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Wine Subscriptions in the United Kingdom.
Study of the key success factors.
Presented by
Andrea Carozzo
as a Project
in part fulfilment of the requirements for the Bachelor’s Degree in
Wine Business
at Plumpton College
2019.
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Online wine retailing has seen a significant growth in the United Kingdom and in 2015, online wine sales achieved £800 million accounting for 14% of the country’s overall market. Wine subscriptions could count as an important part of the total revenue of online wine retailers and could generate a new income for them. (Why You Should Launch a Wine Club, 2018) The aim of this report is to identify the main critical factors that could contribute to the future success of online wine subscripti
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Wine Subscriptions in the United Kingdom. Study of the key success factors. Presented by Andrea Carozzo as a Project in part fulfilment of the requirements for the Bachelor’s Degree in Wine Business at Plumpton College
Abstract Purpose: Online wine retailing has seen a significant growth in the United Kingdom and in 2015, online wine sales achieved £800 million accounting for 14% of the country’s overall market. Wine subscriptions could count as an important part of the total revenue of online wine retailers and could generate a new income for them. (Why You Should Launch a Wine Club, 2018) The aim of this report is to identify the main critical factors that could contribute to the future success of online wine subscriptions, providing an analysis and evaluation of whether stakeholders are currently successful in focusing on these as an important component in their marketing and sales plan. It will identify the potential target market and how to establish customer’s trust using different marketing strategies. It will also analyse the different style of wine subscriptions by using a comparison of different types of business, such as wine distributors, wine producers and wine specialists. Methodology: Primary research was undertaken through interviews with two different wine retailers, Roberson Wine and SIPP. Secondary research was undertaken in the form of a literature review of books, academic journals, trade media websites, academic lectures, and other relevant internet-based sources. Findings: An overview of the critical factors involved including consumer’s involvement, understanding consumer needs, marketing and promotion strategies, correct use of web technologies and conducting post purchase deliveries. However, key areas such as web technologies and promotion strategies require further resource investment.
TABLE OF CONTENTS
Acknowledgments
- Introduction ……………………………………………………….……………….. Chapter 1:
- Chapter 2: Literature Review …………………………………………………….
- 2 .1: Wine subscription model..…………………………………………….………
- 2 .2: Factors to consider…………………………………………………………….
- 2 .3 :Market segmentation………………………………………….……………..1
- 2 .4: Consumer behaviour and market trends ………………...………………..1
- 2.5: Marketing strategies…………………………………………..……………..
- 2.6: Product differentiation……………………………………………..…………
- 2.7: Promotion…………………………………………………………….……….
- 2.8: Web technologies………………………………………………….…………
- 2 .9: Delivery……………………………………………………….……………….
- Chapter 3: Results ……………………………………………………...………..2
- Chapter 4: Discussion …………………………………………………………..3
- Chapter 5: Conclusion …………………………………………………………..
Chapter 1: Introduction A subscription is an arrangement for providing, receiving, or making use of something of a continuing or periodic nature on a prepayment plan (Merriiam- webmaster.com, 2018). Around 90% of UK adults are spending an average of £56 a month on subscriptions and in 2017, around £583 million was spent on these services. The UK subscription market is forecast to increase 72% by 2022 and it is going to be valued around £1 billion (Tamebay, 2019). Online wine retailing has seen a significant growth in the United Kingdom and in 2015, online wine sales achieved £800 million accounting for 14% of the country’s overall market. Wine subscriptions could count as an important part of the total revenue of online wine retailers and could generate a new income for them (Why You Should Launch a Wine Club, 2018). A wine subscription can include different types of business such as wine distributors, wine producers, wine retailers and wine specialists. A wine subscription would be a unique reflection of the company (VineSpring, 2018). It would increase the consumer’s involvement and improve interaction between the business and its customers. Wine is a product that is often linked to a feeling of traditionalism or classicism, there is sometimes a perception that the consumption of wine is only intended for older generations. However, wine consumption may also be linked to traditionalism and the culture and customs of a certain country, making this a valuable and quality product. An efficient wine subscription model would attract consumers that would like to know more about wine and try different wines with easy access to the purchase procedure.
Online wine retailing has seen a significant growth in the UK since March 2012 and the market now represents 9% of all off-trade wine sales (Online Alcohol Retailing (UK) - Industry Research Reports | IBISWorld, 2019). Online wine retailers offer to their customers various services such as next day delivery, free delivery, complementary gifts, periodical promotions and wine subscriptions. In the middle of the 1990 ’s, wineries also started to build their own wine subscription model to sell directly to their customers (Punj, 2013). Nowadays, the wine subscription is a service that attracts many wine consumers and it has become a more common model adopted by online wine retailers. There are various wine subscription models utilised by online wine retailers in order to create a unique reflection of their business. A subscription is defined as “ an arrangement for providing, receiving, or making use of something of a continuing or periodic nature on a prepayment plan giving the opportunity to a retailer to acquire a customer over the longer term, rather than just that single one-off purchase (Definition of SUBSCRIPTION, 2018)”. We can call a wine subscription a “New Business Model” and the diagram below summarises the differences between an old and a new business model (Tzuo and Weisert, 2018). (Tzuo and Weisert, 2018) Old Business Model (Figure 1) New Business Model (Figure 2)
If we relate this diagram to an online wine retailer, we can see that the old model (figure 1) is used by companies focused on “getting a product to market” and selling as many units of that product as possible. They do this by getting their wines into as many distribution and sales channels as possible. This model would enhance products visibility by using different distribution and sales channels and the end result should be a customer buying their wines, but often companies are not interested in who they were as long as more products are sold. The new business model (figure 2) works in a different way. Successful contemporary businesses start with the customers. They recognise that customers spend their time across many channels, and wherever those customers are, that is where they should be meeting their consumers’ needs (Tzuo and Weisert, 2018). The more information the online wine retailer can learn about the customer, the better it can serve their needs; and the more valuable the relationship becomes. This can generate a digital transformation: from linear transactional channels to a circular, dynamic relationship with the subscribers (Tzuo and Weisert, 2018). In order to meet customers’ needs and to provide an efficient service, the online wine retailer should be able to offer different types of wine subscriptions based on various aspects. 2.2: Factors to Consider There are many factors to consider before launching a successful wine subscription. The company needs to consider the number of bottles to deliver, the frequency of the deliveries, the types of wine and the cost of membership (Login, 2019). The delivery frequency varies depending on the type of the business. Usually, the wine subscription of a general online wine retailer is monthly based. However, some wine distributors and wine producers offer one or two deliveries per year. It
number of companies, aware of the great potential of the netword, are adapting to it by implementing solutions in order to sell online. However, online commerce is not suitable for every type of product; it can be very problematic to sell experiential goods online and it is characterised by certain risks associated with their consumption. Wine - especially quality wine - is one of the products for which the possibility and the opportunity of online sales is much debated (Festa and Mainolfi, 2013). According to the new e-commerce report from International Wines and Spirits Record, the UK-alongside France-has the most globally developed e-commerce sector for alcohol. Researchers show that more than 50% of consumers buy wine at least once a month and the main purchases are directed to medium-low price wines (Global Ecommerce Strategic Study – IWSR, 2019). The wine subscription model is a service that has the potential to attract various types of wine consumers by improving their perception of online wine purchases. With a cluster analysis we are able to divide potential online customers into three groups, corresponding to three types of possible consumers: Quality Seekers : They are consumers who are not focussed on additional services, external influences and delivery conditions. The consumers of this cluster mainly seek quality and they prefer buying wines by visiting wineries and wine specialists (Festa and Mainolfi, 2013). Low Involved : They are consumers who have little involvement in the process of buying and consuming wine. "Low-involved" consumers drink the wine that is there, without worrying about what that wine is and, probably, without too much desire to go online to buy it. We could even call them bar drinkers (Festa and Mainolfi, 2013). Web Confidents : They are consumers who are well-disposed towards online shopping services, and sensitive to the opinions of a community and other external advice. These consumers are familiar with the use of the web and are also attentive to the quality of the wine. Considering that it is also the largest
group, that of the "web confidents" is surely the most interesting target for online wine retailers that offer wine subscriptions (Festa and Mainolfi, 2013). These three categories include people of different ages. Each person depending on their year of birth, will belong to a generation with its own characteristics and its own name. Sociologists and demographers divide the world's population into five 'generational classes'. These are: the generation of reconstruction, the generation of baby boomers, the X generation, the Millennials (or Y generation) and the generation of networks (or generation Z) (Wiedmann, Behrens, Klarmann and Hennigs, 2014). The generation of reconstruction includes people born between 1926 and 1945, that is, those who lived in the period of separation between the two world conflicts and who lived in the Second World War (Wiedmann, Behrens, Klarmann and Hennigs, 2014). The Baby Boomers are those born between 1946 and 1964, in the period of reconstruction after the Second World War. In this period there was strong economic growth and many cultural changes. What sets them apart from other generations is the strong orientation to work, independence, a preference for direct contact, face to face with respect given to written conversation and finally greater concreteness (Wiedmann, Behrens, Klarmann and Hennigs, 2014). In the Generation X (or generation of transition) we find those who were born between 1965 and the early 1 980s and they were young adults who were affected by characterising events like the War in Vietnam and the Fall of the Berlin Wall. These people are more open in accepting cultural differences, more ambitious, self-sufficient and flexible. (Wiedmann, Behrens, Klarmann and Hennigs, 2014). The Millennials are people born between the 80s and early 2000s. However, we should remember that it is impossible for a generation to be completely detached
For example, potential customers can be classified into three categories: non- consumers, occasional wine consumers and frequent wine consumers. In relation to this, the differences in terms of income, level of education, and profession are often not obvious. In other words, the demographic characteristics are not enough to explain the differences in the buying behaviour among groups of marginal and habitual consumers (Bruwer and Li, 2007). The analysis of different consumer behaviours combining consumption opportunities (special occasions, informal occasions, home parties, etc.) and consumption attendance, leads marketing strategies to be more efficient than those based on traditional relationships with the demographic variables. In relation to this positive aspect, the wine marketers could achieve their sales objectives considering a relatively small number of consumers (Bruwer and Li, 2007). On the other hand, the negative aspect is linked to the fact that a relatively large number of sellers are trying to place their products in similar market segments and the conditions become strongly competitive (Bruwer and Li, 2007). In such a situation what becomes relevant is therefore to find a group of consumers who drink wine on a regular basis, who are interested in experimenting with different wines and who are web confident. The consumer’s taste is often related to market dynamics and income. In relation to income level, several studies show that when income is higher, consumers are more prone to buying better wines but not necessarily in larger quantities (Tzuo and Weisert, 2018). However, people who like to try different wines and are often involved in cultural occasions linked to wine such as tasting, tours or being members of a wine club, their higher income could encourage more purchases in both quality and quantity.
2.4: Consumer Behaviour and Market Trends There are many factors that could influence the perception and the behaviour of a wine consumer during their purchasing experience (Thach and Olsen, 2006). Some factors can be considered "external" and hardly influenced by the retailers. Amongst these are demographic, geographical, economic, social and cultural factors (Festa and Mainolfi, 2013). Online wine retailers could influence the so-called "internal factors", for example, by providing information on wine and its consumption. Advertising, promotion (which includes packaging, point of sale, and modality of exposure) and the media are used with increasing frequency to influence the above internal factors. These marketing strategies are used to stimulate purchases by convincing the consumer that a specific product satisfies its needs or encourages the consumer to modify one or more of his needs. Such information can include the status, the acceptance of the risks, the convenience and the satisfaction. Based on this, marketing programmes aim to build consumer awareness towards the product, loyalty to the product, perception of the quality of the product and positive image of the product (Festa and Mainolfi, 2013). In a consumer driven country such as the United Kingdom, the biggest change that has characterised the past decades is the shift of purchases from low price wines to medium-high price wines. The preferences among the quality wines have changed from region to region, depending on which consumers have preferred wines with varietal designations, designations of origin or quality denominations (Outreville and Desrochers, 2016). The increase in consumption of quality wines can be attributed, in part, to the increased knowledge of wines and improved distribution.
Wine retailers are facing a market where 80% of consumers are awaiting efficient and clear messages and this could be a great opportunity to promote a wine subscription service. The online wine retailers could promote their wine subscription as an instrument that could improve the consumers’ wine knowledge offering less common or commercial wines and information about the products, the producers, the origin and testing techniques (How Product Knowledge Can Increase Sales, 2019). Consumers need product knowledge - it is how they make the buying decision. Promoting a wine subscription and talking about the benefits could be a successful strategy with the purpose of educating consumers and attracting their interest in order to make them more disposed to subscribe (How Product Knowledge Can Increase Sales, 2019). How to evaluate Consumer needs The first step in developing a marketing strategy is to know what the consumer wants and how the seller can satisfy his needs (Festa and Mainolfi, 2013). This goal can be achieved through elaborate market research projects using large-scale surveys, focus groups and available market data. In addition, it is possible to achieve important data through interviews and personal observations (Festa and Mainolfi, 2013). The results would help to calculate which factors, appellations of origin, grape varieties, wine styles and brands influence purchase decisions in specific markets. This part of the research should help the retailer to generate different wine subscription themes. The results will also assist the company in positioning the product on the market and determine how to support it through advertising and promotion (Thach and Olsen, 2006).
This market evaluation process is called a “market audit” and it is the precursor of the marketing plan (Festa and Mainolfi, 2013). The next step is to determine the relevant attributes of the product, in order to attract the consumers interest. We can divide these characteristics into four main categories: quality, price, value and digital access (Tzuo and Weisert, 2018). The retailer should therefore identify which qualities are important to motivate customers, in order to choose its very own wine subscription. Consumer Involvement The involvement concept, related to marketing studies, was presented for the first time by Sherif and Cantril (1947); since then it has been frequently used in different contexts, with a profusion of depth analysis. According to Rothshild (1984) it is an emotional state, generated by a motivation and aimed at a purpose, which determines the relevance of the buyer purchase decision. During the process of buying a product, a determining role is played by the level of involvement of the individual within the product category concerned (Laurent and Kapferer, 1985). Understanding consumer’s involvement with wine is crucially important when deciding how to promote this product in an effective way (Trevisan, 2011). A definition of involvement characterises it as a person’s perceived relevance of the object based on inherent needs (Trevisan, 2011). The most important aspect is motivational and emotional; the main point is based on the consumer’s perception as the product itself on his own does not create involvement (Trevisan, 2011). Consumer’s involvement may be situational, so that they could only be familiar with certain brands or wine styles, or they could also be loyal and in a long- relationship with a retailer (Trevisan, 2011). The phases of information search, information analysis and the final choice are
2. 5 : Marketing strategies Marketing strategies must be based on a clear understanding of which markets could be served. Wine marketers define 3 basic types of markets: the mass market, the market of differentiated products and the niche market (Festa and Mainolfi, 2013). Firstly, the mass-marketing strategy provides a single offer for all customers. On one hand, the advantages of this strategy are less about operational services and more product focussed. On the other hand, the main disadvantage is linked to the inability to meet the needs of specific sub-markets. Secondly, a marketing strategy based on product differentiation could offer two or more products with different configurations to the same target market; for example, two different wine subscription themes with the same price (Tzuo and Weisert, 2018). The advantage of this strategy is to build brand loyalty to the market and the disadvantage is that the retailer sales depends entirely on a single market. Lastly, the niche market strategy is based on the ability to identify and evaluate product qualities and consumer perceptions in specific market segments. The goal is to find groups of consumers with homogeneous characteristics and behaviours within the group and differentiated from those outside the group (Tzuo and Weisert, 2018). In order to be attractive, a market segment must be responsive to common strategy marketing. Each segment must be large enough to generate satisfactory financial flows; in addition, it should be accessible. Marketing Mix The market needs to have a clear impact on the definition of the marketing mix (Finotto, 2019).
The product must have a set of qualities with an important significance to the consumer and these characteristics have the role of satisfying consumer needs (Finotto, 2019). The qualities of the product, a wine subscription in this case, should communicate in a personalised way, the reason why they have established a relationship between retailer and consumer. The place where the product and the consumer meet must be adequately "arranged" to allow the relationship to develop solidly. The price must consistently convey the value of the product as perceived by a given of consumption (Finotto, 2019). The characteristics of the product should somehow give the idea of the accepted level of risk by the purchaser. New wine subscriptions offered by companies with long experience, for consumer perception, determine lower risk (Tzuo and Weisert, 2018). Communication must be relevant both for the identity of the sales point and the product.
2. 6 : Product differentiation The product differentiation includes all strategic decisions that seek to distinguish a certain wine subscription from other competing products emphasising its value and the benefits generated by it (Festa and Mainolfi, 2013). The wine subscription goal is to be a common primary service, and not a secondary one. In order to achieve this goal, it is necessary to promote the product with effective techniques in order to drive consumers in such a way that it will allow them to perceive the product quality. Many strategies related to product style, packaging and distribution lose their impact in the medium-long term because they are copied by competitors. As a