The Fallacy of "Zero Sum" Marketing Strategy
06/01/2008 Post By: Ron Scharman
In game theory, "zero-sum" describes a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant. What is surprising is how many brand managers in the wine industry still have a “zero sum” game mentality when it comes to direct to consumer programs and ecommerce marketing. They believe that including a consumer direct program as part of overall brand management strategy will be counterproductive because of the resulting negative impact on sales in the traditional 3-tier distribution to retailers and restaurants. Nothing could be further from the truth.
This same “zero-sum” logic extends to those foreign wineries and importers seeking to develop winery branded consumer direct programs where their fear is based on concerns that distributors will complain about “unfair competition” in their markets, with suppliers going direct to their customers’ customers. The logic they subscribe to, in other words, is that each bottle of wine sold on a direct basis equates to one less bottle sale made by the distributor to retailers in their territory. ie. a “zero sum” effect. But why should that be the case, particularly when suggested full retail market pricing is maintained in the direct channel?
The last research statistics I saw published found that 90% of all wine purchased by consumers was meant for consumption within 24 hours. The fact is that when consumers buy wine on line, or by phone, or via catalogue, it does not mean they stop buying wine locally. By making wine more available to more consumers in more states, and in greater variety and assortment , the net effect is to stimulate and increase overall sales (Yes, wine too has a “Long Tail”). Consumers who buy wine directly from wineries, or from importers representing wineries online, also buy these wines when they available in restaurants and in local retailers. In fact, they are more likely to buy wines locally if they have tried the wines and liked them to begin with. Since wine selections vary by state, city and retailer, the consumer direct channel allows consumers the opportunity to buy wines they cannot find locally, but would like to try – particularly varietals or vintages from a producer that are not in wide distribution or available at all except from the winery or importer. This only increases overall demand for the brand which further feed consumption in restaurants and bricks and mortar retailers.
An interesting parallel to this is what occurred in the late 1970’s/early 1980’s in the luxury brand apparel industry. At that time, primarily only department stores carried designer labels. When brand owners, such as Ralph Lauren, Calvin Klein, and Donna Karan decided to open manufacturer owned stores in outlet centers, there was a great fear in the industry that unless these outlet stores were developed in remote locations away from prime urban retail space, department store sales for these brands would be hurt – In other words, “Zero Sum” logic.
Guess what, it didn’t happen – demand continued to grow as new consumers gained access to the branded products in a different channel.
When these same brand owners decided to open up luxury boutiques on 5th Ave in New York, the Miracle Mile in Chicago, and Rodeo Drive in Beverly Hills, right down the street from the department stores which, at the time, generated most of their overall sales, the same fear of brand sales cannibalization spread through the department store industry.
Guess what, it never happened. In fact, the luxury branded business exploded concurrent with this expansion of brand owned retail stores into major urban shopping districts, as more consumers had more access to and more options to buy the branded product than previously. As the department stores themselves noted at the time, their own sales of these luxury brands increased dramatically because of the overall increased awareness and demand for these brands from new and existing consumers. Everyone prospered in the end.
The same principle applies to brand management and marketing of wine. Consumers want more choices, more variety, more accessibility, more freedom. The consumer direct channel is one means to increase overall brand awareness and sales, without competing with existing channels of distribution. When intelligently planned and executed within the framework of existing regulatory laws for consumer direct fulfillment, a consumer direct channel management strategy is a valuable component of any wine marketing strategy because it recognizes the importance of creating a closer relationship with the consumer, and of gathering the valuable marketing data that results.
Producers, importers, distributors, retailers, and restaurants can all benefit in what need not be a “Zero Sum” world. And most importantly, it allows brand owners collaborators the opportunity for access to new consumers whose entry point to the wine consuming world may only come through this channel.
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