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.
This is part of a series on the Naked MarketPlace, a new initiative from my UK importer that allows any winemaker on earth to sell wine to members of their site. This first post will explain the basic premise of the MarketPlace. Future posts will explore how exactly the marketplace works and how it might affect the future of the wine business. I’ll specifically be looking at my first experience placing 100 cases of my Proprietor’s Reserve 2006 on sale through the Naked MarketPlace.
What is the MarketPlace?
MarketPlace is a platform like ebay or groupon that allows wine producers to “pitch” their wine to the UK market. It’s not EXACTLY like ebay or groupon, but it has a lot more in common with those style websites than with traditional wine importers. Traditional wine importers buy wine and resell it, assuming a large amount of risk, marketing costs, storage costs, and so on. The Marketplace puts producers in direct contact with a group of final consumers and wine doesn’t get shipped until its all presold.
The MarketPlace launched at the London International Wine Fair in May 2011.
Specifically, the site allows producers to put a wine on sale at any price and offer it to the UK market. If enough people buy the wine at that price, than Naked Wines (the importer) pays for the wine and brings it into the UK, sending it straight onto the consumer. Naturally, Naked will be charging a commission and some of their overhead (excise, transport, etc), but all that is made abundantly clear when the producer goes through the pitching process. If I pitch a wine at 2 euros per bottle, the site will tack on all the charges and commission and change the currency and display the final consumer price. So I’m paid the 2 euros I asked for and I see the final price offered to the customer.
If a wine fails to sell its minimum amount, then something else happens. Throughout the bidding process, customers at Naked Wines have two options: “Bid current price” or “Offer a lower price”. This second haggler’s option allows a person to speak up if they would have bought the wine at 1 pound less per bottle. If a pitch is unsuccessful, the producer can look at the lower offers. And hopefully, the producer will realize what price point the wines need to be in to make a splash in the UK market. I’ll look more at this specific aspect of the marketplace later on.
Who shops at the marketplace?
Naked Wines has a rather large customer base (175,000 drinkers). And we’re not talking one time buyers. Naked has customers who are paid members of the site. They pay 20 pounds per month and get that money in cash back on future purchases in addition to certain member-only discounts.
These members are all encouraged to take a look at the deals offered in the marketplace and they will hopefully all bid on the steals they find there.
Who will sell on the marketplace?
Literally anybody can access the marketplace producer platform.
I imagine that producers who already have a track record on the site will be eager to use this platform to move lots of wine at a smaller margin than what Naked Wines normally takes. Essentially, as Naked cuts its mark-up down to a 10% commission, it’s left to the customers and producers to haggle over the savings. That means a little more money for producers and a little less cost for the customer. Having a proven track record on the site guarantees a certain level of quality for wine on the marketplace.
On the other hand, producers who have absolutely no track record might also benefit from this. They’ll have to fight a little harder and maybe offer the wines at a lower price to get things started, but these producers will eventually build up a reputation. Alternatively, they can send a few dozen sample bottles which will be given to the most vocal members of the Naked Wines customer community in the hopes that this will start some buzz on the site. I’ll address this in more detail later too, as early experience make me slightly hesitant about the potential to build up a reputation.
No more whining
Essentially, the most important development regarding the Marketplace is that wine producers no longer need to depend on traditional importers. If you think you make great wine and all you need is a chance to be on the UK market (there are a lot of us in that boat saying “If only an importer would give me a chance”), you now have that chance. Pitch a wine on the marketplace. See how things go.
Frequently Asked Questions
There are some FAQ on the naked wines site.
Of special interest to my readers, here is the winemaker section of the FAQ:
Q&As for winemakers
Who are Naked Wines?
Naked Wines is an online wine retailer who supports independent winemakers from around the world – with over 150K customers. On average, we ship over 10,000 bottles of wine a day.
What’s Group Buying and who is it for?
Naked MarketPlace is an online farmer’s market where winemakers can pitch and sell their wines directly to UK wine drinkers – at a price which works for everyone. Winemakers name their price, based on selling a minimum number of cases – and wine drinkers can either accept the price and bid OR they can suggest a lower price (which the winemaker may or may not accept!).
What are the costs?
There is NO cost for pitching your wine to our 150,000 customers. Simply 20 minutes of your time to upload your product on our website! We charge 10% commission if the pitch ends successfully – and if the pitch falls through, we won’t charge you a thing.
What are the risks?
There are no risks. You set the price, you set the volume. If enough customers want to buy your wine, great – the deal is done. If not, you walk away.
Who decides on volumes and prices?
As above, you’re in control and you set the price and minimum and maximum volume. Customers can bid to pay a lower price, but it’s up to YOU whether you accept or not.
Once I’ve uploaded a product, can I change my mind and remove it?
No, once it’s live you cannot remove your pitch. BUT if you’ve made a mistake then please email us at firstname.lastname@example.org and we can help.
Can I change the price and volume once a pitch is live?
Customers can reject your price and suggest a lower price. IF you agree with their suggested price, you can accept their new price BUT you can’t change prices yourself once a pitch is live. You can’t increase or decrease volume either.
Does Naked Wines provide technical support and selling advice?
Yes. If you need any help or advice you can contact us on email@example.com
How long does each pitch last for?
Seven days. It will end automatically after this time – whether you’ve reached your minimum number of orders or not.
Can my agent (or someone else) manage or set-up a pitch on my behalf?
Yes. Although this is NOT the place for agents to offload dodgy old stock that they can’t shift – as customers simply won’t buy it.
Can I set-up more than one pitch?
Yes, you can sell as many different wines as you like.
Can I mix up wines in a case?
No, your pitch is for 6x one type of wine.
Will it affect my brand and can I work with other retailers in the UK?
You can work with as many other retailers as you like – and charge whatever price you like elsewhere. Group Buying is NOT a traditional retail channel, so you’re not compromising your brand in any way. In the same way restaurant prices and retail prices differ for the same product, Naked MarketPlace prices differ to normal shop prices.
How can I drum up excitement about the product?
Make sure you upload interesting product information and a good picture! It’s also a good idea to chat to customers on the website. We will email you every time a customer asks you a question and explain how to reply. You can also ship our customers free samples if you want them to try it. We have a group of customers called Archangels who are a very powerful sales force – and will spread the word!
When will I get paid?
Once the deal has ended, you need to deliver your wine to and our hub in your country within FOUR weeks. Once delivered, we will get the wine chemically analysed to make sure it’s EU compliant. As soon as we’ve got the certificate, you will get paid within 10 days. If the wine doesn’t pass the test, we will return it to you and you won’t get paid. N.B. If you don’t stick to the deal and deliver the wine on time, we won’t want you pitching any more wines in the Naked MarketPlace – as we don’t want to let customers down.