Library Release - Dissecting the Price of Luxury Wines

XChateau Wine Podcast

This Library Release was selected in conjunction with the next episode discussing pricing and was initially released on December 2nd, 2020.

Robert and Peter discuss how luxury wines are priced, delving into the core insights from the Pricing Chapter of Peter’s book, Luxury Wine Marketing. They discuss the luxury wine price segments, the types of luxury wine buyers, and how you need everything to be working right to build a luxury wine brand. “You can’t just stick a label on two-buck-chuck and price it at $1,000.”

Detailed Show Notes:

Luxury Wine Marketing (“LWM”) was published in late 2019

• It contains industry best practices for how to sell luxury wines vs. more “commercial” wines
• Includes new research on the market size, customer segmentation, and frameworks for marketing luxury wines

Wine pricing segments

• The overall wine market has an average price of $7-8/bottle
• That makes $20+ sometimes classified as “luxury”
• In LWM, luxury wine is more of a luxury good - where the product is used to differentiate
• $50-99 - affordable luxury
• $100-199 - everyday wine for the luxury buyer
• $200-499 - special occasion luxury
• $500-999 - icon wines
• $1,000+ - dream wines

Luxury wine consumer segments

• The Wine Collector
• The Wine Geek - seeks knowledge
• True Luxury Buyer - buys top brands
• Aspirational Buyer - looks up to the True Luxury Buyer

Brand impact on price

• Dom Perignon is a special occasion wine at $170/bottle vs. if it was $40/bottle
• Price signals an element of quality
• Price makes some people think it’s better quality

Strategies to launch luxury wines

• Build Up - start lower priced and build up
• Build down - start higher and build down
• Need a good story and quality to back up pricing
• E.g., Penfolds - from Grange to $10-15/bottle wines, Grange provides the halo effect for the cheaper wines as people associate themselves with the brand
• Luxury branding - using price over value as the luxury driver, e.g., Harlan Estate

Luxury wine demand

• Sometimes when you increase the price, you increase the demand
• Two types of demand - consumption and investment demand
• Wineries want people to drink, not sell the wines, to keep the secondary market high
• Still need to have value - quality and reputation of the wines
• Burgundy - driven by wine collectors who want the scarce and rare

Tricks and tips for buying luxury wines

• Know what you like and target those types of wines
• If you want something special - brand strength is essential, a la the gifting culture in China
• Follow critics whose palates are similar to yours and track their scores to find values
• Check out the best wines from less well-known parts of the world

Winery pricing strategy has four major determinants

• Quality
• Brand strength
• Competition
• External factors

How do some Napa wines come out of the gate pricing $250+?

• Sometimes they leverage the brand strength of the winemaker
• Primarily selling to friends and family
• Sometimes they need to play the long game and sit on wines for a while

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