For well over a decade, Wine-Searcher has provided arguably the most effective marketplace to buy and sell wine online. Consumers can search, locate items, and ultimately connect with wine retailer websites where they can purchase. From the retailer's perspective, Wine-Searcher also delivers typically a higher conversion rate (click-thru traffic that leads to sales) than other website referrers.
The $400 Question
When it comes to listing products with Wine-Searcher, stores have an option to pay for a sponsorship to increase the exposure of their product listings. Today, given how crowded the online marketplace has become, having a Wine-Searcher sponsorship is a key factor in developing significant traffic from the site. That said, with a price tag of $360-$440/month (for retailers with 750+ products), it's a substantial investment—one which sometimes scares off would-be participants.
What's more, the return on investment (ROI) for this service can vary greatly among retailers. Stores with a higher volume of expensive wines tend to have better success than stores that mainly carry common call-brands. In a conversation with Ross Brown, Wine-Searcher's Sales and Marketing Manager, he acknowledged that click-thru traffic on products at certain price ranges is not a metric they track, "but we do know our customers are skewed toward the top end of the marketplace.” Stores with more eclectic selections and/or aggressive pricing also tend to perform very well.
This past month we decided to conduct some research to see how some of these factors can be used to predic ROI. We chose, in particular, to focus on the volume of expensive wines a store carries. For stores on our network with a Wine-Searcher sponsorship, we calculated their estimated ROI of the service for 2014 vis à vis the number of wines they list over $50.
Correlation and Conclusions
As we expected, when we plotted the data, we found a moderate of correlation between how many wines over $50 a store carries and their overall ROI with the service. More importantly though, nearly all stores carrying 200+ wines over $50 received significant sales greatly outweighing the sponsorship costs. For these stores, even those selling at aggressive margins can expect to turn a profit from the direct sales alone.
For stores under the 200+ wines over $50 threshold, the ROI varies considerably. Some stores perform phenomenally while others have less impressive results. A closer look suggests that some of the other suspected factors—pricing and uniqueness of product selection--more greatly affect the ROI for this group of stores. The best performers tend to have less common products and low pricing.
If you're uncertain that your stores is a proper match for the service, October offers a strategic opportunity to give it a trial run. By signing up for a fixed-cost 6-month sponsorship in October, stores can enjoy the service during busiest, most lucrative eCommerce months of the year, which will mitigate some of the risk of investment.
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This study involved looking at Wine-Searcher sponsors that sell online using the Beverage Media eCommerce platform. Only stores participating in the 750+ item sponsorship were used. Additionally stores in markets with shipping restrictions (e.g. Massachusetts, Delaware) were excluded.
To estimate ROI we calculated [the cost of the sponsorship] ÷ [total sales where Wine-Searcher is the referrer] * 100%. We used the time frame of January 1- August 31, 2014. In other words, if a store spent $1,000 on the sponsorship and gained $10,000 in sales from Wine-Searcher, the ROI is calculated as 10%. We use this figure as it's easy to relate to average product margins. In our example, provided the business is selling wine with at least a profit margin of 10%, the direct sales he's received should offset the costs of the sponsorship.
While average product margin varies from store to store, the benchmark we have based on data from our network is 20%. In other words, advertising services that can operate with a cost-percentage-of-sale under 15-20% are viewed as very healthy options for most businesses.
Two final small notes:
1) We removed the number of bottles over $50 near the far end of the x-axis primarily to help preserve the businesses' anonymity.
2) Correlation refers to the Pearson Correlation Coefficient