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#Stock Performance: Correlation To #GDP

Everyone wants to know what drives stock performance.  It seems intuitive that over the long-term, stocks should correlate with GDP — but some have questioned this.  In this article, I will aim to show that if you look over a long enough time period and don’t cut the data, that stocks are indeed correlated with GDP.

The first issue when seeking to examine the correlation between two variables is determining the optimal dataset to examine.  This is highly contentious since it is quite likely that spurious correlations can appear in datasets that have been excessively manipulated either by cherry picking the date range or by eliminating outliers.  For that reason, I will select the largest reasonable dataset and do nothing to it.

I think the earliest reasonable starting point is somewhere around 1950.  Much before then, and one is looking at periods where the economy is so different to that of the current day, that it would be inappropriate to try to draw any conclusions.  In addition, it is not that helpful to produce a model going further back and have to say, when asked about a prediction, that “this is what happens to stock performance when Hitler invades Poland…”

Here is a plot showing US GDP since 1950

This immediately looks like some kind of power law growth with a kink for the global financial crisis.  (We don’t really have enough data to look at COVID properly yet, but I expect it will produce another kink and not really disturb the trend line.)

This second plot illustrates stocks performance — it is the S&P 500 index over the same timescale.

This also shows some sort of power law rise, though it is clearly much noisier than the GDP curve.  This does not however obscure the direction of travel.

Here’s a brief aside about polynomials.  This is skippable if you don’t care what curves I am going to fit to the above two lines.  Polynomials are curves of the form y = ax^3 + bx^2 + cx + d.  The order of the polynomial is how many of the a, b, c, d coefficients are non-zero.  So a first order polynomial is just a straight line of the usual form y = mx +c.  The reason this matters is that we do not want to overfit or underfit.

If we underfit, we fail to capture information in the curve we are modelling.  If we overfit, we get all the information in the curve, but we may add some features that are not really there.  The best way to check for that is to see what happens if you extrapolate the curves beyond your training data.  If you have overfitted, it will often be the case that your predictions go insane as soon as you are off-piste — i.e. outside the training dataset.

Here is an illustration of what under and overfitting might look like.

The blue circles are some arbitrary test data we want to fit.  The other curves are the various orders of polynomial returned by a fitting package.  As you can see, the first order polynomial — just a straight line as mentioned above –is totally inadequate and is a radical underfit of the data.  The second order is not bad, but the third order is very good.  I have run checks like this plus the original test of asking what happens off-piste.  I found that third order was fine to use.

Fitting a third order polynomial to US GDP gives me the following plot.

 I have slightly adjusted the data to make it fittable.  The x-axis is now the number of days since 03-Jan-1950.  I also zeroed out the US GDP for 1950 which I don’t think matters too much.  You can see that the curve is a good fit to the data apart from a rogue rise at low day counts which again I don’t think matters because we aren’t going to try to predict GDP in 1950 — we already know it.

If you want to know the equation of that curve, it is :-5.265e-11 x + 4.351e-05 x – 0.2643 x + 414.1

If you think that the very small cubic coefficient means I don’t need third order, you are basically right but again I don’t think it matters as long as the curve extrapolates reasonably.

Let’s return to stock performance.  Conducting similar manipulations on the S&P500 (recalibrating to days since the start of 1950 and setting the initial value to zero) gives me a different fitted curve, as below.

Note that in both cases, there are around 25000 days between the start of 1950 and today.  (70 * 365 = 25,550).

Here, the equation of the fitted line is: 2.726e-10 x – 3.87e-06 x + 0.02366 x – 10.68

Again, the cubic coefficient is very small.  The notable point about this curve is that it is very noisy.  But it still follows a clear trend line.

Now we get to the dangerous part.  To look at stock performance long-term, we need to see if these curves behave once we extrapolate them.  Let’s look at what they do if we double the day count to 50,000.  (This is equivalent to making the date range double — so we are currently 70 years on from 1950; 70 further years added on takes us to 2090.)

There are two reasons this is dangerous.  As I said, if the curves blow up, we have achieved nothing.  The other issue is that you can’t extrapolate power laws forever.  I will now discuss a brief example of that not working.

You will recall that in the early stages of COVID, people were plotting case counts and fitting exponentials to them.  That looked like it was panning out to begin with.  But the plot below shows what happens if you fit an exponential to the Florida case count as of yesterday.

It can be seen that the case count profile is in no way fitted by the exponential.  So is it the case that the US economy can continue growing on an exponential basis indefinitely?  Probably not.  When will it stop doing so?  No-one knows, but it might be beyond your investing lifetime.  Also, bear in mind that it will have looked like it couldn’t continue growing exponentially at most points since 1950.  We don’t know what technology or quantum computing or unimaginable developments are going to do.

So what happens if we extrapolate the curves we fitted?  This is shown in the plot below.

This shows firstly and importantly that the curves continue to behave out to 50,000 days.

We can conclude that if the S&P500 and US GDP continue to develop as they have done, then by the year 2090, US GDP will have reached USD $90tn and the S&P 500 will have reached 26,000.  That would be some great stock performance!

There are various conclusions that I have not argued for.  I have said nothing about other countries.  The above analysis would definitely not work for the FTSE-100 because that does not grow exponentially.  It seems rather to exhibit a large saw tooth oscillation between 4000 and 7000 with a period of about a decade.  That won’t correlate with anything.  Similar points apply in Japan.

Secondly, I have not shown what happens if you try to fit curves to only more recent data.  They are very noisy and that explains why a lot of analysis does not show any correlation.

Thirdly, this does not really backup Portnoy when he says “stocks always go up.”  Partly that is the case because of the huge noise in the S&P 500 curve.  Partly it is the case because you might have to wait a long time.  Partly it is the case because the curve only shows that the S&P 500 always goes up.  But the trend is your friend here if you wait long enough.

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Monte Carlo Simulation: An Introduction With An Objection To The Imperial COVID Model

We have just spent £337bn on the COVID response in the UK.  Much of this was generated by the virus itself, but much of it was generated merely by the lockdown.  A primary motivation for the lockdown were the results of the Imperial model, which was a Monte Carlo Simulation.  I explain here briefly what a Monte Carlo simulation is and bring out one objection (among many) to the Imperial approach.

Monte Carlo simulations exist to address a class of problems which do not have an analytical answer.  Imagine I am in the pub and my home is 40 paces away.  If I walk at two paces a second, I will arrive home in 20s.  That’s an analytical question which has an exact answer.  Here is a non-analytical question.  I have drunk a bottle of tequila in the pub.  The probability that I take a pace forward is only 50%; there is an equal probability that I take a pace backward.  This does not appear to be analytical.  You can’t say immediately what the probability is that I get home.

This is where Monte Carlo Simulation comes in.  What you can do is simulate my journey home from the pub and see if I get home.  (It’s called Monte Carlo because the method is based on random numbers, as we will see next.)

Here’s a really simple Python script called Randwalk that simulates the walk home.  It’s called that because this is a random walk simulation.  This sort of thing might be familiar to you from Brownian motion.

You can see that all it does is roll a dice 100 times and check to see if the dice shows three or less.   That’s the 50/50 part.  If the dice does show three or less, I take a step back.  If the dice shows more than three, I take a step forward.  This is repeated 1000 times, meaning I take 1000 steps in this version.

This entire code consists of a conditional statement in a loop.  It’s extremely simple.

We can then plot the output and we will see something like the below.

As you can see, a jagged pattern is generated.  On this occasion, plenty of my steps were unfortunately in the wrong direction, and I never got home.  But that won’t happen every time.  Below is a simulation in which I was luckier, or maybe drank less tequila.

As you can see, here I was more than 40 paces north in this simulation.  So I got home.  (I haven’t bothered to clean up the code to stop running when I “arrive home” in order to keep it simple, but that could easily be done.)

So now we see how we can use Monte Carlo Simulation to answer the original question.  What we need to do is run scenarios like the above a large number of times and see how often I get home.

Here is some only slightly more complicated Python called SimpMC which does that.

This just puts the whole of the previous code in another loop.  So we do the simulation multiple times — that variable is itot = 10 in the code above.  We then calculate the fraction of scenarios in which I get home.

This generates an answer of 0.2. But it is different every time I run it.  Sometimes I get 0.3 and sometimes 0.4.  That is happening because I have inadequate statistics.  So let’s set the run number to 100.

Now I get: 0.14, 0.17, 0.21, 0.19, 0.15.  Better but still not stable.  Let’s set the run number to 1000.

Now I get: 0.195, 0.191, 0.208, 0.192, 0.205.  That’s starting to get there.  I am clearly converging on a probability estimate here.  If I ran overnight, I would get a good answer.

Finally to the objection to the Imperial model.  Their code was observed to be unstable on multiple cores.  Their response to this was “it’s a stochastic model so it will give different answers each time.”  That response does not fly, as I will now explain.

Saying it is a stochastic model just means it uses this random number Monte Carlo approach.  However — that does not mean it should produce different outcomes when run on multiple cores.  It should not be unstable at all.  Bear in mind that the reported instability in the Imperial model is 80,000 deaths — i.e. merely the error bar in the Imperial result is larger than the current total number of COVID deaths! — and that should not happen.  To claim otherwise is to mix up the randomnesses.  (I just made that word up but that seems fine.)

For sure, we saw randomness in the randwalk code — but that was just one run.  When we did lots of runs in the SimpMC code, we started t0 converge.  We got the same result every time in other words when we did enough runs.  The Imperial model is getting different results each time you run a large number of scenarios through it with the same parameters.  That is equivalent to me getting different answers on the 1000 run version of SimpMC.  If that happens, it doesn’t mean I wrote a stochastic model.  It means I wrote a buggy model.  Imperial have potentially cost us a lot of money here.

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How To Analyse Wine Marketing

Casillero del Diablo Cabernet Sauvignon, Central Valley, Chile 2018— Producer: Concha Y Toro


    • Value wine which aims at large volume; production is 22m cases a year
    • Concha Y Toro are among the ten highest volume producers globally
    • Cabernet Sauvignon is a very well-known variety and Chile is a very well-known country of production though maybe still slightly exotic and interesting


    • £8 in in Tesco; online £7.49 plus shipping; Majestic also have this wine at £6.99 so a special deal must have been done
    • This is just towards the top of the value end of the price range
    • Price per bottle paid in the UK has been increasing slightly.  In previous decades, supermarkets would move a lot of wine at £5 per bottle but Millennials are more health conscious.  It seems inconsistent to them to go to the gym most days but also consume alcohol every day
    • Many older customers would have drunk wine every evening and therefore, as a reflection the UK’s price sensitive market, would not have been prepared to pay £8.  These consumers are being replaced by Millennials who are more likely to drink only at weekends and are prepared to trade up somewhat 
    • £8 in Tesco is thus perfectly positioned for the bulk of the current market. The typical customer is a Millennial professional picking up a bottle on the way home from work to drink with a meal. They want to have something which is good value but with some interest to it to go with a meal or prior to going out


    • This is a wine aimed at the low-involvement consumer who is slightly above the absolute minimum price-sensitive consumer but not willing to pay for additional structure or complexity
    • As noted above, this is well-aimed at the modern market of Millennial consumers; it could sell well on the same basis to similar people in the US and more widely though probably not in wine producing countries like Spain or France.  Here, there will be too much local competition which will be offering fair quality without needing to carry a transport spend and marketing budget 


    • Value wines like this are normally sold in supermarkets, convenience stores and online
    • Probably not in deep discounters unless some deal can be done because deep discounters will not want to pay for the heavy marketing/ad spend of a major brand like this. It is possible that deals can happen in some years though because 2.2m cases is huge and an economic downswing could cause the producer to be holding large quantities which will not really benefit from bottle ageing.  In fact, they will likely deteriorate quickly (some commentators recommended drinking the 2018 in 2018 and no later in fact)
    • In this case, the wine is available in specialist wine retail though that is slightly surprising.  It is possible that Majestic have specifically chosen this wine to capture the value-seeking customer.  Or they carry it as a response to specific market conditions currently obtaining.  It may well be the case that they are moving very high volumes online to a lower-involvement customer base than would normally be the case.
      • They could also be using a very good value wine as a hook to lure customers to their online space where they may well be able to persuade them to trade up, but even if not, a sale is a sale


    • “Uk’s No.1 Cabernet Sauvignon” (according to Amazon) — this is sticking strictly to the facts — people are known to prefer choices already made by others since this seems to reduce risk
    • Concha Y Toro make the following remarks on the product:
      • ORIGIN: Central Valley
      • VINTAGE: 2018
      • SOIL: Mainly alluvial
      • AGEING: Aged in American oak barrels.
      • COLOUR: Deep, intense ruby red.
      • AROMA: The expression of cassis in this wine perfectly represents the Valle Central and its richness in fruit such as cherries and plums. The barrel ageing length thanks to the toast and coffee notes (sic)
      • PALATE: Medium bodied with silky tannins and long, ripe fruit and berry aftertaste, with impressive balance of fruit and polished tannins.
      • FOOD PAIRING: Red meats, well-seasoned dishes, and aged cheeses such as Gruyere or blue
      • There is a deliberate gradient of complexity to this description — some information can be conveyed to the low-involvement consumer (cassis,  richness, cherries) before potentially causing him to switch off by mention of tannins
  • Packaging is simple and straightforward
    • The main facts are clearly stated and the brand name of the wine and the producer are prominent
    • The “Reserva” keyword is used to signify higher quality to potential customers
      •  However, this is slightly misleading because in Chile “Reserva” only indicates a minimum abv of 12% (“Reserva Especial” means some minimal period of oak ageing has taken place) while in Spain, this would be a defined term definitely requiring some maturity and oak ageing
      •  The handwriting section towards the bottom of the label could intrigue some customers, suggesting that “there is more to find out about this wine”
      • “Diablo” is a well-chosen term, because even non-Spanish speakers are likely to know that this means “devil” and that could also draw them in
        • In fact, the handwritten section explains the story that the founder of the producer kept marauders away from his stocks by explaining that the devil lived there, hence “the cellar of the devil” — a quick appealing outline of the brand story
      • Stating that the producer was founded in 1883 gives a sense of history
      • Some bottles show a large gold award seal which does not actually contain any very persuasive award data (“the world’s most admired wine brands 2015/2016/2017 from “Drinks International” ”) but many low-involvement customers will just absorb the fact that “the wine has an award” without further investigation
  • Overall this is a strong marketing profile as one would expect from such a successful brand/producer
the psychology of successful trading

Ladder Branding in the Wine Industry

Yalumba and Viognier

Ladder branding is well illustrated by Yalumba’s wine marketing.  I will explore that in this article.

Yalumba is a successful winery which has occupied the Australian Viognier space in a convincing fashion since around 1970.  There are strong sales into the UK.  The flagship super-premium member is “The Virgilius.”  This is a very serious wine which is entirely appropriately placed to add brand equity to the other members of the brand.  One potential criticism however might be that the ladder can seem to contain quite a lot of members.  This could be a symptom of a tendency to overexploit a successful approach to the market. 

Members of the Ladder Brand

Y Series  £11 Entry level — affordable
Organic Viognier £11 — £15 Affordable / Stretch
Eden Valley Viognier £21 Stretch
Yalumba Virgilius Viognier £30 — £35  Flagship ladder brand member

The entry-level member Y Series is still not cheap.  Yalumba wish to avoid the opposite of a ladder brand benefit occurring where a super-premium member would not be credible if the entry-level product shipped at £5.

Yalumba have included a member (Organic) which could act as a bridge between the entry level Y Series and the pricier Eden Valley.

Some separate products are co-marketed with the above, which runs the risk of diluting the ladder branding effect.  The Botrytis Viognier is really a separate product.  Technically it is more expensive often than the Virgilius but this is a niche entry with limited supply available only in 375ml format.

There is also a Shiraz/Viognier product range which has only two members but they are also clearly located at distinct price points (Y Series at entry level and Hand Picked at premium level).

Also, Yalumba offer an Eau de Vie named V de Vie.  This is made from Viognier which is co-marketed with the ladder brand even though this is really only coincidentally made from Viognier.  There will be few varietal characteristics visible in a spirit.

Potentially these other products could be considered as not really part of the straight Viognier range, but they all go towards giving Yalumba a strong mind share of the Australian Viognier space.

The Eden Valley product is located just south of the premium slot. The name is well-chosen because it emphasises a sense of place but also there are positive associations between “Eden” and quality.

The Virgilius is available in Magnum, is suitable for ageing and is among few Australian wines to be given a flagship location in the main wine displays at 67 Pall Mall, for example.  So it has clearly established its premium nature.

Main markets

Yalumba is not a listed company and is therefore not required to provide extensive public data on revenue generation.

However, Wine Australia provide some statistics on Australian wine exports generally.  Australia’s top five export markets by value as at year ending March 2020 are listed below.

        1. Mainland China (40 per cent of total export value)
        2. United States of America (14 per cent)
        3. United Kingdom (12 per cent)
        4. Canada (6 per cent), and
        5. Hong Kong (4 per cent)

Clearly China is of extreme importance in general but there may well be an opportunity for Yalumba to move more Viognier there.  There is only one Chinese stockist listed on Wine Searcher and Eden Valley is priced at £75.  This suggests there is effectively no supply and no information available to consumers in China.

Target consumers

As with any ladder brand, the various rungs are aimed at different consumers.  

The entry level Y Series is an excellent example of an appropriately placed product — it is interesting, fresh and approachable with decent levels of complexity without excess complexity.

Consumers who are new to the brand will find nothing to put them off but have every chance of being enticed into looking in to the upscale members on an appropriate occasion.

Many novice wine drinkers have moved from casual to serious interest in wine as a result of noticing the unassuming yet defined qualities of Y Series.

Placing a member (Organic) just north of entry level but still reasonably priced enough to be a potential step up is intelligent marketing.  It means that a customer is more likely to step up the ladder.  This is especially likely perhaps when a consumer has had the entry level product a few times or it is unavailable.

Making this wine organic and being very clear about that feature is also wise since Millennial Treaters will be a key segment here. Organic produce features prominently on their wish-list for products

The pricing may just overlap with the entry level product which again is intelligent because it encourages switching.  The entry level product is sometimes available at a discount but great care should be taken with this.  Strenuous efforts should be made to avoid the discounting of the Organic product so as to maintain its identity as “just slightly premium in a premium range.”

Eden Valley will be aimed at consumers celebrating a special occasions.  It is the “stretch” entry within the ladder branding.

The Virgilius is the “aspiration” product within the ladder branding.  It is aimed at serious wine drinkers but is nevertheless attractively priced in comparison to e.g. Meursault.

Sample marketing materials

The marketing materials are complemented by an immediate link to the wine club.

There is an effective strapline. “Thoroughly captivated by this elusive, luscious and complex white variety, a visit to Viognier’s spiritual home saw the beginnings of a journey that would define Yalumba’s white winemaking future.”

This provides a strong brand story showing the roots of the product in the past.  The streamline also makes strong and clear statements about the qualities of the varietal that the consumer can expect.  The streamline also bootstraps from Old World experience with the varietal.  This leaves an impression that the product is made with care and experience.

In sum, we may conclude that Yalumba have very successfully employed ladder branding within their range of Viognier wines.

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Château #Musar: #SWOT Analysis


  • Very strong brand story with significant historical underpinning since foundation in 1930s
  • Good level of brand equity especially among high-involvement consumers
  • Long history of organic production
  • Effective cellar door operation which attracts high-spending customers
  • Great ageing potential 
  • Production can be described as “Bordeaux blend with a twist” which is a strong combination of an established and well-known pattern but with some extra interest
  • No other serious players in Lebanon currently
  • Good and reliable sales into France because of historical relationship between the countries
  • Extremely high quality consistent product
  • Good local supplies of skilled and unskilled labour


  • Distance of winery from vineyards causes risk of oxidation damage and heat stress to grapes in transit to winery
  • Whites are not close in importance to the flagship red blends and there is little serious portfolio diversification
  • Cellar door sales are somewhat impeded by the distance of Lebanon from western Europe and the US
  • Online operation exists but does not ship huge volumes for logistical reasons
  • Winery uses large volumes of water which is not easily sourced


  • Can reach new consumers who are interested in exploring wines from novel locations — this is a major segment of the high-involvement market
  • China has an increasing population in the mid-wealth range but there is as yet little penetration of premium wine from regions beyond those that are extremely famous such as Bordeaux or Burgundy
  • Explore movement of product into China via partnerships with apps which are very important in that market
  • Find ways of improving the logistical bottlenecks to move more product via online channels


  • Continued political instability in Lebanon
  • Peg of local currency to USD has broken meaning import costs will increase dramatically 
  • Could also imply a risk of increased taxation
  • Intensification of local regional conflict could impede winery and vineyard operations including labour supply and transport of product
  • Local competition does exist and could gain importance, diluting the position of Musar as the sole well-known producer in Lebanon; moreover if such competitors move product downmarket, this could dilute the soft brand equity of Lebanon
  • Poor internet bandwidth and consistency of power supply
the psychology of successful trading

#Online Innovation In The #Wine Industry

Why might a producer choose to use a wine club and online sales to boost sales? What are the benefits and restrictions of selling wines this way?

    1. A well-run wine club combines several major benefits for producers
      1. Creates a sense of exclusivity and buzz around flagship product which can optimise price achieved of the flagship product and sales volume throughout the range (a “ladder branding effect”) —  this has been very effectively realised by Screaming Eagle which even has a waiting list to join the club
      2. The mailing list forms a way of building lasting relationships with customers who will often introduce family and friends to the brand — a wine club is a variant of a company newsletter but with much higher levels of interest generated among consumers
      3. Customer loyalty can be enhanced thus providing some resilience against natural fluctuation in productions levels
      4. Customers who have a long-standing relationship with the producer have a reduced likelihood of deserting the producer forever if there are supply issues in particular years caused by e.g. poor harvest
      5. Similarly, if there is larger than usual production, the existence of established allocations to customers can be relied upon to shift a significant slice of product and ideally also leveraged into extra volume at a (ideally minor) discount if this is seen as optimal under the circumstances
      6. The wine club can be a conduit for driving traffic to the cellar door, which is a further useful channel in itself but also further strengthens client relationships and is a positive advertising vector
      7. Valuable marketing intel comes for free — who are the customers?  What is their socio-economic breakdown?  What market segments could be addressed further?  Which products appeal to which people?
      8. Having the wine club online is a relatively inexpensive way of reaching a very large number of potential clients on a global basis
      9. Given the current nature of the commercial environment, not having an online presence or worse having an amateur one makes a producer appear extremely backward-looking: to what extent can one expect a producer with no website to be on top of the latest trends such as organic certification/new varietals post-climate change etc
      10. An online ordering possibility is extremely valuable in the extreme circumstances currently obtaining; wine writers have commented that small producers with no online presence are struggling enormously under lockdown because they simply have no way to move product
    2. There are no major disadvantages to having an online presence
      1. There are some costs involved in setting up and maintaining a website: specialist skills are required and it is very important that the website be reliable and easy-to-navigate
      2. This includes consideration of how the website will appear on a phone — this is a channel of ever-increasing importance and many website today simply fail to be usable on a phone
      3. Staff time must be invested in maintaining the website and potentially also a social media operation
      4. This is rather time-consuming and can be seen as a non-core activity for a wine producer
      5. For example, customers will often use social media to comment and complain about the product; this must be handled on a measured and timely basis
      6. The entire nature of social media posting is confusing for two reasons: firstly one must somehow combine professionalism and informality and secondly one must stay breast of an ever-changing landscape of platforms e.g. the median Facebook user in the US is now 41 — this may be fine for reaching the established client base but is not a solid future-proof approach alone
      7. Keeping the online stock updated is another task which will involve sustained effort

Gusbourne: an example of a producer who is using online innovation to sell their wines

  1. Gusbourne is a successful producer of English sparkling wines which has an online wine club named “Gusbourne Reserve”
    1. This is an intelligent choice of name which combines a sense of exclusivity with simplicity and a focus on the brand; it would have been very easy and lazy to call it the “Gusbourne Wine Club” etc
    2. The club has a dedicated region of the main website: 

How does this online presence gives the producer various touch points with the consumer?

  1.  The various touch points are well-reflected by the navigation options at the top of the start page of the subsite
  2. Navigation options are:
    1. ABOUT US
    4. WINES
    9. BUY
    10. TOURS
  3. Studies show that every time a question is asked or input is required on a website, 50% of enquiries die — it is therefore essential to have as little time/navigation required between arrival on a site and an opportunity to purchase as possible — many of the options above lead on to immediate revenue-generation opportunities and the rest offer further information which will ideally retain visitors on the website
  4. The first four options offer further information; all of these channels enable Gusbourne to appeal to potential clients who are specifically interested in the location of the vineyards or how the wine is made or what wines are available, with the very first option ABOUT US being the default for someone who wants to know more but has no specific direction of enquiry at present
  5. All of the remaining options are revenue-generation opportunities; details of where to buy the wine offline are provided; opportunities to visit the cellar door are promoted; further details of the wine club are offered; TIME WELL SPENT is a COVID opportunity whereby their sommelier will engage on specific topics of interest such as food matching via bespoke online channels such as Zoom
  6. The remaining two options BUY and TOURS are placed at the far right — these are repeats of options already available but are basically designed to catch very busy people — if someone only reads one word on this page, it is likely to be one of these two: one offers the chance to buy product and the other offers the chance to book a tour

How effective is Gusbourne’s online strategy?

  1. The online strategy of Gusbourne is extremely effective as a result of strong design with varied professional photography and frequently updated content (last two posts are dated today and six days ago; both are fronted with appealing photographs) — there are nine posts from the current month which is impressive
  2. Content is fresh and informative with discussions on what is happening in the vineyard in spring with a theme of “hope” and renewal — particularly valuable and sensitive to current conditions
  3. Plenty of food matching advice from chefs as to what can work with the product
  4. A post on the unconventional and interesting background of the founder (a surgeon from the noted wine region Stellenbosch in South Africa) which adds human interest
  5. Strong use of consistent livery across the website enhances professional appearance — front page of subsite has very strong and bold graphic design which is simple and straightforward and emphasises the product
  6. The use of text has been stripped back to the absolute minimum which is wise since “busy” websites are extremely off-putting — there are some navigation options and the mission statement:
    1. “Become a member today to guarantee your allocation of our wines, direct from the cellar, and access to a range of exclusive benefits.”
    2. This is very strong offer with no wasted words; it tells potential members what they are getting and why they should want it; it is good marketing to explain to the customer why the product will give him what he wants and tell him also he wants it just for the avoidance of doubt
    3. Sells an “experience” or how a customer will become more the person he wants to be or to project: “I want to be the kind of person who is in the club”
    4. Immediately below the main page of the subsite comes a USP statement: “YOUR ALLOCATION: Two bottles each of Gusbourne Brut Reserve, Rosé and Blanc de Blancs are allocated to each member at cellar release and delivered in two cases of six during the course of the year.”
    5. This tells clients exactly what they are getting but also makes it clear that the initial commitment need not be immense
    6. The offer continues: “Throughout the year, you can order additional bottles at preferential rates, and you’ll also have the opportunity to order our limited edition, mature and rare wines, which are only available to members” — the exclusive benefits are likely to be extremely appealing to clients; note also the constant address of the potential client as you — emphasising what it is that YOU are going to get if you join Gusbourne Reserve
    7. “All orders receive complimentary UK mainland delivery” — this is a way of giving a discount to loyal customers without actually reducing the price of the product, which could have adverse market implications
      Gusbourne is relatively highly-priced: low yields in the UK under the current conditions mean the price per bottle will be relatively high at ca. £20 per bottle — the winery has to produce a premium product to be viable at this price
  7. Comprehensive social media operation on Facebook, Twitter and Instagram with dedicated content tailored to the different platforms (twitter less visual than the others; Instagram more video than still photography)
  8. Easy way to signup to the mailing list which can be done without commitment to joining Gusbourne Reserve (but one imagines a decent upgrade/conversion rate given the effectiveness of the site design)
  9. Suggestions: this is such a professional and widely-ranging online operation that it is extremely difficult to suggest any further improvements
    1. One possibility to explore would be more video content — the current site is very text-based and this may gain less traction with younger people now and in the future
the psychology of successful trading

#Winemaking: Business Approaches To Loss Of #Wine Production

Consider a situation where a producer has many loyal customers and sells all the wine that they make, where suddenly the volume they have to sell is greatly reduced as a result of undesirable external factors (such as catastrophic weather destroying much of their grape crop). If they seek to maximise revenue and minimise losing loyal customers, what are some of the tactics they might apply?

  • It would generally be prudent to store some wine for two reasons
    • Handling production outages such as the above-mentioned circumstances
    • If the wine can benefit from ageing, then some should be stored in any case since this will maximise value (though potentially at the cost of some temporary cash-flow issues)
    • Any such reserves of wine can be used to smooth out production between years in which there is a positive or negative difference between target and actual production
    • However, the question implies that all wine is sold and so it may also all have been sold in prior years, with the consequence that there are no reserves available
  • Since 100% of the production appears to have been allocated to “loyal” customers, then there is no way of providing the desired amounts of wine to all customers who are loyal — if any customers are casual, they should be the first to lose their allocation
    • This suggests an approach whereby the winery should rank its customers by loyalty
    • Loyalty means that a customer has bought a large quantity of wine for many years
    • A loyalty figure of merit could therefore be calculated by finding the product of cases bought and years for which they are purchased; however, the simplest way might be to find the total of cases each customer has bought in the last yen years
      • This should also be adjusted for recency — it would be a mistake to give the same loyalty score to one buyer who took 10,000 cases ten years ago and nothing since and to a second buyer who took 10,000 cases last year and says they will do the same in future — this can be done by dividing the cases bought by the number of years since they were bought
      • This algorithm produces a rank order of loyalty which can now feed in to allocation decisions
  • The first task is to contact all customers and explain the position in terms of lost production
    • The initial aim here is to find out if any customers have alternative supplies of a reasonably similar product
    • This could be supplemented by the winery seeking to proactively identify alternative suppliers — who could be located in any major global wine location — to see if those suppliers have product/excess product 
    • The winery could open discussions with this other producer about supplying existing customers — however, a major risk here is that customers remain with the alternative supplier in future years
    • Therefore consideration should be given to actually purchasing alternative supplies and thus retaining client contact
    • Funding will be required for such an operation — banks can be approached but if the winery has crop insurance, this is a good application of such receipts.  If it does not have crop insurance, it should acquire some unless it is in sufficient funds to self-insure against this risk
  • The secondary aim is to “take the temperature” of clients
    • Are they extremely unhappy about the problem or do they sound philosophical about it since they are aware that agricultural products can not be produced in guaranteed quantities?
    • Any clients who have been loyal but are also understanding can be asked to defer their allocation for this year
    • This could be on the basis that they will receive bonus allocations next year if they so wish, or other ways could be sought to keep them happy
  • Alternative production methods
    • If the grape harvest has been significantly impaired by a specific shock such as hail in the exact vineyards owned/operated by the winery, there may still be other grapes available in the region from other producers or specialist growers
      • Buying grapes in could permit production to be reinstated
      • If the adverse conditions affected the entire region, this will not be a solution
    • If the adverse factors are different, there are likely to be ways of addressing them, which will cost
      • A loss of production facilities can be replaced with e.g. the hiring of a temporary bottling line
      • Loss of staff could be the issue — if any external reason causes the loss of pickers for harvest, alternatives can be sought — is the vineyard suitable for mechanised harvest?
      • If for example a global pandemic makes it impossible for workers to travel from traditional locations in CEE, then it might be possible to employ workers furloughed from other businesses during the pandemic such as HoReCa
  • The revenue maximisation question is secondary because revenue is to some extent already maximised: all of the wine available to be sold could be sold
    • One question then becomes whether any clients are prepared to pay more in order to receive an increased allocation
    • This is risky since it could appear to be price gouging, so maximum transparency with clients is needed — this should emphasis that the winery has certain fixed costs and a much reduced production this year, so it needs to charge more per bottle in order to survive
    • Clients who appear to be at least somewhat amenable to this could be offered some discounts or guaranteed priority in future years
    • In fact, this could be an opportunity to enter into long term supply contracts with top clients who will be guaranteed what production there is in a particular year
the psychology of successful trading

#Lockdown Kills More People Than It Saves

The FT today runs the argument that there are serious adverse effects of the lockdown which should be considered when deciding when to lift it.  These include the exacerbation of poor mental health and the way that people who are victims of domestic abuse have no escape.

Not a bad argument as far as it goes, but it is open to the objection that lives and cash are incommensurable.  I wouldn’t make that argument, but many would.  This objection points the way to a stronger argument in the vicinity.

Lockdown will kill more people than it saves.  The choice is not “accept some economic damage in order to save lives or not.”  It is “kill group X or group Y.”

We kind of get there already with the estimate by the oncologist Sikora that excess cancer mortality caused by lack of screening will be 50,000.  But beyond that, the economic damage caused by the lockdown will be so immense that it is likely that the second round effects on future NHS spending will also be immense.  That will again cause many more deaths.  Moreover, those deaths are more damaging.  We are currently killing Group Y in order to give Group X a few extra months.  Most of Group X are over 80 and with existing health conditions.  Indeed, 50% of COVID mortality takes place in a care home setting, where the median length of stay is in any case 12 months.  Group Y is younger people who would be economically active for a lifetime were they not killed by the lockdown.  Note that a 1% increase in unemployment causes a 0.79% increase in suicide.

My second reason for scepticism about the lockdown is that we are not really doing it (in the UK). There is massive non-compliance.  Many people cannot be bothered to maintain a 2m separation even when it is easy to do so.  There are signs on Battersea Bridge stating that one should cross on the leftward pavement; this is too difficult for about 20% of people.  25% of people admit that they are non-compliant, which makes me believe that in fact, maybe 25% of people are actually compliant. Taking these facts in conjunction with the fact that subject 31 caused 81% of cases in S Korea — implying you need a 100.0% compliance rate to do anything useful — makes me question the point of lockdown.

The primary argument for lockdown derived from the Imperial model.  This is doubtless a very good piece of work — I am an Imperial graduate myself and I know the calibre of the institution — but it is pure mathematical modelling, not a result of data analysis.  It is not experimental observational science.  It is also “5000 lines of unaudited C from 13 years ago.”

I am myself compliant.  But I think the record will show that this lockdown is unjustified.  If not, we will eventually need to see events like 10m deaths in Sweden.  So the truth will become known.

the psychology of successful trading

#Marketing #Sherry

Tradition with a future



 Poster — the poster should include a website at which people could learn more. In the case of a single producer, this could be their home site. But sherry has a marketing issue as a product — it is extremely unfashionable despite being some of the most complex and interesting wine available at the price point.

Amazingly enough, the domain is unoccupied. The Consejo Regulador should address this omission. If it existed, it would be a good candidate to use on a poster. A web address on a poster needs to be unambiguous and impossible to forget and fulfils those criteria.

The major problem for sherry is that it has a brand image which repels younger consumers. This is being exacerbated by health concerns about alcohol consumption. The proportion of fortified wines sold as a percentage of all wines sold has declined from 4% to 2.5% over approximately the last decade.

Sherry is seen as a very old fashioned drinking which would be consumed by one’s grandparents. However, it has a devoted following among critics and high-involvement consumers who see it as providing a very high complexity/price ratio. That makes it a cheap way of enjoying complex flavours and aromas.

The marketing strategy must focus on younger consumers, but must also rely on the heritage of the product. Sherry has an appealing history with the romance of the Solera system and that gives much to work with. The slogan “Tradition with a future” aims to use the historical foundation but also emphasise that sherry will be something to enjoy for many years to come.

There are many different types of sherry which brings two benefits. There is the opportunity for consumers to become “sherry explorers” — trying the various types to see if they prefer dryer styles like fino which have been biologically aged or sweeter styles such as pale cream. There is also the probability that almost everyone could find a style of sherry that they like because of the huge variation between the styles.

The tightly controlled nature of sherry, which may only be produced in a small triangle near Jerez in Spain, is also something that can be used in marketing. Ideally any promotion needs to tie in to the tourism operation into the region.

The essential Spanish identity of the product can also feed into the previous “sherry explorer” idea. It is clear that the styles of sherry which are familiar from the cupboard of the UK grandmother will be likely to be pale cream sweet styles. There is nothing wrong with that and indeed the Bristol blue glass of the iconic Harvey’s brand can only be described as a marketing success. However, this style of sherry is not even half of the story. The campaign must emphasise that most of the sherry consumed in Spain is unlike that which has passed through Bristol. There is an entire world to explore.

The romance of palo cortado should not be forgotten. This fortified wine is probably the best product to be created by accident in the world of wine. Short form video content showing the “broken stick” being chalked on can be produced. Overall, much activity in the bodega is highly visual and can be employed with typically Spanish imagery.

Product — the product for the overall campaign is sherry in general, but it would be valuable to approach producers both major and minor to see what financial and other contributions may be available. Once marketing livery has been established with the generic sherry campaign, it can be further exploited by individual sherry brands — with the overall campaign retaining a central point of control to ensure consistency of appearance and messaging.

The “sherry explorer” theme can be emphasised here with the aim of producers setting out their different flagship products under the generic sherry brand. All styles of sherry — fino, amontillado, manzanilla, oloroso, palo cortado, traditional cream types, PX — lack brand identity. The wider public should first be enabled to know that these are all indeed types of sherry and then told the differences between them.

Two angles which have been successfully used in other spirits are a) use in cocktails and b) use in chilled long-drink formats. Both of these are eminently feasible with sherry. Promotional materials detailing the ingredients and procedures to make sherry cocktails could be prepared and one element of the campaign could show sherry being used as a cooling long drink when mixed with e.g. soda.

Price — price is a major advantage for sherry since it simply costs much less than wines of comparable quality and complexity. This is almost an advantage of being unfashionable which can be employed by successful marketing. The strategy could be to try to leverage off “gateway brands.” This does not mean the traditional cream styles — the houses all have entry-level product which could be an entry point for new consumers and is very reasonably priced. Giving the impression that sherry is cheap should nevertheless be avoided — the range includes vintage product of very high quality.

People — the main target group is young consumers. Market research could be undertaken to examine whether any existing consumers can be persuaded to trade up. It appears unlikely that the archetypical grandmother who has been drinking Bristol Cream for a lifetime is suddenly going to branch out into aggressively dry aged fino. However, there may be an opportunity to reach some high- involvement consumers who have hitherto focussed on non-fortified wines.

Place — since the target group is younger — in the marketing demographic “Millennial Treaters” — it is inevitable that social media must play a prominent role. The poster above could feature on bus stop billboards initially, but must be tested for efficiency of spend against social media. The initial aim of the campaign is to drive traffic to so it is essential that there is a great deal of engaging and valuable content there. Driving such traffic can best be done by employing short-form video content in the line of Instagram stories or posts from online infl uencers. Both will be expensive if effective. The poster shown above could be used in timelines with “see link in bio” used as a tag to point consumers to the web page.

Consider approaching US-based hispanic celebrities to market the product in Spanish to the worldwide Spanish speaking community. This would be a largely untouched group which might be amenable to a heritage-based line.

Promotion — price promotions could be offered which tie in with the campaign. Since the aim of the campaign is to drive web traffi c, one approach might be to offer vouchers on the website. These could be redeemed for discounts on a BOGOF or other basis for people buying sherry.

The redemption could take place in person, but there is no particular reason why it has to be. Online sales are an increasingly important part of every market and will continue to play a significant role. The website could feature separate areas highlighting the products offered by major producers and allowing a central method of buying the product. Major producers will themselves already have a solid web presence and may insist on traffic being directed back to them. This is not a serious problem. It still means that something central and online can be offered to minor producers who will benefit from a clear and well- known online location offering distribution to end customers. Major producers who have an efficient and reliable web operation can be cross-levered by link swaps between their websites and Major producers who it transpires are somewhat behind the curve in terms of online presence can either be gently encouraged by the available comparators or upgrade via the central platform.

It will be valuable if the same promotions can be available across a wide selection of producers on the same discount basis, but this may be difficult to negotiate.

Given the essentially Spanish and indeed regional Spanish nature of the product, it will be useful to promote travel to the region. This can also form the basis of useful promotional spend. The website can run competitions, perhaps on the basis of sherry quizzes or just on the basis of luck, where the prizes will be trips to Jerez including tours of bodegas. Alternatively, rare bottles can be offered as prizes.

There is significant buy-in to the product from major critics such as Jancis Robinson. This is helpful, but it means that it is not easy to say how it can be further improved. Obviously the launch of a central website would be a significant event in the wine world and so should generate coverage which is likely to be positive. Steps could be taken to encourage the creation and nature of such coverage in the right direction.

the psychology of successful trading

#Marketing — Creating The #Brand Story In #Wine

Marketing A Premium Bordeaux Blend From #Lebanon

The Most Ancient Region for Winemaking — Begun by the Phoenicians at least 6000 years ago

Our history

We are the most prestigious vineyard in Lebanon, famous since 1930 for producing premium reds based primarily on the equally famed left bank Bordeaux blend of grapes. We lead with Cabernet Sauvignon supplemented with Carignan and Cinsault which selection combines French tradition with attention to local conditions. This unique combination of advantages allows us to make wine of the highest quality in global terms and yet with relatively modest pricing.

We have continued to produce wine throughout the sometimes complex vicissitudes of Lebanese history. We produced throughout the second world war and even during the civil war in Lebanon which began in 1975.

Our wines have excellent ageing potential and we are confident that we will be able to celebrate our centenary next decade while looking forward to another 100 years. The depth of history we have on our doorstep is underlined by the nearby spectacular Roman ruins at Baalbek.

Location of Vineyards

The location of the vineyards is already something of a talking point among wine lovers. They are located some distance away from the winery — about a 2.5h drive. People have asked us why this is, because they know that Lebanon is a hot country and grapes can be damaged by heat stress in transit. While we take every precaution to prevent this, including picking in the cool hours of the morning, the question remains as to why the distance between vineyard and winery is relatively large.

The answer to this again lies in history and the difficult history of our land. Our founder was unsure of what the future would bring. He felt confident in siting the winery close to Beirut, near to workers and customers, handy for shipping links and definitely likely to remain Lebanese territory for the foreseeable future. The vineyards are in the agriculturally favoured Bekaa valley. This area is still in Lebanon today, but this could not have been said to be likely to remain the case at all points in history.

Vineyards in Harmony with Land and People

Our vineyards are amongst the most spectacular and remote in the world.

They are located in the quiet Bekaa Valley, at around 1000m above sea level. This relatively high altitude offsets what would otherwise be excessive heat for winemaking in the Lebanese climate more generally.

Each flank of the valley is made up of a striking mountain range with snow-topped peaks. To the east of the valley is the Anti-Lebanon mountains.  To the west, Mount Lebanon separates the Bekaa Valley from the Mediterranean Sea. The Bekaa Valley is the north-eastern most part of the Great Rift Valley, which runs from Syria to the Red Sea.

The vineyards see 300 days of sunshine a year making for a leisurely growing season. The grapes are cooled by fresh mountain breezes from two directions. We have quite a high continual range despite the mediterranean climate elsewhere in Lebanon: we will often see snow in winter.

The remoteness of the valley has kept it unspoilt and perfect for winemaking in a historical style.

Winemaking: Methods and Philosophy

We aim to be natural and in harmony with nature and people in everything we do. We have a minimal intervention strategy without being afraid of adding value where it helps and does not cause damage to the land, the vines or above all the wine.

Our grapes are harvested by Bedouins between August and October. We will not move to mechanised harvesting because we want to continue to do things the way they have always been done. We will not abandon our communities of pickers merely to address the bottom line: many families depend on us in a region which is short of work.

We use ambient yeasts rather than adding cultured ones which can lead to homogenous wine production. We keep sulphur additions to a minimum: again, we are not afraid to use what is necessary but we do not keep to a pre-set schedule. What is needed and nothing more.

We do not make wine in a hurry. The premium red takes seven years before it is released. We ferment relatively cool: below 30C. This gives us gentle yet effective extraction of colours and flavour compounds such as tannins. After six months, we give the wine 12 months of ageing in French oak. There is then some blending and four years of bottle maturation.

Musar was the first vineyard in Lebanon to achieve organic certification (2006). We maintain the organic approach throughout the process: from grape growing to wine making.

Conveying the Brand Story in a Marketing Campaign

✦ Lead on history — emphasis continuity and quality

✦  Campaign can be highly visual in nature, using such sites as the Baalbek ruins — these are a USP for Musar since the ruins are only reasonably usable by wineries in Lebanon and Musar is easily the wine with the best brand equity in Lebanon

✦  Focus on the way the winery has continued to produce despite difficult circumstances — gives consumers a sense of connection and history stretching forwards into a bright future as well as having strong roots in the past

✦  Bring out the relative good value of the wines — Bordeaux quality at Lebanese prices

✦  Emphasise natural winemaking and environmental strengths since these qualities are highly fashionable and likely to remain so

✦  All of these factors highlight that Musar is unique — unusual grape varieties and a less- well known region are both highly sought after qualities among high-involvement consumers. This also represents an opportunity to gain greater exposure for the whites, which use grapes which will be unknown even to many experts.

✦  Care must be taken not to dilute brand equity. This is less likely to be a problem with the Arak, which is high quality and a product with a clear distinction to the flagship premium red blend. This is probably also true of the rosé product, though this is starting to encroach on the central territory. There have been efforts to broaden the appeal of the products to younger consumers by launching easy-drinking ranges of wines (“Musar Jeune”) which have less age and power. This is a highly questionable strategy and if it continues, should not feature heavily in the marketing.

✦  The flagship brand, while relatively inexpensive in comparison to Bordeaux, is still premium in pricing. This means that customers will be high-involvement. They are likely to fall into marketing segments of either “Experienced Explorers” or “Millennial Treaters.” The age of the former means that a social media campaign will likely be ineffective, but this is probably a group which in any case already has good familiarity with the brand. There is an opportunity nevertheless to reach Millennials via social media and a highly visual campaign based on the above parameters is recommended.

✦  Short form video on Instagram is the best near term opportunity. Use “Stories” to promote Baalbek and the vineyards. Focus on younger demographics (already partly accomplished by choice of platform) with interest in wine. Emphasis quality and USPs.

✦  Consider joint ventures with bodies promoting tourism to Lebanon — though remain pragmatic since sources of public sector funds are currently not flush.

✦  Look at offering free trips to the winery to influencers who will contract to produce Instagram stories in an “organic” way. It will be helpful if at least some of the resulting posts can avoid the “paid post” tag but this should be possible since the actual experience can be documented by the influencer and not every aspect of it will in fact have been paid for. Consider chartering private jet for super-influencers. This will be extraordinarily expensive but will result in literally millions of page views and will be widely shared by the right influencer. Product placement in the jet is an appealing option. This also adds interest to the region in general and since Musar has a good cellar door operation already. This can benefit from increased high-involvement customer traffic.