The Price Elasticity of Wine Club offerings
Posted by mitch.schwartz on April 17th, 2008Recently Inertia led a Wine Club Symposium for our clients and other wineries that were interested in exchanging ideas on best practices for building and growing a wine club. One question that was raised was the impact, if any, that the current economic climate (dare we say recesson)had on club attrition. The general consensus seemed to be that there was infact, an increase in club member cancellations. There then ensued a discussion on what could be done about this.
This led to a question on how price elastic was the demand for club membership. First a quick review of macro economics - Price elasticity is a measure of how much demand changes with a change in price. In a perfectly elastic product, a 10% change in price results in a 10% change in demand in the opposite direction. That is an increase in price, results in a decrease in demand. Products that are easily substituitable tend to be very elastic (think fast food) while products that aren’t easy to substitute for are inelastic (think gasoline).
Okay back to wine. I’d suggest that wine club memberships are substituitable, and therefore elastic. So if demand is shrinking because disposal income is well, less disposable, then it flows that a reduction in price could stem the decline. I suggested that if you normally have a 3 bottle club, you might want to proactively think of offering a one time recession buster 2 bottle offer, or some other price reduction. Of course, you do not want to reduce the price of the wine, or increase the discount. Maybe free shipping would work. Â
Others in the room felt they would wait until a customer contacted them before making an offer. I think the primary question is this; what is more important, maintaining the Average Order Value of the club, or keeping as many members as possible. That’s the question, you need to provide the answer.
