Redefining the Tasting Room Model
We live in strange times. Over the last decade, we’ve experienced earthquakes, multiple giant fires, and now a pandemic. Our industry has been blessed with a tremendous boon of oenotourism for decades but these events coupled with other challenges are redefining the success of the tasting room model (if you’re curious you can read my 2019 speech and watch the video of my Wine2Wine performance for Future-Proofing wine).
The Gift of Wine Tourism
Our fortune has actually made us a bit jaded to understanding the gift of wine tourism. In reality, if we built the model from scratch in another region we’d look at it and decide that it’s a flawed model from the start. As Rob McMillan and I joke, the current tasting room model is like having a car dealership with cars you can only experience by flying to the plant, then flying home to order it and have it shipped to you. While we can admire the magnetic attraction of a tourism destination like Napa, Sonoma, Paso Robles, etc. we should probably look at the economic friction to get a customer outside of 90 miles to visit the winery.
The Cost of Visiting Wine Country
Here’s the crude economics from six major cities 90 miles outside three major CA wine regions for a weekend trip:
And when you extend that stay to a week . . .
Visiting Wine Country is Expensive
So in essence, customers from these major cities pay a pretty hefty toll to visit wine country for a weekend or a week (and these are pretty conservative numbers and exclude any additional purchasing, including wine). Expecting them to do it on more than an annual frequency is economically infeasible for the majority of customers. But they have invested hard-earned dollars to visit a wine region and enjoy the beauty. Getting them to our wineries is a modern miracle in some ways.
The Cost of Acquisition
Our own success made us addicted to the continual inflow of new customers and our systems, processes, and programs to retain customers have not matured at the rate of customer acquisition. It costs 5x more to acquire a new customer than to retain an existing one (invesp). A busy tasting room sees hundreds of customers on a weekend. Let’s say information is captured for 50% of these customers, then what? In most cases, unless they joined the wine club in the tasting room, these customers are added to the general customer pool and receive the next regularly scheduled programming. Without a welcome track at the beginning of their customer journey, they are likely to fall through the cracks.
With new challenges exposing the brittleness of the tasting room model, it’s time to reevaluate retention strategies. I believe the future success of all DTC brands will be built through retention programs. This means paying to build better processes to ensure customers stay in your loyalty loop. What can you do to put yourself in the customer’s shoes to keep them returning to you vs other brands?
Creating a Customer Retention Budget
First and foremost, start by building a budget for retaining customers. I’d recommend budgeting varying amounts for different cohorts. Dedicating the most resources and budget to the most loyal customer and trickling down to spectators. If you break the spectator segment down further it may make sense for your brand to allocate a small about of your budget to a new customer program. I left it at zero in this example because you could also send a series of drip emails at no cost. We recommend testing works best for your brand. Here’s an example retention budget:
Crunching the Retention Numbers
Let’s do a little thought experiment…what would happen if 10% of your customers made one additional purchase this year? 15%? Let’s look at it through a different lens. What would happen if a key cohort made an additional purchase?
Imagine if you could get this consistent buyer group to make one additional purchase per year. At an average order value of $507 times 1,055 customers, that’s an additional $534,885. What would you be willing to spend to earn that revenue? Assume it was 10% ($53K). How would you use that $53K to earn that additional sale? Would you subsidize sales? Would you devote that to a “fat case”? Would you host an event in their local market? Would you send an annual thank you gift? Or would you offer a retention benefit (every year you buy from us you get x% off)? Would you generate birthday and Christmas gifts (for example, every year after buying my wife a nice ring from Tiffany’s, we would get crystal ornaments)?
Changing the Way we View Customers
As the atmosphere around us continues to rapidly change, survival depends on adaptation. A couple of tips as we move into this brave new world.
- Don’t be afraid to fail. This journey is new for everyone.
- Remember that every winery is flooding customer emails, phones, and more to get sales (often the same ones). Be patient. Play the long game. These are people. Talk to them like people.
- Expect attrition/rejection. People are scared, confused, & losing their jobs.
- Extend kindness and empathy. As my friend Gary Vaynerchuk says, “Care. We’re all in this together.”
Fundamentally these events have changed our business forever. Our future success will be rooted in how we acquire new customers outside of the tasting room but even more importantly, how we retain the customers that do come to us through any channel. This will only be done by giving a meaningful value exchange beyond good wine and by forming tighter, lasting relationships with our customers.