History has clearly embarrassed the 1990s pundits who dismissed the Internet as a passing fad that would never replace physical stores. We barely remember their voices. More likely, we recall Web evangelists whose battle cry was "The old rules are obsolete; this is a whole new world"—words of equal folly in our post-dot-bomb era of "Keep an eye on the ROI."
Meanwhile, the Internet continues to grow, fed by social rules impervious to the forecasts of media pundits. More users every year. More online transactions. More broadband and wireless access. More faith in the system.
In 2005, combining this knowledge about the Internet and 25 years of marketing experience to launch a new internet business, the Sideways Wine Club. And in one short year I've decided that both camps arepartially right—both the "onliners" and the "offliners."
There are definite customer acquisition challenges for something as personal and sensory as wine. This article contrasts the efficient but increasingly expensive online acquisition channel with the more effective but inefficient offline channel. Conclusion: The proliferation of digital media brings a necessary convergence to these two channels.
A Little Background
Seven years ago, during the blazing heat of dot-com brouhaha, the phrase "clicks and mortar" was briefly popular. It was a phrase coined for a new breed of online "category killers": large old-line businesses with (gasp!) physical stores.
Such companies envisioned a retailing future that would be half real-world, half virtual. These behemoths came late to the Internet party, but they brought the brand power and resources to crush their startup competitors. Or so the theory went. The meltdown proved that this concept, too, was subject to irrational exuberance.
The proof of exactly how dead this concept is can be found at any of the online booksellers, where copies of Clicks and Mortar are no more expensive than a share of penny stock.
But the rumors of its death have been greatly exaggerated. Particularly when marketing a product such as wine (or perfume, or any other senses-based product) that benefits from being experienced through our eyes, nose and mouth. The world of wine marketing is an interesting one, with enough unique and quirky characteristics to interest the most casual of marketers.
First, the wine industry is unique for its brand proliferation. There are over 3,500 domestic wineries, each producing 1-36 labels after each harvest, resulting in well over 17,000 domestic wines available for sale at any one time. Of these choices, the 100 best-selling labels account for over 90% of volume. Second, 64% of people consider themselves wine drinkers, but just 13.7% account for 87% of the total volume (Wine Market Council, 2005 consumer study).
Studies in wine brand loyalty also reveal wide variations by market segment, with the most loyal being the relatively casual wine drinkers. At the opposite end of the spectrum are the "Enthusiasts"—a small group responsible for the vast majority of wine expenditures—who thrive on trying new wines.
Clearly, this is a "Discovery Industry." American wine sophistication is also growing—a decennial Gallup Poll conducted in 2005 revealed that, for the first time, wine surpassed beer as America's most frequently preferred alcoholic beverage.
And to complete this brief industry overview, the three-tier distribution system in place since the end of prohibition is slowly beginning to crumble, allowing more freedom of access to customers and a resulting explosion in wineries and merchants pursuing direct-to-consumer marketing, both online and through tasting rooms and wine clubs.
Our Creation Story
In the waning days of 2004, someone mentioned in passing that "it would be cool to launch a wine club based on the movie Sideways." Funny, I'd been looking for a change from consulting for wineries.
In early 2005, I decided to launch a Sideways-branded wine marketing site. I had just four short weeks to launch ahead of the PR-rich Academy Awards: The URL was registered, Fox Searchlight Pictures was contacted about licensing rights, and wines were lined up and evaluated. The week before the awards, everything was ready... but we still had no reply to our many inquiries about licensing.
So we sent Fox an email containing a link to our initial Web site. In the email we indicated that their silence was interpreted as tacit approval of our plans and that the site would go live within days unless we heard otherwise.
They were firm but polite in their response, which arrived within 24 hours. "We are interested in discussing a use license, but do not launch your site until such an agreement has been finalized. Doing so will remove render you ineligible as a licensee."
Though we missed the film awards that year, we were able to launch SidewaysWineClub.com by April 2005.
The Wisdom of the "Sideways" Brand
As marketers, we knew the decay curve on "Sideways" recall would be rapid. And as much as I wish I'd been wrong on that prediction, decay has most definitely occurred. But we still benefit from a substantial amount of free PR every time the movie is mentioned in the wine press.
How often is that? Last week, a full 20 months after initial release of the movie, there were no less than 15 articles containing a reference to the movie or "the Sideways Effect"—press that keeps the brand alive every week in the minds of an estimated 150,000 wine enthusiasts. We track this lingering buzz factor using "Google Alerts," a most helpful replacement for clipping services.
"The Sideways Effect" is a term that the wine industry has come to know very well. It's difficult to attend an industry symposium or tasting without hearing it. The phrase refers to the increase in sales of wine in general, but particularly of Pinot Noir (up 72% since the movie's release). Pinot was the wine held in reverence by the lead character, Miles. Meanwhile, sales have stagnated for Merlot, a former fast-tracker that was dissed by Miles in one short but memorable scene in Sideways.
Online Wine Merchants Struggling
Those who closely follow online retailing have likely read of the financial perils facing most online-only wine merchants. Those that are doing well tend to be online extensions of real-world wine shops. Bricks and Clicks. Deja-vu all over again.
Our business plan anticipated that the nationally recognized "Sideways" brand would result in higher conversion rates than the wine industry average. All that was needed was to use the nationally recognized "Sideways" brand to drive relevant traffic to our site and let the wines do the rest.
With that in mind, we selected wines and designed our site to meet the needs of three key market segments that account for over 90% of the dollars spent on wine.
Our Marketing Plan
As a small company with limited personnel resources, our initial marketing plan required leveraging online traffic from every source imaginable. So our marketing plan called for tests of the widest possible variety of acquisition sources:
- Drive traffic from our link on the "Sideways Movie" and Sideways DVD home pages.
- Optimize our site for search bots
- Develop a test matrix for search word sponsorships with Google, Kanoodle and Overture/Yahoo
- Test online ads with various shapes and sizes and offers, placed on carefully selected sites
- Develop online affiliate programs
- Implement our customer development plan for our in-house email list
- Test rented email lists to acquire first-time buyers
- Generate tourist interest through applications at real-world business partners in "Sideways Country"—inns, restaurants, visitor centers, retail stores and participating wineries—spots on the "must visit" list of the 3.5 million tourists that flocked to the region after the movie's release
Our primary research indicates that a "loyal online buyer" of premium wine is a rare customer, with most preferring to buy from a variety of sources. But even the "occasional online buyer" is difficult to create—most online wine marketers experience a visitor-to-buyer conversion rate in the 0.008 to 0.009 range, well below most online retailers, because of various limiting factors:
- Often, the wine for sale is from relatively unknown Boutique producers (i.e., not one of the top 100 or 200 known labels), thus raising the risk in a trial order.
- The buyer must wait between one and 10 days for delivery.
- There is no chance to see, smell, or taste the wine or confer with a trusted source.
- Wine is heavy and therefore shipping costs can be high.
- The signature of a sober adult (seriously) must be obtained at the time of delivery.
But over the course of the first year, we learned that our brand alone was not adequate to exceed average acquisition rates. Our cost of acquisition across all channels ranged from a low of $20 to a high of $275—a range that quickly focused future spending. The cost of the brand (our license) was simply not supporting itself online.
And yet, our brand was generating tremendous offline enthusiasm from wine drinkers. We were fine when we could engage through the senses—in situations where wine drinkers could taste our wines, exchange wine information and stories, and take away an impression—but this face-to-face exchange seems so, I don't know, so old school, so inefficient.
Marketing the Experience
The 1999 book The Experience Economy is a bit long in the tooth, but it still provides relevant insights into brands that thrive. And with the increasing proliferation of digital media, such "inefficient" real world experiences can be shared well beyond an event's attendees through various means:
- A properly formatted blog shares the experience with non-attendees
- Digital videos of events, posted to your website and made available for download
- Podcasts of key lectures or sessions
- Recorded testimonials of participants
And when it comes to bringing people together for memorable real-world events, the wine world is filled with experiences we can readily share:
- Wine Boot Camp: Participants participate in vineyard care in the morning, enjoy a lunch in the vineyard, then progress to a cellar tour and blending experience before enjoying a candle-light dinner in the cellar.
- The Grape Stomp: One Italian music group we know of has expanded its list of potential venues by sponsoring a successful grape stomp—complete with a Lucy impersonator—perhaps the most famous grape stomper of all!
- Chronicle great wine events such as Hospice du Rhone, the Pinot Noir Shoot-Out and family winemakers, loading each entry in real time.
- Corporate events, such as the recent MarketingProfs seminar in Santa Barbara, can become subject matter that is relevant to all attendees as well as non-attendees.
- Wine Country Tours: Though the key to good home movies is ruthless editing, a good video can be more entertaining and informative than a Ken Burns documentary!
- Replicate the tour taken by the gang in Sideways, and stream it from the Web site.
Though this marketing strategy is a far cry from that implied by the "Clicks and Mortar" concept of some seven years ago, it may just be the next generation of the same idea. And as the idea of "the Web" dissolves into "wireless media," the immediate sharing of great digital experiences is bound to become a powerful marketing tool.
Welcome to the Experience Economy!