Naked Wine Customer Acquisition

Why did the online wine model fail so much, in Australia, before Naked?

Because, unfortunately, price is everything. Australia was producing way too much wine and it may even still be. But for a long time, it was producing way too much wine so there was incredible wine on the market, all the time.

I guess they don’t export much of it or they try and keep it domestically?

They were exporting it but it was as if wine had become the gold rush of Australia and everybody was making wine. There was more wine than, perhaps, sales channels. As a result, people would sell wine at a price that wasn’t sustainable, as a way to try and win the market.

What was the average bottle, roughly?

Let’s use Barossa Shiraz as the litmus test of pricing. Barossa Shiraz should have been in the mid-20s and people were selling them for under $10. It was not a sustainable way to sell it. Again, it was the same problem that Virgin had. Everybody would start their wine company and they would either say, price doesn’t matter, we’ll just be cool and then they would realize that nobody was buying their wine because price does matter. Or they would say, price does matter, so it’s fine to lose money on these sales but we’re building a database and they will come back and buy. Just like Virgin, they weren’t coming back to buy. They were getting the two things wrong. They said, price doesn’t matter; yes, it does. Then they said, people come back and buy; no, they don’t.

The reason Naked was able to navigate through and survive, was because they said, price does matter. We need a model that is going to make price attractive. But we also know that people don’t just come back to buy; we need a stickiness and that was the subscription model. That’s one reason it succeeded. The other reason it succeeded was that we worked out that we could use wine to get customers for a very cheap price. That may be going into another subject, but that was the other key reason it worked. We said, you know what, instead of creating a $2 million advertising budget, to tell all of Australia about Naked Wines, what if we just carved out the equivalent of that in wine and we’re willing to give that away for free.

The reason we did that was because we said, we think our wine is amazing; people won’t believe it. What if they could taste it and if they tasted it, they would then say it’s amazing. We can’t, legitimately, go down to the train station and pour them the wine, so how else can we get them to taste it? What if we carved that out and we went to partners and said, you know what, we’re happy for you to reward your customers with free wine, provided they come to our site to redeem it. That’s how we got all of our customers; we started doing partnerships with people.