In June I wrote a blog, Smart Pricing – Not Price Gouging, in which I discussed a Pittsburgh Post-Gazette article about the price of wines in restaurants, Tastings: Gouging by the glass of wine. The point of my blog was prices may seem high to you or me, but that does not mean the seller is price gouging. We always have a choice. We are not forced to buy. Businesses are smart to segment their customers and create options that will appeal to each segment, including price-insensitive segments. I just completed a cycling trip through the Napa and Sonoma valleys, and I observed several examples of segmentation that illustrate the same point.
On the first day of our biking trip, we stopped in the Silver Oak tasting room to try some of their wines. Silver Oak is known for very high quality Napa Valley Cabernet Sauvignon wines, usually priced at $100 per bottle and up. We tasted wines from 2009 and 2010, but they also offered wines for sale from earlier years in a variety of bottle sizes. We discussed the wines from older years with the Silver Oak representative, and he said some of the years were considered to be exceptional, although all were very good. Interestingly, for a 750 ml bottle, the price increased $5 with each year of age regardless of the quantity available or the perceived quality of the year. When I asked why the exceptional years or those with very few bottles available were not priced higher than the other years, he said they offer a premium wine and the customers who want Silver Oak already pay a premium price. Their customers don’t all agree on which years are exceptional anyway, and the winery did not want to potentially confuse customers by suggesting there was a difference in quality from year to year. He also pointed out that for customers whose budgets would not allow $100 per bottle, they offer a Cab from the Alexander Valley which was priced more moderately.
The next day at dinner we looked at the wine list, of course. I did a double take when I saw a wine priced at $500 per glass. Further down, I saw another priced at $750 per glass. I wondered what Downer and Brice, the authors of the Post-Gazette article would think. Is $750 per glass gouging? Even in the spirit of research for this blog, I was not tempted to spend $500 or $750 for a glass of wine. However, I did ask the sommelier if they sell many of those; and he said, “More than you would think.” He agreed that most customers would not pay that much for a glass of wine, but the restaurant wanted to be able to serve customers who were looking for something special. He went on to explain that those were rare wines that most people would never get a chance to drink. The bottle prices for those wines are much higher, and with a single-glass option, more customers are willing to try them.
The least expensive option we saw on wine lists all week was $9.00 per glass, and we saw many options in the $15 to $30 per glass range. Subjectively, those prices seemed to be higher on average than what I typically see in Pittsburgh, but does that mean the restaurants are gouging? I don’t think so. As I mentioned earlier, we are free to purchase wine or not. Many restaurants also offer the option of bringing your own bottle and paying a $15 – $20 corkage fee. In the end, the restaurants are trying to provide a variety of appealing options that will appeal to a variety of customers while enabling the restaurants to make money. That seems like good business to me.
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