The Grapevine

Transparency with Cost Structure and Profit Margins

April 11th, 2017

Have you bought a car lately? If you’re older than 40 or so, boy how times have changed. When you bought your first car, the dealer held all the cards. Now, the consumer does and dealers seem to live and die on their service departments. What’s that got to do with retail wine sales? The internet isn’t ignoring us, either. [level-members]

How comfortable would you be sharing your cost structure and your profit margins with your potential customers? That, in essence, is what the internet is forcing a great many industries to do, from legal services to electronics to new and used car sales. (If only we could achieve the same sort of transparency in health care!)

I’m certainly not advocating that you post your cost and margin alongside retail prices and your staff pick shelf talkers. But you do have to expect that your customers are going to know what it costs for them to get wine down the street. They’re going to know what it costs to get wine from your fellow small-shop competitors and from larger retail outlets and chains. (Depending on where you are.)

And since they know that information, you have to know that information.

You don’t have to share it with them, but you have to know it so you can defend your pricing, explain distributor pricing based on volume, and whatever else comes into play in your market.

There will always be price-sensitive shoppers who simply aren’t going to buy from you if they can get it cheaper elsewhere. You don’t want them as customers anyway. But even good customers, the customers for whom your expertise and intelligently stocked shelves are worth paying more for, will have their limits. So not being aware of the pricing landscape is not an option.

Setting up some sort of monitoring has to be a part of your business management routine. Talking to your distributors to find out what’s happening across their territory has to be a part of that routine. (Though what they say has to be taken with a grain of salt, of course.)

The internet has leveled the playing field in so many industries, particularly retail, that you need to follow the trends that will affect consumers’ expectations not just on price, but on service and what the retail experience should be.