I wonder what other such gatherings are in the works beyond the Napa/Sonoma Wine Tweetups and the more limited brand versions by St. Supery and Hahn?

tom merle's Gravatar
tom merle
@ Apr 8, 2010 at 2:15 PM
That be IBG

tom merle's Gravatar
tom merle
@ Apr 8, 2010 at 2:46 PM
I was negligent in not mentioning Craig Drollett's in this context. I also recommend this article for a good overview on procedure:

Chris Oggenfuss's Gravatar
Chris Oggenfuss
@ Apr 8, 2010 at 5:47 PM
Andrew and Paul,

Great post that very succinctly spells out the challenges and solutions that exist in the wine business. I totally agree with Paul on the the statement "Pro-direct doesn't mean anti-distribution". Just like Social Media is part of an integrated marketing strategy (i.e. will not replace traditional PR and marketing) DTT and DTC together are the answer. In the end they help each other, the consumer and build a stronger business model. After all it all about breaking down barriers and friction for the consumer, technology and innovative ways to bring product to market do this. The wine business is so unique in the fact that it spends million of dollars on the production of wines but is much more hesitant in spending the money when it comes to investing in sales software/hardware technology and in the marketing of wines.

Lots of cool technological opportunity for wineries to sell more direct while helping distributors and on- and off-premise accounts sell more wine by leveraging the relationships with their customers.

Invest in the technology to build relationships with your customers and watch the wine sell!

RichardA's Gravatar
@ Apr 9, 2010 at 7:10 AM
I too agree with Paul's statement that "Pro-direct doesn't mean anti-distribution." I certainly do not see a significant downside for wholesalers if there were increased DTC, and believe it would actually have a positive effect. Despite the total amounts of money spent on wine in the U.S, the average consumer still spends only about $65-$125 per year on wine. That is a very low figure, showing lots of potential growth there. But that requires wine to become even more prevalent in our society. And one way to do so if to make it easier for people to obtain the wines they love to drink.

DTC would allow consumers to do that, increasing the overall averages consumers spend on wine. And they more they spend and drink, the more ingrained wine becomes in our culture. And the more people who will visit wine stores, and buy wines that wholesalers have placed in those stores. DTC will never replace the need for wine stores. It will simply add an additional outlet, helping to promote overall wine consumption.

Thomas Hansen's Gravatar
Thomas Hansen
@ Jul 20, 2010 at 4:49 PM
Interesting, and fun, to see someone to such a large extent trying to get wineries to understand the importance of 'the new world'. Loved the [kind of] Seth Godin quote ... :)

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