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How to set your export prices

Set the right price so your wine exports are competitive and profitable.

Building a strategy for wine export prices

Getting your pricing right is essential to the success of your export business. It’s also very different to pricing for the domestic market. So where do you start?

Firstly, you need to understand all the costs associated with getting your wine to your end buyer in each new market. Tally all your export costs including distribution channels, marketing requirements, warehousing, registration, regulation and more so you can factor them into your export pricing. Many wine businesses underestimate the cost, complexity and requirements of getting their wine into the international market, meaning they don’t price their wine accordingly.

Finding the ‘right’ price takes time, but is a critical step in the export process. Failure to do so will mean:

you set your prices too low, which reduces your margins and profits; or
you set your prices too high, which results in lost sales and less trust in the market.

Buyers, such as wine importers, have a wealth of options at their disposal, so they want you to be upfront about the price of bringing your wine into their region. Once you have set your prices, be clear and confident about them, and be ready to provide exact costs when asked.

Top pricing tips

Your pricing in export markets should not exceed your existing RRP. International agents will look at your cellar door and online prices first, so if the prices you’re offering to them exceeds your own RRP, then you will probably lose that sale before you start to negotiate a deal.

Also remember that in many overseas markets, you’re not simply competing with fellow Australian brands – you’re competing on a global stage. So, if your rosé is not competitive with wines from Provence, your Cabernet Sauvignon is overpriced versus Chilean brands, or your Nebbiolo is at a premium compared to Barolo, then it will be tough to compete on a global stage.

Margins and markups

Margins and markups will influence how you set your prices. If you get the two confused, it will affect your reverse-pricing analysis and the prices you set.

Margins

A margin is the amount of revenue you earn after you deduct the cost of goods sold (COGS). Margins, also called 'gross margins', are often expressed as a dollar value or a percentage.

To calculate your margins, divide your gross profit (e.g. revenue minus COGS) by the revenue.

(Revenue – COGS) / Revenue = Margin

Markups

A markup is the amount you add to the cost of your wine to arrive at the selling price. The amount added is a percentage of the wine's total cost.

To work out your markup, divide your gross profit (e.g. revenue minus COGS) by the COGS.

(Revenue – COGS) / COGS = Markup

Selecting the right pricing strategy

Once you’ve calculated your export costs, it’s time to determine your overall pricing strategy. A pricing strategy will help you set the right price for your wine, increase your profits and reduce your risk of losses.

There are four common pricing strategies to explore for wine exporters. Each has its own pros and cons, and your final decision will need to align with your market evaluation framework and export plan.

1. Cost plus

Cost plus pricing is a simple yet effective strategy. Simply calculate all the costs involved in getting your product to the consumer, then add a mark-up. For example, if you want to sell your wine for 20% more than all the production and export costs involved, then your price would be 120% of your cost.

Before using this strategy, you must agree on the margin and Incoterms® with your buyer.

Pros	Cons
Provides coverage for the full cost of your wine production and export process, giving you a consistent rate of return. Doesn’t require time or money spent on market research.	You risk setting prices that aren’t in line with the competition and failing to take buyers into account. Little incentive for cutting costs or boosting profitability through price differentiation, which can be inefficient over the long term.

2. Competitive

This involves selecting strategic price points to leverage your wine based on the current competition in your chosen export markets.

Effectively, with competitive pricing you set your wine prices at the same amount or less than your main competitors in the new market. This can be a good strategy if your margins still allow you to make a profit, especially when you are new to the market.

Pros	Cons
Your wine prices will be accurate for the market because your competitors have already established themselves in that region. Allows you to simplify your pricing strategy because you are benchmarking against the competition.	Your overall strategy may not align with your competitors, meaning your pricing strategy isn’t giving you the value to be sustainable long-term. Your margins may be much tighter than local or more established competitors.

3. Demand-based

With demand-based pricing, which is also called top-down or reverse pricing, you start by setting your price based on your competitors' wines. Working backwards, you then factor in your export costs and other expenses.

Keep in mind that 'demand-based' involves the value your customer places on your wine. It’s vital that you gather feedback from the market to find out what customers are willing to pay for your wines.

Pros	Cons
You can capitalise on the demand for your wine to help maximise revenue. There is an opportunity to immediately boost your wine brand’s value – by setting a high price initially, customers may immediately perceive your wine to be more valuable.	Demand can be difficult to predict, and even if you spend time and money on market research it may not result in the demand you anticipated. This is one of the most labour-intensive pricing strategies, so unless you already have familiarity with the market – and the budget to spend on research – it could be a risky choice.

4. Premium

This strategy is an extension of demand-based pricing. It implies that your wine is already top-quality, gold standard or exclusive. Wine exporters often use the term ‘premium’ to justify inflated prices.

You need to be realistic if you want to use this pricing strategy, which means you will need to have a thorough understanding of your chosen region and consumer opinion of your wines. Both the buyers and your sales data will confirm this for you.

Pros	Cons
A higher sale price means higher margins. Even if fewer people can afford to purchase your wine at a premium price, the higher margins may result in better profits overall compared to other pricing strategies. Both ‘brand value’ and ‘prestige’ have a mutual relationship. Since higher prices are seen as an indication of quality, a premium-priced wine immediately adds to your brand value.	There are major costs associated with establishing – and especially maintaining – a premium pricing model. Consider how much the biggest prestige wine brands in the world spend on marketing and advertising. You need to ensure your wine remains relevant to buyers in your chosen market, which can be difficult as consumer tastes change over time and other prestige brands can draw them away from your product.

Pros

Cons

A higher sale price means higher margins. Even if fewer people can afford to purchase your wine at a premium price, the higher margins may result in better profits overall compared to other pricing strategies.
Both ‘brand value’ and ‘prestige’ have a mutual relationship. Since higher prices are seen as an indication of quality, a premium-priced wine immediately adds to your brand value.

There are major costs associated with establishing – and especially maintaining – a premium pricing model. Consider how much the biggest prestige wine brands in the world spend on marketing and advertising.
You need to ensure your wine remains relevant to buyers in your chosen market, which can be difficult as consumer tastes change over time and other prestige brands can draw them away from your product.

Competitor price benchmarking

Price benchmarking is the process of comparing your own wine prices to those of your competitors in your chosen export markets. It can be a hugely valuable tool to calculate more accurate prices, and therefore help you achieve more value from your wine.

Ultimately, by closely examining the quality of wine brands in a new region, competitor price benchmarking allows you to determine a price for your wine in relation to where you believe you stand in comparison to your competitors.

There are a few handy resources you can use when price benchmarking. We recommended using as many free resources as possible to lower your costs while also staying informed about the latest prices and trends in your chosen export markets.

Ciatti: As the world’s largest broker of bulk wine and grapes, Ciatti is a major depository of data and insights from wine regions around the globe. You can sign up for free monthly market reports, or view their archive of Global Market Reports or California Market Reports online at any time.
Wine-Searcher: This database and search engine brings together an incredibly large range of wines and prices from merchants around the world. It’s a great way to get quick insights into the prices your competitors charge in specific markets. You can also search exclusively by region.
Thanks to online shopping, it’s now relatively easy to investigate prices at the major retailers in your chosen market.

Tools to help you calculate wine export prices

Wine Australia has some extremely useful tools to help you with pricing, including two calculators that illuminate costs and ensure you are accurately pricing your wines in line with your chosen pricing strategy.

Free on Board (FOB) to Retail Calculator

The FOB to Retail Calculator allows you to calculate what the bottle price will be on-shelf (the RRP) in international markets for a given FOB value, and thereby assess and evaluate competitors in the market through price-point comparison. All you need to know is your FOB cost in Australian dollars.

There are separate calculators for a number of key markets on different tabs of the spreadsheet:

Exchange rate sensitivity calculator – assists in determining how your FOB will change depending on the exchange rate
Generic FOB to RRP
China model
Hong Kong model
India model
Japan model
Singapore model
South Korea model
United Kingdom model
USA model
LCBO Wine Pricing Calculator – estimate the costs of getting through the Liquor Control Board of Ontario.

Note: when opening the Excel file, there may be a slight delay in using the tool as the exchange rates are updated through a live link.

Learn more

Gross Margin Ready Reckoner

The Gross Margin Ready Reckoner is an export-planning tool that calculates the profit margin that can be achieved by a wine depending on its cost of production, the market it is being exported to, and the target price point. Importantly, it can be used to determine whether you will be able to hit a target price point in a particular market with a sustainable margin.

The tool takes you through a number of questions relating to your wine, including:

Region and variety of grapes
Wine production facility size
Wine treatments including length of storage and oak maturation
Destination market
Proposed retail price.

Based on your answers, the tool prepares a benchmark report and calculates your gross margin in dollars and percentage terms. You then have the option to modify the cost assumptions of the model to customise the answer more closely to your situation.

Costs including excises/duties and typical margins for importers, distributors and retailers are built into the model, based on the market selected.

You can see a complete example of how the Ready Reckoner works, including all the costs factored into the calculations, on our Export prices page.

Please note: the Gross Margin Ready Reckoner is temporarily unavailable.