Recap: What is the MarketPlace
The MarketPlace allows winemakers to pitch wines at any price, and the software will automatically calculate shipping, excise, Naked’s cut, VAT, and so on in order to show you the final retail price. But the MarketPlace also allows for some degree of haggling between the winemaker and the consumer.
Offer Lower Price feature
The feature that allows this haggling is the “Offer a Lower Price” button. When a customer clicks this button, they are given the option of choosing between 5 prices (the options decrease by 4.75 £ each time). So you can offer the winemaker’s full asking price, 4.75 less, 9.5 less, 14.25 less, or 19 less.
If you place an offer at the lower price, that bid is binding. The winemaker can accept to lower the price and you are already commited to the purchase at that price. But if the winemaker lowers the price, it lowers for EVERYbody, even the people who bid at the full price.
The adjacent image is a screenshot of the customer interface for my reserve which is on sale as I write this post.
As you can see, a lot of people are using the bidding system to say they wouldn’t buy at the full price, but they would buy at a lower price.
When to Lower Price
This system has generated a fair amount of confusion. People commonly question why the winemaker would ever accept the lower price. Others question why consumers would ever pay the full price. I understand the skepticism, but I hope we can overcome it. Because it’s really pretty straightforward business.
Let’s assume a winemaker offers a case of 6 bottles at 60 £. Only ten people bid the full price. But twenty people bid at 50.50 £. And forty people bid at 41 £.
The winemaker can choose to
- sell 10 cases at 60 £ to make 600 £
- sell 30 cases at 50.50 £ to make 1515 £
- sell 70 cases at 41 £ to make 2870 £
Looking at these options, the winemaker might decide to lower the price of the wine.
Rowan Gormley, founder of Naked Wines, explains:
“The answer is that winemakers will often trade price for volume…and we wanted you to benefit from that. By you bidding, you PROVE to the winemaker that the demand is there at a lower price.”
People don’t realize that winemakers like me are constantly asked by importers to make price concessions based on some vague hope that this will increase sales. On the other hand, the MarketPlace shows concretely how much my sales will increase if I lower the price per bottle. And it’s not theoretical. The lower offers are binding purchase agreements. If I lower my price, then those bottles are sold. Pretty fancy. Pretty powerful.
Will the customer ever pay full price?
In my personal experience of putting the Reserve on the MarketPlace, we see that (as of June 4 2011) 137 cases were sold at full asking price. Another 120 cases would be sold at various lower prices. So, here’s proof. A lot of customers are willing to pay the asking price. A majority of them. But why?
A couple reasons:
- The asking price is already discounted from the regular retail price
- The Proprietor’s Reserve is rare and this price is rarer still
So it looks like a lot of customers just take the deal in good faith. From a game theory perspective, you could say the fear of missing out on the deal entirely outweighs the potential benefit of saving a few pounds. But if a wine is less established on the site, this fear of missing out might be mitigated and the potential benefit of saving a few pounds might win out.
In this next part, I get bogged down in pseudoscientific psychobabble, so you might want to skip ahead. . .but we could imagine three kinds of users on the MarketPlace.
- Sounds great – Tends to bid full price
- Think about it – Tends to weigh all options
- Minimumista – Systematically offers lowest price
The “Sounds great” customer tends to accept the deal at face value. You could also call them the good faith bidders. They just assume the winemaker is doing their best to get the wine to the UK. A lot of the winemakers with established reputations on the site elicit a higher number of “sounds great” customers. We’re trusted, people know the quality of our wines, people know the usual prices, and they see we’re making an effort. So they say it sounds great.
The minimumista is a person who systematically offers the lowest price on a wine. I don’t want you to think I dislike this person. I actually think it’s very intelligent for a casual drinker. If there’s an unknown wine on the site and you’re not sure whether you want to buy it or not, then you should probably put in the minimum bid. Assuming the wine is decent, you’re going to get a real bargain when a winemaker actually accepts the lowest price. And if they don’t accept the low price, nothing is lost because you weren’t exceptionally interested in the wine in the first place. But you have to realize that most winemakers will not accept the lowest price. So this strategy only makes sense if you can afford to miss out on the wine.
And now we’re getting into the realm of thinking about it. This customer is going to weigh the chance of getting a lower price against the risk of missing out on the deal entirely.
“I want to save 20 pounds, but I also really want this wine. Maybe I’ll just bid 10 pounds less.” or
“I want to save 20 pounds, but I kind of want this wine. Maybe I’ll just bid 15 pounds less.”
Hopefully this all makes sense. Again, looking at my marketplace offers, this seems to be justified. There are a significant number of full price bids. There are a significant number of minimum bids. And there are some in the middle who are thinking about it.
Is there a demand curve?
Rowan has a lot more data than me and he insists that there are definite sales trends that are heavily affected by price. A rule of thumb that gets thrown around a lot is “Lowering the price of a bottle by 1 pound will double sales”. The offer lower price option allows us to check if this is true.
Here are the bids on other wines in the MarketPlace.
While most of these offers (including my own which was screenshot at the top of this post) display an increase in volume as price descends, I’m not sure that we have enough data to draw any conclusions. Although I would point out that the box in the lower right has a clear anomaly with 51 offers at 45.79 but only 12 at 43.25. This suggests to me that people are not just deciding based on what the wine is worth to them. Because most studies suggest that more people would buy at a lower price. Instead, it would seem that people are distinctly weighin in the fear of missing out on the deal completely. Or this could be a total fluke. Either way, interesting anomaly.
Will I be lowering price?
All of this said and done, it’s safe to say that I’m not lowering the price on my Reserve 2006 (any more than I did in the initial offer). Essentially I’m selling 137 cases at 95.04 for a total of 13,020.48 pounds. If I lower my price to 85.54 I will only sell 8 additional cases. And the price will be lowered for all the people who offered full price too. So I’d sell 145 cases at 85.54 and actually receive less money (12,403.30 pounds). Of course, all this math is based on the retail instead of wholesale, but it gets the point across.
And again, I should stress that we already lowered the price significantly in our initial offer. Which is why so many people accepted the “full price”.
Hope some of this was interesting. I think it’s a great feature and I can’t wait to see more and more data piling in. It’s a valuable resource to winemakers and a great tool for wine drinkers.