Where Has All the Low Hanging Fruit Gone?

Investing in Future Growth in Digital

2020 is now receding in our rearview mirror, and 2021 is about to hit us right between the eyes. Usually, businesses go through years of transition in making changes to the way they do business. Thanks to Covid, this year has been one of rapid transformation rather than transition. The Old World has become the New World before our eyes. Not surprising that when the survival of one’s business is at stake, we look at all reasonable options for staying afloat, even if it means navigating in uncharted waters. In this case, I am referring to digital marketing and eCommerce, which wineries and other businesses discovered in real-time in 2020. In one short Covid year, the wine industry likely achieved 5 years of progress in moving to a dedicated commitment to online sales.

What does that mean?

It means that through pestilence and fires, fewer visitors than ever before came to wine country and this perpetual engine of growth stopped dead in its tracks. To survive, wineries scoured their data for customers new and old and started a full-scale ambush through email, social media, digital advertising, telesales, and other means, including a heightened appreciation for SEO to acquire new customers. It means that virtual tastings became menu du jour for most wineries looking to engage and connect in a more personal way with customers who could no longer visit their winery tasting rooms. It means that a proactive can-do attitude toward marketing produced dramatic results for many wineries, some of whom were able to achieve substantial year-over-year DTC growth even with tastings rooms closed or with limited traffic due to regulations. And it means that digital appetites were whet for more in 2021, only with better results from what we learned in 2020.

But what is better?

For wineries, the mission in 2020 was to get the most out of sales from the customers you already had, while picking up a few more along the way that happened to discover them. That won’t be good enough in 2021, because the low hanging fruit has already been picked. As brutal as it sounds, we’ve exhausted the wine promotions that played off of the novelty or the shock-factor of Covid. The flood of orders that came from the silly “Sip-In-Place” emails or the more straightforward “support us by ordering our wine online” posts aren’t going to cut it as they did in the spring of last year. It’s time to climb that fruit tree and find new customers who won’t be walking in the tasting room door for quite some time. It’s what wineries should have been doing even before Covid hit but didn’t know they needed to. With more competition than ever and more time for consumers to discover, engage, and buy through digital resources, it takes a well-thought-out digital marketing strategy for new customer acquisition to sustain and grow your business.

It’s all about the math.

There is a rule of thumb in marketing that says a business should expect to spend on average between 5% and 15% of sales to invest in marketing to achieve their sales goals. This amount may differ depending on the industry, the lifecycle stage of the business, gross margins, and other factors. Winery owners have long understood this intuitively by investing in expansive and well-designed tasting rooms, beautiful winery structures, and landscaping which were attributed to “in-kind” marketing expenses. This is a “build it and they will come” strategy, ala Castello di Amorosa, who unfortunately suffered a heartbreaking loss this year during fire season. 

For those without winery castles to market, here is the math behind a strong digital marketing budget:

Basically, you buy eyeballs or clicks to drive website traffic, which converts to customers at a projected rate of conversion. In the example above, if you want to acquire 1,000 new customers to spend $100 per order to drive $100,000 in revenue, you need advertising spend of $50,000 and conversion of website traffic at a 2% rate to accomplish that goal. This equates to a 2:1 return on ad spend (ROAS). 

Spending $50,000 may sound scary, but if your targeted audiences are correct, it’s actually a safe bet. Imagine if your average order size is $200, the spend drops to $25,000, and your ROAS is 4:1.  And this is based on the advertising investment to acquire a customer who buys one time. If you take into account the lifetime value (LTV) assumptions of what a new customer is likely to spend with you over time (LTV/Ad Spend), the return is much greater. The point is, it’s highly predictable, driven by multiple tested ad campaigns, consistently pivoted and updated to find successful outcomes, and is a measured approach tied to sales. Unlike the proverbial billboard on the highway, you can actually measure success in acquiring new customers along the way and at what cost.

Can I afford it?

This is always a question that speaks to the heart of the matter. Wineries think of buildings, land, and equipment as investment assets. But when it comes to marketing dollars, the conversation turns to “what can I afford?” Thinking about digital marketing spend as an investment towards projected sales makes it easier to digest the dollars required to grow those sales. If every dollar spent gets a positive return over time in sales (and covers the marginal cost of goods), then the question shouldn’t be “what can I afford?”, but rather “how much do I need to spend(invest) to achieve my sales goals?”

Here is an example of what a well-diversified winery monthly digital marketing budget might look like for a small to medium size winery looking to climb the fruit tree and acquire new customers:

The key platforms to drive consumer engagement and wine sales are Facebook, Instagram, and Google Ads, with strong brand discovery, awareness, and engagement opportunities on YouTube provided you have the video assets to attract them. LinkedIn can play a role in targeting specific industries and job titles, which may be relevant for specific campaigns. SEO, which is a longer-term play and has no specific marketing cost associated with it, is invaluable in both driving organic website traffic and decreasing the cost per click of paid search advertising. In addition, engaging on all of these platforms in a coordinated effort with email marketing will have a multiplier effect, making email marketing that much more successful and yielding higher overall conversions from existing and new list subscribers. In effect, leveraging the ad spend with additional sales through all channels.

The Big Picture: Benchmarks for success

The U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for marketing and advertising if you are doing less than $5 million a year in sales, and your net profit margin—after all expenses—is in the 10 percent to 12 percent range.

Similarly, here is a recent annual survey of Chief Marketing Officers (CMOs) from a variety of industry sectors and firm sizes as reported by WebStrategies, broken out by industry.

As you can see, the percentages accounting for consumer products companies is in the 4 – 9% range. Why shouldn’t wineries take the same approach and develop a digital marketing plan and budget, and fund it appropriately to dramatically grow sales, whether tasting rooms are open or not? The low hanging fruit of 2020 will not be there in 2021 in the same way. There needs to be a continual improvement in the techniques we use to acquire new customers and get more out of the ones you have. The most cost-effective way to grow, and hedge against future acts of nature and economic downturn that limit wine country travel, is to build your digital footprint and aggressively market into the future.

It’s a point of view and conversation that is long overdue. Test it out in the New Year. Wishing you nothing but success, prosperity, and good wine!