Preserve the Luxury or Extend the Brand?

John Derick Mendoza

CASE 2: Preserve the Luxury or Extend the Brand?

I.

Case Background / Summary

 A. Chateau de Vallois is a family owned winemaking estate located in the Bordeaux region of France of  France famously known for its long-term track record in quality and reputation B. Gaspard de Sauveterre, a septuagenarian, septuagenarian, owns 50% share of of the estate and has the final say on business decisions C. Claire de Valhubert, granddaughter of Gaspard, owns owns 25% of the estate through her deceased mother D. Francois de Sauveterre, son of Gaspard, owns 25% of the estate and has control of the estate’s day-to-day operations E. Jean-Paul Oudineaux, an agricultural engineer and the estate manager F. Chateau de Vallois main brand, Grand Vin, sells for $999 for US consumers and are averaging 150,000 bottles sold each year. The remaining grapes are used to make Puiné, their second wine, which is sold for between €100 - €450,  €450, and averages a total sale of 200,000 bottles per year. Any remaining grapes gr apes are sold to other producers anonymously and repackaged under other brand names G. As a way to freshen up the the traditional brand and to gain more exposure, Claire wanted wanted to begin mass marketing a new “affordable luxury” wine brand. The idea would be to use different grapes in order to be more accessible to the younger generation. The target price range would be €20 - €25  €25 per per bottle. H. Francois and Jean-Paul disagrees with with Claire, saying that their current level of production cannot support a third brand and that they have no expertise in making wines with grapes outside their estate. Furthermore, Chateau du Vallois does not have the marketing distribution expertise to engage in direct selling and that they may be risking the good relationship with negociants

II.

Problem Statement Should Gaspard accept Claire’s proposal to have Chateau de Vallois enter the “affordable luxury market”? Or should Gaspard follow Francois’ recommendation to maintain Chateau de Vallois’ exclusivity?

III.

Case Analysis The Group sees two independent courses of action for Gaspard, either he accepts Claire’s proposal to cater to the mass market or to follow Francois’ recommendation to maintain

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their products’ exclus exclusivity. ivity. To further analyze the situation, sit uation, the Group used SW OT analysis

on these two options

Preserve Luxury (Francois)

Strengths

Weaknesses

  Maintains excellent quality of ➢ harvested grapes due to terroir  with ideal soil and microclimate ➢  Solidifies track record of wine quality and brand reputation ➢ among loyal customers the good long ➢ Preserves standing relationship with ➢ negociants  and distributors ➢ Maintains focus on winemaking and not worry about marketing and distribution ➢

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Opportunities

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Threats

Extend the Brand (Claire)

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Inability to reach the estate’s full profit potential since the biggest margins will made by negociants Market is is limited limited to those who who can afford luxury wines

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Maintains ability to command top prices for its wines The perception of high quality and exclusivity will remain in the loyal customers’ minds Sales are somewhat guaranteed even in bad years as negociants tend to buy the total output just to preserve the good relationship

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Entrance of less expensive and lower quality winemakers that may capture the market of next generation wine drinkers Other top traditional Bordeaux estates have already started

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Ability to tap into the newer, newer, younger generations of wine drinkers with limited purchasing power New brand can capitalize on the already established high-end brand Affordable brand may build a solid customer base that may prefer the high-end Chateau du Vallois brands once they’re ready

  No expertise in winemaking utilizing grapes outside the estate’s harvest expertise in marketing, ➢ No distribution, and advertising ➢ Current production levels cannot support another brand and may require purchase from other estates and ➢ New brands may confuse and worry the already established loyal customers due to the use of non-Bordeaux harvested grapes ➢

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Changing market demands Entry of the new generation wine enthusiasts and wine drinking behavior International expansion

Perception of high quality and exclusivity may diminish In direct selling, sales are not guaranteed during times of recessions Direct selling selling might might tarnish tarnish the

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direct selling Entry of the new generation wine enthusiasts and wine drinking behavior

good relationship negociants

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The Group also analyzed the new target market for the “affor dable luxury” brand proposed by Claire. Porter’s five forces model was used to measure the new market segment’s

attractiveness. Porter’s Five Forces Model

1. Threat of Intense Segment Rivalry (Low)  - based on the case context, the competition in the new segment or younger wine enthusiasts or “affordable luxury” market is not that high. Less-expensive and low-quality wine makers and even top traditional Bordeaux estates are starting to enter this segment. According to Claire, people are asking for websites for direct selling of this affordable french wines indicating needs that are unmet 2. Threat of New Entrants (Low) - Lands in Bordeaux are very very expensive for new entrants and even expansions. While buying land overseas may be an option, new entrants must have the network and expertise to operate effectively in an international supply chain 3. Threat of Substitute Products (High) - less expensive and low-quality winemakers are entering the market. Also, there are a lot of alcoholic beverage available to consumers and enthusiasts such as whiskey, brandy, scotch, vodka, and the ever popular beer 4. Threat of Buyer Bargaining Power (Low) - while the goal of Claire’s proposal is to cater to the younger wine enthusiasts with limited purchasing power, wine is still a luxury product. As long as the new brand can bank on the success of the high-end brands, Chateau du Vallois can dictate the prices even in the “affordable” segment 5. Threat of Supplier Bargaining Power (Low) - Claire’s proposal of directly selling is essentially a forward integration. Chateau du Vallois will still be managing the grape growing & harvesting. Winemaking is still the Core business thus maintaining them as the Supplier Overall, this new segment is attractive enough for Chateau du Vallois to consider entering.

IV.

Alternative Courses of Action

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1. Reject Claire’s proposal and preserve the exclusivity and focus on the two Chateau brands

 Advantages: marketing and ➢ Maintains focus on winemaking and not worry about marketing distribution ➢ Preserves the good long standing relationship with negociants   and distributors track record of wine quality and brand reputation ➢ Solidifies track ability to command top prices ➢ Maintains the ability Disadvantages: ➢ Market is limited to those who can afford luxury wines ➢ Inability to reach the estate’s full profit potential since the biggest margins will made by negociants selling might tarnish the good relationship with the negociants ➢ Direct selling changing market market demands/behavior ➢ Inability to adapt quickly to changing 2. Accept Claire’s proposal to enter the “affordable luxury” market and engage in direct selling of the new brand

 Advantages: with ➢ Ability to tap into the newer, younger generations of wine enthusiasts with limited purchasing power established high-end brand ➢ New brand can capitalize on the already established ➢ Build a solid customer base that may prefer the high-end Chateau du Vallois brands once they’re ready ➢ Ability to adapt quickly to changing market demands/behavior

V.

Disadvantages: selling might tarnish the good relationship with the negociants ➢ Direct selling worry the already established loyal ➢ New brands may confuse and worry customers ➢ Chateau du Vallois has no expertise in marketing, distribution, and advertising Recommendation The Group’s Recommendation is to accept Claire’s proposal to enter the “affordable luxury” market and engage in direct selling of the new brand . This new affordable

luxury brand however must be independent inde pendent from the already established brands i.e. Grand Vin and Puine so as not to confuse the loyal customers and dilute the perception of exclusivity. Specific Action Plans: ➢ The new brand must be independent from Chateau du Vallois other brands. This can be done by establishing a subsidiary with its own CEO. Claire would be a

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perfect candidate for CEO. This new brand can be marketed as a subsidiary of Chateau du Vallois Choose an overseas overseas production facility (land) preferably preferably California. This would lessen the capitalization costs since Bordeaux lands are expensive. Also this reinforces the notion that this new brand is independent. The new brand will be using grapes of different variant from another country rather than downgrades from not so ideal Bordeaux lands Hire an expert on growing these California grapes, preferably a local from California Hire marketing, distribution, and advertising specialists specialists to effectively compete in direct selling Apply the quality standards and techniques techniques from Chateau du Vallois to this new production facility

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