Managing Allocated Offerings w/ Peter Yeung & Byron Hoffman / Tyson Caly, Offset

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The podcast that navigates the business of wine with unique perspectives and insights with your host Robert Vernick and Peter Young. Welcome to this episode of Ex-Shatow. Today we're going to dig into allocated wine offerings and best practices for allocated offerings. But we're flipping the script a little bit. Today I'm Peter, I'm going to be the guest and we're going to have two co-hosts as we often do. And they're the guests of episode 128, Byron Hoffman and Tyson Calley, the co-CEOs of Offset, a wine e-commerce platform and brand design studio. Which if you've been listening to show has also been a sponsor of the show. But one of the things that Offset specializes in is allocated wine offerings. So Byron, Tyson, welcome to the show. Welcome to hosting the show. Thanks Peter. Welcome to your own show. Yeah, exactly. And we're doing this because I recently launched an online course on best practices for allocated wine offerings. And I thought it'd be interesting to have a discussion with Byron and Tyson here to interview me about the topic but also add in their experience. So let's go. Well, starting off, you and Robert always obviously ask about your guest's background. So maybe some people aren't familiar with your own here. Can you share with us a little bit about what you've been doing? Yeah, you know, related to wine, I guess specifically I had a career before wine. I helped manage some wineries in Napa and Sonoma specifically realm sellers and cost of round at Circus State. And as part of that, I was managing the allocated offering systems. So I got deep into a lot of that there. And then I took that knowledge and also did consulting for a bunch of wineries, including on their allocation systems for many years after that. So a lot of on the ground knowledge of that some of that knowledge, especially at a higher strategic level was put into the book. I wrote with Liz Tosh, luxury wine marketing and that outlines some of the basics of allocated wine offerings. But I was, it's actually the online course actually came from, you know, client of mine asking or just me noticing that he was doing some things that I would say weren't best practices. And I was kind of like, you know, I should write some of these things down for you so that you can do them and follow it. So you're not making these mistakes over again and, you know, not having as good of a result as you could be as an as I started writing it. It's sort of just like, it started ballooning into like a mini book. And then I was like, you know, maybe I should make an online course because I think something new I've never done one before. And I thought it would be a better use of the materials than just writing another book. Love it. Peter, well, first off, like just I want to give a full disclosure, you know, aside from us sponsoring the show and appearing on one of the episodes a couple years ago now, we have a long history of working together. You know, so you mentioned Costa Brown, you mentioned Rael, you mentioned Sirk, our e-commerce platform off-set commerce was used by all of those producers. And, you know, you had a really big hand in not just running those e-commerce programs, but also kind of evolving them like as the needs of those businesses changed, which I would love to get into a little bit later. But the first question that I want to ask is when you first came to high end wine, you of course worked outside of the wine industry for years, I know that you're at McKinsey for a long time. What was your impression of wine? And then kind of second part of that question, like what was your impression of the allocated model as an outsider? Well, I was a lover of wine and a buyer of wine. And so I was familiar with the allocated model because I was on a bunch of allocation lists already. So I kind of knew from a consumer perspective how it worked. And I think it was very interesting to see in the back end how little was like written down and kind of, you know, memorialize or standard operating procedures, best practices. It was all kind of anecdotal. And sometimes it was like just throwing spaghetti at the wall to see, you know, just maybe this will work or maybe that will work without people actually writing down their experiences or calculate gathering data. And I'd say, you know, our long path of working together also means that there's a little bit of my imprint, I think, on your system, especially in some of the reporting and how it's done. We work together on some of that because I would be like, this is what I'm trying to do. Can you do it this way? And then you would make the change and make it happen. So I think, yeah, we definitely have a long history of working together. And I still use the system for some clients and things like that. And it's like relatively easy for me to use, I think, compared to other systems partly because I, you know, help structure some of the data and other things in there. Yeah, it's kind of funny. I probably think back like weekly, actually, like of you as I go into certain parts of the system and I'm like, oh, yeah, here is this like allocation report kind of thing and Peter played a role in that for sure. So it's always cool to see those sprinklings throughout. So jump me back into the course. What will people learn from taking this course? Yeah, you know, I think luxury, why marketing kind of sets the tone at a higher level strategy point of view. The allocated offering best practice course takes it into little more operations, more of an operational strategy. So it's all of the things like setting up an allocation, when to give allocations, what day, when to send, what time to send it, what days of the week, how to think about weightless, right? And just through the whole cycle. So how to set allocations, how to set wish granting, the types of allocations, right? So I call it allocation methodologies. So like in having an offering type and an allocation type, we can get into that later. But also then like communication flow, like how many reminder emails to send, how long of a duration to have your offering and all the trade offs around there, as well as like the key metrics to measure. And so you know what you're measuring and what success looks like and how to improve. And I even have a few benchmarks in there. So it's really about getting into some of the nitty gritty, whereas luxury wine marketing helps set the framework from a broader standpoint of should you even do allocated offerings versus other things? And that's a topic I think we want to jump into too. There's a lot of misconceptions or confusion around allocations these days. If they're potentially even still relevant, I don't maybe we want to jump into that right now. Actually, how do you look at that kind of stuff? Should wineries be doing that? Are there other things to consider here? I feel like that's one of the questions I get asked a lot is are allocations still relevant? And I think it depends on each winery situation, but I think there's at least a couple cases where allocations are very relevant. One is notion of scarcity, whether you have scarcity in your winery or in your product or you want to have a perception of scarcity. That's like one important part of where allocated offerings still matter. And the second is if you have a wide variety of skews, if you have 20, 30 different types of wines, operationalizing a wine club can be very challenging. And if they're produced in small volumes, if you have a thousand wine club members and 200 bottles of each wine, it's really hard to figure out who gets what and how to do that and an allocated offering is actually an easier pathway to do that. But first, I think it's important to define what an allocated offering is because it's had many names in the past. Traditionally, it came from the mailing list idea where people would actually send physical mail to your house and maybe upgraded to fax at some point. But like that physical piece of mail with a piece of paper that says here you can buy up to this send us your check. And if we cash your check, you're getting wine. If we don't, you're not getting wine. That was like the original way back in the maybe late 70s, 80s where that was happening. But an allocated offering has two things. It's an allocation, which means there's a limit to what you can buy. So we're allocated. There's a limit. You can only buy up to x number of bottles or whatnot. And it's an offering, meaning there's a distinct time frame of which you can buy. So there's a set. It's not open all the time, like a store where you can go in an online store where you can go in and buy any time or sign up for a wine club at any time. It's period defined. And those two things together make an allocated offering. And so, you know, I think sometimes it's called mailing lists. Sometimes it's called other things. Sometimes people use the term allocation or offering or allocated offering even when it's not actually an allocated offering. But they just use the terms because they sound a little more high-end and scarce, even though in the actual operation of what it is as a wine club or something else. Most usually it's like a wine club, but they're trying to make it sound better. So they called an allocated offering. And Peter, you mentioned that in many cases, the allocation model, like, you know, originated from the mailing list model in wine, like very, very low-fi. Was it influenced by things that other in. industries were doing, you know, was this something that was extremely unique to mine and in its needs? Like, would love to hear you kind of expand a little bit on that history and influences of this model. That's a really good question. So I don't actually know the full answer detail behind that. I know that Vegas, Cecilia is one of the oldest and if people aren't familiar with Vegas, Cecilia, it's a winery in Roberto D'Oro, which is like one of the icons of Spanish wine and really created that appellation, but they've had an allocation system for I think over 100 years, you know, and there are people that allocation so valuable, they actually pass it down. It can be passed down to generations and like inherited, like an asset. And so it has existed for a long time. I think it's just existed as long as luxury goods have existed, right, where there is an element of scarcity to it. So, you think watches, cars, sneakers now, right? Like there's so many different industries that leverage this concept. I think what makes wine a little unique, one is that cost of wine or the price of bottles of wine for a luxury good is relatively low, right? So even these sneakers that are dropped are going to be more expensive than most bottles of wine. And the quantity of one production run is relatively high, right? I mean, you might have a thousand cases, which is 12,000 bottles of wine, versus what I can't remember the number, what is it like, 1,500 Ferrari's built every year, right? Like for the whole world, right? So and winery usually has more than one wine. So there's like, you know, a bunch of different wines. So much higher quantity. And so that I think has made some of the technology around wine allocations, like offset a little more advanced, I think, than what others would use. The other piece of that is it's alcohol. So especially in the US, but even globally, there's a lot of regulation around alcohol, whereas, you know, you can send a sneaker to anyone, right? No one's going to check if you're 21. If you know, or in the US, if you're 21 or 18 in other places, if you get a package of sneakers and shipping is a lot easier of those other, yeah. And that's important when you get to like operational strategy of when you have offerings, when you ship, right? That's why it's sort of consolidated to like spring fall time and I'm using spring and quotations because that's often like starts in January. Yeah, exactly. And fall is often in July. Exactly. Right. It starts in January. It goes to like March or whatever. So you hit that March shipping cycle because it's not just that it's expensive, heavy and regulated to ship, but it's also you want to prevent damage and, you know, with either too cold weather, too warm weather, and whatnot. And, you know, I think people have tried different things like one of the Sonoma wineries I've worked with. They were like, oh, or they were like, let's try a December allocation, you know, early December because it's going to be different. We're not going to be the same as everyone else. And, you know, I think we'll have better opportunity there. And it was clearly not as good. And the results were not as good. People just aren't paying attention. They've either spent all their money with all the other wineries ahead of time or they're starting to think about vacations and all that sort of stuff and not head isn't there. They're not really checking their emails much. Or whatever reason, it hasn't worked. And I think that's where a lot of people make the same mistakes over and over again because they're like, I'm going to do something different. I want to be different. Right? And different can be good. You need to have a unique value proposition and unique selling proposition, but learn from other people's lessons. Right? And that's where I think the course tries to lay out some of those things so that you can learn some of those lessons and not, you know, not make some of those same mistakes over and over. Yeah. And clearly, you know, that's come from you being on the ground and being in the driver's seat for a lot of these operations. So what are some of those lessons learned? What could you share with some folks now as a sneak peek to some of this? Yeah. So we talked about timing of when to do offerings. I think one of the biggest things people don't think about at all is the strategic nature of setting wishes. Wish them right? Like, you need you have wishes because ideally in the ideal world, if you're going to sell out of the line, which hopefully that's the goal and hopefully you have the customer base to do that, you kind of want to have, you know, 90, 95% 95 ideally sold in directly in the offering and then have another 10, 15% of demand and wishes of which you're then figuring out who gets what in terms of that wish graining, but setting who gets what or who can wish for even how much people obviously think about how much to allocate to each person or each group of people, but they don't often think about, oh, how do I think about the strategy of how much to give in terms of wishes, right? Because if you think about it in terms of like a lot of people I've seen do either the same to everybody, same amount of wishes to everybody, that's one way and you could do that. They often I've seen people do more wishes to better customers. They're like, there are better customers so they should get more. And then if you do that, it works, better customers get more and better customers grow their allocations and their amount of wine much more quickly. And then it takes a real long time for some new people who might have the potential to become big to grow and to get up there. So you end up with like this huge concentration of sales and a few customers and that can be risky, right? One of the things that we always talked about was like broader and thinner, right? If you have more customers buying less than you're going to have less sellers that are full of it, a bigger notion of scarcity in the customer base and lower risk in terms of, you know, any customer is dropping off and stopping by. So I guess this is going to be a funny question. Long winded perhaps. I'll come up with a better way to say this through editing. I'm sure strategically for a winery to go through these allocation processes. You know, there's this demand level and then there's your supply level and trying to like equalize those is always a very big challenge. And I like your component of, as you just said, kind of a thinner audience there. So you're selling less to more people. Yeah, overallocating tends to happen quite a bit, right? So like what are some of the big mistakes wineries are making when they're going through this? That being one of them, you know, what should they be on the lookout for and how do they course correct? Yeah, I think what's really important to understand here is that not all wineries are the same and that where you are in that supply demand balance makes a big difference because if you're super over-supplied but you want to have this era of scarcity so you supply, you don't really care. It doesn't matter as much what you're trying to just drive more sales in total because you have lots of supply, right? If you're very under-supplied or over-demanded, right? Then like basically you're trying to spread it out as much as possible, be as broad and thin as possible as we talked about before, but it's also rewarding your best customers and it's very clear like what you need to do. And then when you're close, when you're supplying demand is like close and imbalanced, that's the most difficult part probably because you have the most options and you have the most nuance and you're trying to like get people to buy more while not over- you know, not overallocating and concentrating too much and you know, still creating this aura of scarcity and that's where you have to think about it a lot. And some of that comes down to not just a supply-demand balance, but also like what's the brand vision and the brand ethos like what are you trying to be as a winery and as a brand? And that's really important because like one of the Napa wineries that I worked with, it was like well we don't want to kick people off if they don't buy for one year. It was just part of the core values and ethos of the brand. And so it's like okay, then we'll average you know two or three years or whatnot to understand and develop your allocations that way versus you know, others like traditionally, I don't know, still a case, but traditionally like cost of brown was if you don't buy it once then you lose your allocation, right? And that was part of the system and part of what made people buy it every year, right? All those factors need to come into play as you then evaluate how to do it. But and so I think that's where a lot of mistakes happen where people try to think of it is just a single model, right? And don't think about the nuances of where they sit. Yeah, to that end Peter, I would love to hear you talk more about like what are the different kind of allocation methods that people can use and would love to hear kind of like how you know, you've personally seen some clients like evolve their model over time, right? It's not a you know, oftentimes a winery will start with one model and they'll adopt another model like after a lot of trial and error. Yeah, not just after trial and error is my last point, but after their situation changes, right? So I think in terms of offering types as I call them as one part of allocation methodologies being offering types and allocation types. In terms of type of offerings, there's like the first come for a serve method. There's a guaranteed allocation. There's an order request, which is kind of like wish only where basically people just tell you how much they want, but they're not actually buying anything at a certain point in time and then you tell how much you can buy after. It's almost like even more old school like the original way. Wine clubs can also have an element of allocation to it so you can have a wine club, but it's sort of allocated in some where it's customized with allocations or hybrid examples, which are becoming more common where there's a mixer match like we see clubs and allocated lists sort of side-by-side in a lot of places now or like insider clubs that aren't you know heavily publicized and allocation. So those are the different offering types that people can have and I think it's evolution over time. So one of the Napa wineries that I worked with, we started first come for a serve group-based allocations and then the allocation types tend to either be group-based so I allocate the same amount to everyone within the group or individual base. So I give each person an individual allocation and we started off you know I say the situation was it's probably oversupplied and ethos was you know let people come in and out you know over time and not have them need to buy every year which which makes sense if you're over-split. And so it's like, group based, group based first come for serve allocations. Then the winery got several hundred point scores, got like big that next offering, things sold out within three hours, crashed your system, owner got kind of mad. There's both an upside and a downside to that, right? The upside is it sold out, people are like, oh my God, and sort of scrambling over people are, you know, riding on wine berserkers, oh my God, I couldn't buy any. And then it was, so which is positive because you create this buzz, you create this era or a scarcity which drives more demand, right? Like scarcity, the reason why scarcity is desired in a lot of cases is because it builds more demand, right? People want what they can't have. And then there's the negative side, which is a lot of customers, long time customers who didn't log in exactly at the time they're used to being able to buy, you know, a few days after the offering came out, were pissed. They were like, you know, what the heck? I buy every year and now you're telling me, I can't buy anything now that you're popular. And so they got really mad. And so it was a customer service issue. And so you have that trade off there. And so we evolved that system to a guaranteed allocation, which is much harder to operationalize because you need a forecast, your system a lot better because you're guaranteeing that people can have it. So you need to be able to forecast, demand a lot better and map to supply an individual based allocation. So that was one where, you know, an event occurred, the situation for the WineryCard, so we evolved the system to change. And the result of that was 40% more customers were able to buy and the next offering, we made that change than what happened before. Because allocations tend to be a little different. It's a ginormous difference, right? And talk about a lot of the better and thinner, that's what you want, right? And a lot of the customers who bought before were actually like, oh, if I knew it was that like rare, I would have like bought less and let other people have some. That's an interesting take on it actually as the consumer perception of it all. What do you think is a consumer perception of allocated wineries? We hear this often where people will say, oh my gosh, I just had, that was one of the more pleasant purchasing experiences I've ever had when everything works smoothly and they get right through it all. It's like very easy to get through it. You know, what do you hear out there from folks and what's your experience been in the past? I think there's people who kind of get it and are used to it. They may have done it for a while and so they're like, oh, I get it. And I like this because I have choice. I have optionality. I don't have to buy if I don't want to. It's not a club that's going to charge me automatically. I have to do something to do it and they like that. And they can choose the items that they want, you know, so there's a little bit. And as a brand, you're kind of like, hmm, let's not cherry pick just the hundred point wines or whatever, right? The highly sought after wines and reward people who, you know, buy more broadly. So there's an element of that, but there's an element of people who aren't as familiar with allocations who are just kind of confused. They're like, what? I thought I signed up for the club. Like, what's going on here? Right? Why aren't you just like sending me wine? And why can't I buy as much as I want, right? So they don't understand that element. And that requires a little bit of education. But I think that education, if your brand is built around that, can be positive because it can create more demand because now you're telling them, you're basically giving it, telling them a no, right? You know, it's funny in the Costa Brown lore of its several private equity transactions. In my era, it was bought by this guy, John Childs, and his private equity firm. And he was like, I bought the winery because when I tried to buy wine, they told me no. So I just bought the winery. That's what he was telling us. So Chris Costella, one of the founders who really did an amazing job of setting up the system at Costa Brown and became one of the largest. And I think one of the most evolved allocation systems would have to tell people know all the time. And he told John Childs, no. And so when it came up for sale, John Childs, it's like, I'm going to buy this winery instead. So with that, what do you think is doing the heavy lifting in allocations? Scarcity, status, story. You mentioned, education is a piece of something that really can help. What's the blend there? I think all of those are important. But the thing that's the most important is why are people buying the wine? What's the value in it? The hardest thing there is. Yeah, when I actually joined Costa Brown and I was looking at this Scarcity model and all that, I was like, oh, that's Scarcity model. It's so complex, everything. And I thought about it. I looked at it, I'm like, OK, I think I get it. The real value in what people are buying for is one, there's value in the allocation. There's a wait list, but it's not just that there's a wait list. It's that there's a secondary market price that's higher than the bailing less price or the allocation price. So I'm getting value, whether or not I transact, I sell it on the secondary market or not. If I can buy it somewhere else cheaper, then I don't have to go through the system and wait, even for the same price or even slightly more. Why bother? There's value there through that allocation. And there's a driven by wait list and other things for people willing to pay more. And then if I lose that, so the allocation has value. And then the system is set up where, if I don't buy, I lose that value. And that creates a positive-- I mean, positive for the brand. Cycle of people wanting to buy. And when you lose that, so oftentimes-- and that's why we track secondary market pricing very closely when I was there. We would do that. And when that starts to dissipate, and you see this with many brands over time, especially as they grow and other things, when that value is not there, people-- and then it starts getting more-- some of it's that value, some of it may be availability, which is related to that, right? Because people are willing to pay more on the secondary market if it's not available elsewhere. But so if it's available in retail or other places or the auction, wine bit is full of it, then like, oh, I don't really need to buy from you directly and go through the system as much. But if it's not easily available and there's value there, and that usually leads to a higher secondary market price, then people want to be a part of it and are driven towards it, and that really has a lot of value. Peter, you mentioned earlier just that a lot of wineries are taking a look at hybrid models. With love to hear you expand a bit upon that, and maybe a more focused version of that question to kick it off. Let's say you talk to a winery as a consultant that hasn't traditionally sold to your allocation. Maybe they have a club. They have a tasting room. They're considering allocation for one of their wines or many. What are some questions that you ask? How would you filter out if they're appropriate for the model as part of their sales mix? Yeah, I think like we said before, maybe at a micro level instead of at a macro level for the winery, but what is the supply demand situation for those wines? Is it a really small production? And do they have the demand to sell that out? And more so, how do they do that? How do they want to think about rewarding customers? Who are their most valuable customers? And how do they want to sell to them? So that's really important because I think you can segment Schaefer for a long time did this. I don't know if they still do. I haven't really followed what they've done lately. But they had their, what is it? 1.5 and shoulder ranch or whatever it is, start an A. They're more high production in distribution things at a regular club model, I believe, or just online store. And then the hillside select was an allocation list. And so they were able to segment their brand into basically two different business models, targeting two different audiences. There's pros and cons of that. Because if you want people to be buying the high production things in order to get access to the low end wines, not just wait for that and only buy those, then you might want to have a combined system. So there's a lot of different ways to skin the cat. And you got to think about what are my objectives, what am I trying to do, what does the rest of my portfolio look like, and as well as what's the supply-demand balance of those particular wines and the winery's old? And I think certainly one of the big things is what is that going to do to change my winery operationally? Sometimes that is something that people don't consider. And they are like, oh, I'm just going to add a wine club. This will be really easy. And it tends to be a lot more complex because there's a lot more involved in some of those things that they hadn't thought of. So do you get the impression that a lot of wineries are kind of lazy in their approach to how they sell some of these things in an allocated offering? You mentioned a lot of different complexity and detail on some of these things. I wouldn't necessarily call it lazy. I would say a lot of wineries, especially small wineries, run pretty tight, right? There's not a lot of dollars coming in the door. So there's not a lot of dollars to pay people to do all these different things, right? And so they have to be very efficient in what they do and maybe simple in what they do. So we talked earlier about the complexity of doing like an individual allocation in a guaranteed way, especially that guaranteed part, needing a lot more sophistication in terms of like being able to forecast a man and manage that across all the customer base. But so like, you need people who can understand that and do that and work the data so that you're able to do that. And that's most small wineries don't have those skill sets or the people in bandwidth do that. 'Cause oftentimes it's like one or two people running the whole winery. You know, you've got like the founder, the winemaker, sometimes they're the winemaker. And they might be busy during harvest and don't have a lot of time to do all these things. So they're like, let's do it very simple. And maybe it's just like, and maybe they frame it in a way that is positive. I think Rivers Marie kind of says this writer has traditionally said like, you know, everyone gets the same allocation. I don't know if that's true or not. You guys actually probably know, 'cause I think you're kind of yours. But like everyone just gets the same allocation. Just one group, everyone gets the same thing and you buy or you don't buy and like, that's it, right? And that's very simple. and I think that, and quote unquote, fair, but, like that, you know, and it is maybe what they can handle. The complexities of running a wine club or the complexities of running a wine club and an allocation model that's like, even just the number of allocations you do, you're adding more and more layers of work 'cause you have to set up an allocation, do the actually assign the allocations, assign the wish grant amounts, do wish or wish max amounts, assign the wish grants and then like process orders and everything like that. So it is a whole operational process that you have to manage and go through and people have limited resources. And so, you know, you have to match the system to the amount of resources. And fortunately, you know, a winery like Costa Brown, which was a little bit bigger, we had more resources of which we could then manage some of those things. It was just still small, right? It was still like, you know, a few people doing it, but in a lot of cases, it's like less than one person. You know, you're doing it 'cause they're doing a whole bunch of other stuff too. - Although amazingly, like sometimes I've seen large companies have two people running these things and they're mega million, you know, in terms of how they sell stuff. They're very successful with that. And it is about streamlining, yeah, for sure. So, you know, obviously as we tap into the whole new AI of the last couple of years and how that's accelerating right now, you know, how do you think that's gonna play into wine sales in general? And then how does that tie into the allocation? - Wow, yeah, the big question and a lot of unknowns there. And I would ask you guys the same thing 'cause you probably have a as big of a, or even a better beat than I do. I mean, I'd say like AI can really help automate some like segmentation and targeting. So whether that's for email marketing or whatever that kind of targeting, you could probably at some point put in your rules or your how you, your philosophy of how you wanna allocate and it could probably do it for you. Not that if you do it well, now it doesn't take that long, but it could be even faster, right? Like if you have a good template and formula set up, you're probably, you know, like takes you like an hour, but maybe this could take you like five minutes. Whereas if you do it manually, I've seen it take people like days or months, right? And so that's where I'm like, I can build a template for you and it'll take you like a few hours instead of like months to do this. - Do you cover that in the course actually because this is something that like is always a little, like even though we create the system, we have the workflows for all this kind of stuff. It's usually not the input. And so this has always been a little bit of a black box mystery to me, even where I know, you guys had algorithms and whether they were done in spreadsheets or in systems or whatever to kind of figure out some of these details. Can you talk about that a little bit more? And you know, I think there's a lot of people who are probably doing it very simply. And it's usually just based on, you know, recency and spend that it's very basic core. And then some other people obviously doing it far more sophisticated. So I've always been curious what that looks like. If you do it simply with like groups or tiers or whatever you call it and like first come for serve it's or even guaranteed in a way it depends, but like it's pretty, you can do it in an hour, right? I would say, right? You just have to kind of say how much you want to overallocate and like assign a level to each one and then calculate that out versus your supply and have a target that's kind of like, oh, you know, I want to be like three times overallocate. And that usually will lead me to sell out, right? Based on like my history and my expectation of the percentage people buy and the percent of the allocation they buy, when you're getting more complex with like individual guaranteed allocations, then like, you know, the template gets more sophisticated and you have to bring in a lot more data for every customer, right? And depending how big your customer base is, that could be a big Excel file if you're doing Excel, which I often did. It could be 50, 100 megabytes and run kind of slowly as you go through there and depends on how crazy you're allocating your form at your allocation formula is sometimes people have like all these things they want to do because that's how they did it. And that's fine if you're doing it manually, but then like they're literally like looking up everyone and putting it in and doing that process and doing it formulaically, you can do it. It just maybe, you know, requires a complex set of formulas. Sounds like a good opportunity to hire you for that kind of thing. Yeah, yeah, which I've done before and that made it simpler, I think, but sometimes it's still like challenging. So you got to think a little bit about what's the trade off in terms of complexity to benefit? Like what benefit am I really getting here? And what take the customer's point of view? Do they actually care or not? Is it doing something that either the customer wants or is it creating an incentive for the customer to do something I want them to do? 'Cause there's two different things, right? Like customers are always gonna say, I don't want to be tied down to buy anything and I want as much selection as possible and give me as, you know, I want to buy as much as whatever I want to buy, right? Like they want the flexibility and optionality and the brand is gonna say like, well, I want you to buy certain things. First, maybe you're the things I have more of and you know, less of the things I have less of that are really scarce and I want you to support my whole brand, not just cherry pick the things that you like, right? And so there's a contrast there into what customers want versus what the brand wants and you have to sort of merge those things together to figure out how you want to actually offer and will AI help with some of that? Possibly. What I don't think it will do is tell you what your brand vision in ethos is, right? And then like how to, it could advise you how to set up a system and it could maybe assign your allocations but like it won't necessarily tell you the rules if you want to implement certain rules that match your brand ethos. I mean, what do you guys think? You're more as into tech as a tech company. And that's what you're seeing. You know, obviously like we're of mixed opinion on AI is such an interesting one, right? You know, I'm very pro, I think Byron tends to be sometimes but now I think like there's a lot of hype around it and I think, you know, we're seeing some practical applications around it for, I mean, all the basics, right? Helping you write things a little bit better, making sure that you've got, you know, like all your checks and balances throughout stuff. I think one of the things we're experimenting with right now is connecting to our database, right? And then being able to like actually like ask a question, like how am I doing? What's the health of my business? And we hooked up an MCP server the other day, which basically like allows AI to connect to your data and then we're able to just start asking questions and it scans borders customers products, all the different details and everything and it's pretty damn incredible like what I can start to come back with quickly. So I think people are going to be able to get insights a lot faster, you know, whereas before we'd have to create these really extensive systems to kind of like slice and dice data in a gazillion different ways. And this is going to make it a lot easier. And I think, you know, the things I always maybe get excited about, which I have no idea how this is really going to work, but like predictive modeling seems like it could be really good with that kind of stuff, but I don't know. There's so many different inputs to things that it's hard to know exactly what's going on in a person's life there. Yeah, and that's an interesting one because when I first started in wine, I was like, you know, I came from clean tech and new people are data scientists and things like that. And I was like, okay, let me give you my data. And my hypothesis is maybe for some reason, like this brand, these wines really resonate with like lawyers and Dallas or whatever, right? Like, and then I'm going to go to the bar association there and do a bunch of tastings and sell a lot more wine, right? And like, or tell me like that this new customer is going to be a great big customer, right? Like, can it tell me that, right? And we did that. My friend ran it through all these algorithms, et cetera. And it basically said that like your best customers look exactly like your worst customers. They're all the same, right? At the time and granted this 10 years ago, but it's like, they're kind of professional older white males, right? And they pretty much all look the same. And what really drives that is what you don't know is how passionate they are about wine, right? And we actually see this with cruises as well, right? Like, there's people who love cruises. There's people who don't love cruises. And it almost doesn't matter like how much money they made, right? They're, you need to make a certain amount of money to be a customer. And so wealth is somewhat correlated, but just amongst wealthy people, you have wealthy people who don't drink, who drink, but don't really care about wine, right? And don't know the brands or won't follow things. And you have people who are wine lovers, a passion about it. Like, the guy with the biggest seller and most valuable seller in the world was like a post office worker in France, right? And like, you know, I don't think he had a ton of money, but he spent it all on wine because that's what he loved, right? And like, you have to signal that, right? And that's usually, which comes out of why people look often at your like, purchase history, right? Because that's your demand signal you're getting of what you want and your desire and willingness to spend on wine. Because that's what's unknown and that's what's, you know, the thing that's going to drive sales the most. So, I mean, that was the question I had was, do you think pass spend is a little bit overrated as a signal? And, you know, what are some of the behaviors that maybe winery should be rewarding more or paying attention to? Or what should they be doing to continue to excite customers about things? I think it depends on how you define pass spend. Because sometimes people just look at total spend over time and that could be 10 years ago, right? It could be a long time ago and they haven't bought in five years, right? So that doesn't really play into things, I don't think. But so, you know, the standard way of classifying customers, you could look at recent-see, frequency, and monetary, right? So how recently did they buy? How frequently do they buy? And then like, how much do they buy, right? So I think pass spend, if you look at like the last year, is a very good predictor of if they're going to buy again, right? for the most part and that's what we call retention, right? Like if I bought last year, am I gonna buy this year? If that's a high number, and your brand is doing well, or if that's a high number, if it's a low number, then you've got a problem. There's something wrong with your value proposition of your sales model, right? And you got to change that. But you can create a customer's score based on recency, frequency, and monetary, and then you can rank your customers that way to, if you want to invite them or gift or other things. I think, to your point, about what people can do to engage customers as we get to younger generations, but even not younger generations. People in general tend to really value experiences, right? And so tying to things that money can't buy, like I heard that, you know, like, oh, it was like one of those Kindle Jackson brands, Cardinal, right? If you spend a certain amount of money, then like they'll invite you to their special box or whatever at Formula One in Austin or whatnot, right? And so it's like, stuff you can't really buy because they have a special set up there. Maybe they have a sponsorship or whatever. And you're able to gain access to things like that. So it's things that tie the experience to the wine and then hopefully also build a community there where like, I've seen many times where the people who are really good at selling some of this high-end wine, they build a community. So they're like bridging people, oh, this is what you do. You're, oh, you're interested in cars or whatever. This other guy is really interested in cars and Formula One. I bet you'd really like to meet him and get to know him, right? And so like if they're, you get together and introduce him and then new friends are made and whatnot and they have an affinity for you and the brand and because you're building their community, right? And exposing them to new people and new experiences that they might not have had otherwise. And if they're gonna buy wine and let's face it, there's a lot of good wine out there. How do I choose who to buy from one versus another? Part of that is gonna be that relationship and that other value you're bringing to me outside of like, what's in the bottle? Speaking of experienced Peter, how do you think about, you know, essentially the time that lapses between someone signing up for your list on a website to, you know, being offered wine and kind of like all the potential communication in between, you know, which in some cases could be very short and other cases could be multiple years. How do you think about that journey and all of its variations? I think the worst thing you can do is sort of take people sign up, maybe send them one email and then never talk to them again. Like the one of the great examples is like Sinekunan, which has like a notoriously long waiting list and they used to send you a letter or postcard or whatever every offering they had and said, "I'm so sorry, but I can't offer you wine." But here's like what's special about it and here's what we've been up to, you know. But we hope to find wine for you sometimes in the relatively near future, right? Even though it might be 10 years down the road or whatever. And so like they're constantly communicating and still keeping that brand awareness there. Way back when I cost around, this is like probably no longer even relevant, but we did some testing and this is before my time either, even so I was just told about it. Like and try to find like the right point of which you want to keep people on a wait list to then like do it and it was like two years back then or whatnot. But as people have a shorter time frame for, you know, doing things that Amazonification of things and whatnot, if you have the brand and the wines that are a little bit more available versus less than, you know, the rise of what's called like an intro offering is one way to engage people right away, right? And have them buy something that's maybe that or you can say that I've reserved these wines for new customers only kind of thing, right? To give you a taste, but then you may have to still wait to buy the higher end things or whatnot and go on that customer journey. But making sure that the journey isn't one where people forget because you want to bring them into your brand. So it could be either way like Synaquanon or it could be an intro offering or whatnot and sort of depends on like how your winery is set up. But I think the core lesson is making sure that people don't forget about you and they don't forget why they signed up in the first place. And then, you know, going back to your kind of like brand ethos and vision and all that kind of stuff, we see this a lot where that is the model, right? Somebody signs up and then it may be six months, eight months before you actually hear from them. So that is this like way too long of a time gap. I think winery is tend to be afraid to communicate a little bit. And so we're seeing lots of success on our side with intro offerings and drip campaigns. And you sign up and you're, you know, you get into this kind of email flow or you get to learn a little bit more about the story. And then eventually that may lead to a visit or a purchase or whatever else maybe. But I think you're really right on making sure that you're not forgotten in the whole mix. It's really important. Yeah, especially with alcohol. Like it's easy to forget why you like did it to begin with. So, you know, engaging maybe maybe having them follow you on social or other things, right? Ways to just like keep that engagement going. And even if you don't have anyone to sell them now, it's wine in the future. Adding value to their lives, even, you know, without asking for money all the time, right? Absolutely. Something that I think is in the air right now, Peter is just probably has been since wine, you know, has existed. But, you know, just problems around wine potentially being too exclusive. I think that the allocation model in general, right? It's all about what do you do when, you know, there's real scarcity or you also kind of talked about, you know, cultivating perceived scarcity. Like, how do you think about the allocation model like in relation to kind of critiques of wine being, you know, too exclusive? Yeah, I would counter to say that John Noel Capfair, right, the sort of academic who most represents like luxury products. He wrote the book Luxury Strategy with Sebastian, I can't remember his name Sebastian as well, would say that wine's not even a luxury product. It's price too low and there's too much of it, right? So like, and luxury is about the delineation and scarcity, right? Because why does luxury exist? Luxury exists to separate, right? To separate some people from others. And, you know, whether you think that's good or bad or not is a little bit irrelevant. It just sort of is and people have been doing it for centuries in millennia. And it's just like, it's just what happens in its valuable. So like, I don't see it going away and I don't know that it's too luxury. And, you know what, there are a ton of wines out there at every price point, right? If you want an entry level wine, you have two bucks at quite, which I guess is $350 now or whatnot, that is high quality for low price to great $10 bottles of wine to brand I work with. And we'll be working for soon, like went to vineyards at like $12, $15 bottle or, you know, $15 to $20 bottles of wine, like of great quality to, yeah, $100, $200 bottles of wine or whatnot. But the key is like, when you get to like, let's say the top Grand Crew burgundies of the world of the top producers like L'Hua or DRC or whatever, right? There's a finite supply and there are more and more people who learn about it and demand it, right? New billionaires being minted every year in Asia and Latin America and Africa and whatnot. And they learn about it, they want the best. And there's so little that, you know, one person could say, I want to buy it all and I'm willing to pay, you know, a hover of many thousand dollars of bottle for it and it's gone. Right? And so there's just a supply demand metric there that I don't think wine is at all a overly stuffy or anything like that. I mean, sure we can communicate it better. And that's the for what I call commercial wines to do, right? Wines that are in the grocery store and everything else should be more communicative, should be more accessible to everybody and things like that. That making easier out line out that lay out the flavor profiles, lay out the ingredients and, you know, nutritional panels, all those things. I'm a big proponent of that. So there's going to be some products and some wines that are very limited in demand and only a few people in the world can really own them. And so there's a supply and demand and those people are going to raise the price, right? Because they want to own it and not you. And everybody have that? No, it's just not feasible. It's not feasible to produce and it's not feasible to happen. So I don't see that as a bad thing for the world of wine. And in fact, I view it as a positive because that means there is differentiation. There's lots of different wines in the world to try and there's something to look forward to trying at one point. So in my life, I've only had, I think, one tasted DRC once. So I'm like, man, I should like, I wrote the book on luxury wine marketing. For God's sake, why can't I? Why should I try more of these? But I don't have the money to buy that kind of thing, but it's something for me to look forward to or appreciate if someone offers it to me. And so, like I think there's a lot of generosity in the world of wine and with wine collectors and everything else, they're very generous in terms of sharing with people. And that's what makes wine great is its ability to connect people and to share experiences together. And so I think wine isn't standoffish in other things and there's wine of all price points out there. That's maybe the greatest part of wine, right, is the generosity out of it because it will turn you into a believer in so many ways, right? And you get excited about that kind of thing and then you share that with the next person. And that's, that's kind of almost what we need more of as our industry maybe is shrinking a little bit right now of wine consumers and drinkers and all that kind of stuff. I feel like this is a big piece that we need to continue to expand upon. And that's the beauty of a 750 millilitre bottle is you probably don't drink the whole thing yourself. You're probably sharing it with a number of people and then maybe opening others to try and do comparisons and other things and something that's a complex beverage that is something that you can talk about and geek out about and do all sorts of things with, you know. Absolutely. So jump back to the course where can people find it? What are the details there? I think the easiest way to find it is go to the xchatow.com website. Click on the store page and there will be a section. There's the show notes books. There's luxury wine marketing link and there's a link for allocated wine offering. practices. So that's the easiest way to do it. Great. And we'll probably post something on our website soon as well to get you there. So you usually wrap every episode with a personal note. And so I guess you've been asking questions about your experiences in wine. What's been your most memorable winery visit and why? That's a tough one because I've had so many great visits in my life. I've had the luck and pleasure and that's part of the pleasure of being in the wine industry. Take pay cuts but have interesting and fun experiences. One of the most memorable I think for me or the most memorable is Ferrari Trento in Italy and in the Dolomites of Italy. And they have great history. They've got a Michelin star restaurant, amazing wines. They were the sponsor of F1 at the time. So they had all these interesting bottling. But they also brought us out. It was a press trip. So it was with other people in the press more in the trade. And they took us in a helicopter to see like all their vineyards and how they were situated in the mountain right next to ski resorts and other things. Right. So we'd fly over and see like snow and a ski resort and then this over the hill would be like a vineyard. Right. I can. Amazing. Yeah. That was like spectacular. Awesome. I have so many. But since you guys are also quasi-guess/hosts, what are your most memorable winery visits and why maybe start with you, Byron? Yeah. You know, mine is actually pretty pretty simple. You know, Frogs Leap is a long time client of ours. You know, we've done work for them for years. But you know, I just always feel at home when I visit their wine room. Their tasting room is really kind of like set up to feel like a home. Beautiful gardens outside, fruit trees. You know, if you want to learn a lot about their wines, you're able to. But if you just want to spend some time with their garden, that's fine as well. But I think that it's just it's a beautiful, comfortable experience that I would recommend to, you know, people of all walks of life and different kind of like, you know, levels of knowledge in wine. One of my favorite places was going up to Ovid and primarily for the architecture, but I also had a number of friends who have worked there and it was just such a beautiful, beautiful experience in place. And so I think that, you know, an architecture element across the board, there are so many wineries that are just like incredibly designed. And I always thought that was just kind of a really neat element to the whole industry as well. And it's great to see so much of that done well. Actually, Frogs Leap being one of those, too, you know, we have a good friend who architected quite a bit of that actually. So well, thank you guys for being a co-host and letting me ramble about this online course and allocated offerings in general, you know, value our partnership and just we always have a good time, I think, spitballing and talking about the industry and allocated offerings and how things work. So appreciate you taking the time. Absolutely. Thanks for having us, Peter. And, you know, really, I mean, I mean, you got into a lot of details, but I've got to say just the tip of the iceberg when it comes to that course, you know, I think that you really, really break down all the nuances and workloads. So yeah, happy to share a lot of our clients. Absolutely. Hopefully everybody can actually like, you know, learn some new things in there and it opens their minds to different ways they haven't been looking at their businesses, which I think will be a really good thing going into the next year for sure and avoid some pitfalls. Exactly. Yeah. And listen, let's get a little bottle of DRC. We just started working with a client who has a good connection to it. Awesome. Awesome. We'll do. Hey listeners, if you love the show, support it by buying a show notes book. They not only compile two years of episodes, but also organizes them into themes for better learning. They can be an inspiration to listen to or re-listen to an episode or provide a quick reference of the key learnings from a show. Go to xchatow.com and click on the store page for easy links to buy. Thanks for listening. Thanks for joining us. If you loved this episode of Xchatow, we'd love for you to subscribe, rate, and give a review on iTunes or wherever you get your podcast. Until next time, cheers.