Pricing Strategy: How to Improve Your Wine Business Plan for Processing Billbacks
Some say making wine is an art, not a business—we say it’s both. If you make “pour” business decisions (sorry, we had to), you will not be able to adequately distribute your time, effort, and money into crafting beautiful wine.
Traditionally processed through an assortment of Excel spreadsheets and handwritten notes, an unorganized, disconnected, and manual approach to billbacks and depletion allowances can result in honoring inaccurate promotions and negatively impact your bottom line. In the three-tier wine industry, this loss can be to the tune of hundreds of thousands of dollars.
Depletion allowances are arguably the highest trade expenses for a winery. As an incentive, your sales team offers the distributor a rebate or volume discount if a set and agreed-upon wine stock depletion goal is met. If the distributor meets the depletion target, they send you an invoice in the form of a billback that then the finance team pays. The intention is good, if not righteously aligned with overall product strategy, as these promotions often focus on supporting revenue in particular time frames, regions, or retail goals.
The problem is, when it comes to trade spending in the wine industry, processing billbacks can be a chaotic ordeal between finance, sales, distributors, and retailers. Finance is usually wrestling inconsistent and disparate spreadsheets, tracking down handshake deals sales documents on post-it notes or bar napkins, and matching incomplete third-party depletion data in the attempt to reconcile the billbacks with their agreement. The accounting aerobics often get so complicated that distributor invoices are paid without any verification, and money flies unfettered out the door.
With multiple independent stakeholders and so much unorganized data in play, how will you ensure your wine business and financials accurately and efficiently process billbacks and depletion allowances?
With all these factors, you may start to ask yourself, ‘are all these discounts worth it?’ Or perhaps the better question is ‘which discounts are worth it?’ The answer depends on your business, brand, and pricing strategy to determine if you will get a fair return on incentives.
First and foremost, you need the right data to decide.
Read ‘How Much am I Spending By-The-Glass?‘ Guide for help on evaluating and optimizing your wine business and pricing strategy.
Let’s look at the three best strategies to improve your wine business plan for successfully processing billbacks:
- Centralize Data
The Problem: The wine industry has long relied on handshake deals, and it hasn’t evolved far from that. Now agreements have graduated to a combination of handwritten notes on napkins and spreadsheets. With deals agreed to on the fly, a more sophisticated, centralized, and organized database is necessary to successfully bypass the most common winery pricing management mistakes.
Although manual processing and individual verification of invoices can cause both costly errors and extreme operational efficiencies, these factors also have an incredible impact on your ability to develop and execute robust business strategies. In order to clearly and effectively communicate expectations and goals to your distributors, national account managers, and other key stakeholders, you need all the data accessible to you.
Distributors won’t keep accurate track of depletion allowances and promotion details as they work with dozens, if not hundreds, of companies and brands with their own promotion programs. To truly control your capital and ensure that funds are not paid pre-maturely or to expired offers, your finance team must have access to regularly updated and centralized pricing information.
The Solution: By centralizing your entire trade spending data, you exponentially gain efficiency and close the loop on pricing management. By having the ability to quickly identify friction in workflows and gaining direct control of discrepancies as they arise, you no longer run the risk of either rejecting or blindly approving billbacks to close out the month.
In unifying your data, you can also configure optimal and accurate pricing models based on performance and automate approvals to implement and fulfill deals with your distributors quickly.
The Bottomline: Don’t let manual management of spreadsheets waste your time, effort, and money. Multiple lines of research have found that nearly 90% of spreadsheets contain errors that disturb their results. And this is just the tip of the trade spend management iceberg.
- Track Promotions Real-Time
The Problem: According to a study done by Sonoma State University, over one-third of wine consumers only order their wine by the glass when drinking at a restaurant. A well-executed by-the-glass (BTG) strategy can result in big coverage and return for your brand.
And it doesn’t end at BTG. You’re likely trying to implement a variety of pricing and promotion strategies with distributors to drive more sales. From quantity discounts, closeouts, incentives, and samples, how do you know which promotional dials you should turn up and which ones you should turn down? How can you ensure that finance isn’t wasting time gathering and hunting data while enabling your sales team to service distributors without waiting for a lengthy allowance authorization? Instead of proactively monitoring your trade programs, you’re retroactively adjusting for the following pricing cycle after you’ve already spent too much, or perhaps even too little, for the best return.
The Solution: Tracking your sales promotions and incentive programs is critical to minimizing gaps and maximizing your brand and business success. By paying close attention to your samples and promotion programs through real-time dashboards, you can track spending per case and gain insight into the profitability and effectiveness of your sales team and distributors.
By confirming and verifying your price and promotions commitments agree with chargebacks and invoice adjustments in real-time, you will be able to facilitate an approval process based on claims of the actual bill instead of depending on incomplete third-party depletion data that misses about 30% of the coverage.
Samples and promotions can especially be helpful for exposure and sales as long as your incentives are directly tied to quantifiable goals. If you want to accomplish proper depletion management, a clear strategy with clear milestones will allow you to know exactly what works based on your metrics and achieved goals.
The Bottomline: A big win here is that key stakeholders, like your sales manager, will be able to access all pricing data while considering spending guidelines allowing to better monitoring and management of how much distributors and retailers spend on expenses for samples, printing wine lists, and other supplementary expenses. Implementing this approach will liberate your three-tier winery to harness the power of true, full-cycle pricing, promotions, and depletion management.
- Constantly Compare Data to Refine Strategy
The Problem: Blending a delicate balance of art, science, and business — three-tier wineries offer a unique product from any other. Factors like operating costs, production costs, taxes, demand fluctuation, distributor quantities purchases and discounts, brand integrity, target consumers, and more can all have an impact on the price of your wine.
Because of varied and changing pricing factors, it is crucial to constantly identify and adapt throughout the changing stages of your market and product’s life-cycle to make the best business decisions that protect your margins.
How important is it for you to know your distributor’s actual inventory level? Or knowing which products are selling out from which retailer? Many wineries and importers aren’t always aware of when retailers or restaurants are receiving their products, and this gap in data speaks to a glaring vulnerability and opportunity in the way we do business.
The Solution: By comparing your wine depletion data to your internal sales data, allocation figures, and shipment records, you can better grasp how you can increase your overall profitability and reduce the cost of sales.
Consistently reassessing your products, promotions, and the process can allow you to apply accurate data for more proactive decisions in pricing strategy. By having real-time data on your product and analyzing it against multiple amplitudes, you can diversify allocations and increase productivity.
The Bottomline: Getting your three-tier wine pricing right relies on clarity, accessibility, visibility. By ensuring consistent and accurate communication and pricing throughout all sales regions, you can avoid surprises and leaking margins. Removing inefficient, manual pricing reconciliations and processes ultimately saves thousands in lost profits and avoids the error of paying out unwarranted funds.
Getting Started with Full-Cycle Trade Spend Management
Tracking your promotions and distributor programs accurately doesn’t have to be complicated. Seeing the full financial impact of those programs doesn’t have to be either. Stop margin leaks with 100% visibility and control on all of your trade spending. Being able to see the real spend and pricing data from finance to sales all in one system is more attainable than you might think.
As a team of wine industry experts, data artisans, and service enthusiasts, Tradeparency works with dozens of top three-tier wineries and importers on their depletion, pricing, and brand victories by centralizing and automating the full cycle of trade promotion management. We’ve created a pricing, promotion, and processing solution that brings finance, sales, and IT together to accurately track every dollar – and we mean it.
Full cycle pricing management goes beyond billbacks and DAs—it allows you to compose profitable promotional models at any level by delivering the value of complete data.
Contact us today to for a free demo. Less than an hour of your time could be worth a lot to your bottom line (and your sanity)!