Strategic Advantage-Wine Producer - Case Study Example

Strategic Advantage-Wine Producer Name Course Lecture Date Introduction Traditionally, India is not a wine drinking country. This can be based on the early period of prohibition coupled with the high prices as compared to spirits such as brandy and whisky manufactured in India. Over the years, the wine industry in Indian has been growing steadily and with time, wine is constantly becoming an essential part of the lifestyle of the Indians living in the urban centres. Since the time India joined the WTO, there was a significant reduction in the import tariffs; these foreign exports were able to tap into the consumer market in India. The wine industry in India is gradually opening up since import duties are being lowered; quantitative restrictions are minimal, and there is also the simplification of domestic regulations. The higher consumption of wine in India is attributed to the changing demographics, growth in number of tourists in the country, rising income, exposure to new cultures as well as the loosening of government policies and regulations. In the year 2014, the production of wine in India attained a record of 17 million litres while the exports rose by 40% (Dezan & Associates 2015). The graph below shows wine consumption in some countries This essay sets out to offer advice to a new wine producer setting up their business in India and whose future ambitions are to grow into medium-sized producer and exporter of wine. This will be done by the use of the following frameworks analysis of the Porters generic strategies, five forces model, critical success factors, resource-based view and Ansoff matrix. Porter generic strategies In relation to competitive advantage, Porter argues that companies need to conduct an analysis of the industry structure and then choose one of the strategies for positioning the three generic strategies that is cost leadership, focus or differentiation. The application of Porter’s concept in the wine industry seems to be intriguing since though the high-end and low-cost wines are grouped as been differentiation strategies or cost leadership strategies, the overabundance of wines for consumers appears to be large making it difficult for consumers to make choices for the wines to purchase (Gamble et al. 2010). In the middle prices range, a range dilemma has been created based on the extent to which companies can use differentiation, cost leadership and focus strategies. Porter further argues that a company can be stuck in the middle as it tries to gain a competitive advantage and eventually gain none (Mudill et al. 2003). This is usually the case since each of the strategies has different approaches to sustaining and creating a competitive advantage. The new company needs to make use of the differentiation strategy in India and their prospects market. In regard to these, they can offer high-quality wines and at premium prices. Thus Indians purchasing their wine varieties will have a better option to choose from based on quality, and they will not care much about the cost of the wine provided it is of high quality. Instead of focusing on a broad range of wines, it would be best to concentrate on the types that the company can produce well and that customers can enjoy even though the varieties may not be familiar in India. They can further differentiate by making wines with unique blends and with time, the company will manage to come up with a clientele for their wines varieties. Another aspect of differentiation was to focus mainly on the value factors (Spawton 1991). They can price their wines based on value and ensure that they create a lasting experience. Porter’s five forces model The five forces model can be applied to the wine industry in India to analyze, and better understand the industry structure in a more explicit and informed manner. The forces play an essential role in determining the intensity of the competition in the industry and hence show the probability as well as the attractiveness of the industry (Winter & Szulanski 2001). The core aim of these forces is to assist a new company and the already existing ones in strategizing the policies of the company in a manner that improves their position in the industry. The figure below shows the porters five forces model. Supplier power The main providers of the wine industry are the grapes producers in the rural parts of India. A great number of the farmers sell their produce through cooperatives while some sell individually. The market seems to be fragmented with the medium and small farmers planting common varietals (Porter 2008). Other wines are exported from other countries. Buyer power Traditionally, the wine consumers were small. The good and quality wine in India was very expensive, and the wines were of poor quality and were sold at very low prices. The changing lifestyles and growing awareness has changed the traditional scenario and suppliers of wines have no option but to offer low prices to the consumers (Porter 2008). The increase in capacity can also handle the downturn in wine prices. The customers are bound to have a higher power as the market increases and the existence of more market players who will offer high-quality wine. Most wine takers in India live in the urban centres as depicted in the chart below. Threat of substitutes Wines manufacturers in India faces threats from other substitute products such as spirits and beers. These products pose a significant threat to the wine industry since their market is bigger, and it tends to grow steadily and the consumers can switch quickly to these alternatives as compared to wine (Porter 2008). Nevertheless, wine producers should not worry since the industry has grown amidst the substitutes, and the industry has been able to attain a group of loyal consumers. The wine industry has an inherent advantage since it seems to be a healthier option to beer and spirits. Threat of new entrants The wine industry in India is not very capital intensive, and the government of India has put in place some subsidies making it easier for new players to participate in the wine industry (Porter 1985). The government policies that are in place are pro new wineries with small license fees and zero excise duties. Despite these, the new players are threatened by the economies of scale and brand equity of the old players. The new players in the industry need to improve their wine quality and spend heavily on brand building efforts. The distribution channels are now open to new players (Powell 2001). Industry rivalry There is an intense competition between the players, and each of the players tries to grab the small share amidst increasing markets. There are five major wine producers in the Indian market, and they include Sula Vineyards, Heritage Grape Winery limited, Sankalp wines, Grover Vineyards and Chateau Indage (Robinson 2006). These major players in the industry will likely have the same size in the coming years. The new entrant needs to offer trade discounts with the aim of increasing the volume (Porter 1980). Market consolidation is likely lead to few large players along small actors. The new players in the market need to create awareness and educate people on the benefits of drinking wine. The new player can also take note of the weaknesses of Indian wineries that is of poor quality of wine as well as the low investment. Critical success factors There are some key success factors when setting up a wine business in India. An important success factor is segmenting the market. The new company needs to have real market segmentation to allow them to group consumers homogeneously. This will go a long way in improving the efficiency of the commercial activities undertaken by the company. There are four major market segments of wine consumers, and this includes the students, connoisseurs, bulk consumers and the new consumers. Additionally, a detailed understanding of the sporadic behaviour seems to be essential when it comes the accurate segmentation of customers (Lapsey & Moulton 2001). The other success factor is moving close to the market. Based on Mudil, Riding, Georges and Haines (2003), the distribution channel concentration is a critical variable in the wine industry. The new player in the industry should try and have clear and concise channels to distribute their products to the consumers. By so doing, they will ensure that they reach their market segments in an efficient manner. This is likely to translate to greater awareness of the products and higher sales of their wine products thus ensuring the firm success. The other critical success factor is the creation of a brand through the use of integration policy. Based on Reid 2001, the wine industry seems to be in the midst of globalisation and thus the industry is forced to cope with a number of events that characterize such eras such as proliferation of brands, consolidation of the retail sector and fragmentation and over production. In relation to these new challenges, it would be in the producers’ interest to make use of integration policy and mostly one that revolves around advertising and marketing. This will offer positive outcomes at various levels for instance in terms of brand loyalty among retailers and consumers, higher profitability and greater market shares (Sirmon, Hitt & Ireland 2007). Resource Based View The RBV is mainly composed of two major components that are the firm’s internal resources as well as the capabilities as the source of superior performance in a firm (Lucas and Kirillova 2011). The assumption of RBV is that a high performing organisation is made up of some resources that offer them an advantage in the industry (Zubac, Hubbard, and Johnson 2010). In addition to the above assumption, RBV assumes that a firm’s resources are heterogeneously distributed and seems to be immobile across the firms (Barney 2001). Runyan, Huddleston and Swinney (2006) further assert that a successful business will be the proactive one when it can gain and maintain a competitive advantage in the most hostile environment. Thus, it is inevitable that there will be differences in resource endowments in firms and this will take place for a considerable amount of time acting as an enabling factor in the differences in performance of the firms (Kraaijenbrink, Spender and Groen, 2010). In regard to the RBV, the new player in the Indian wine industry needs to ensure that their resources have the following characteristics; rare, valuable, non-substitutable and inimitable. They also need to appreciate the fact that the resources cannot be able to be productive by themselves thus they need to turn resources that create advantage into profits. Thus, they need to ensure that they embrace capabilities such as deploying, coordinating and revamping resources for them to achieve the best performance and deliver quality products to the consumers (Mercer 2001). Ansoff Matrix Ansoff matrix plays an essential role in defining two vital aspects of marketing; what is sold and to who it is sold to (Ansoff 1957). Consequently, it pertains to the markets and products and in a way enables to offer four different courses of actions in making marketing objectives which include diversification, market development, market penetration and product development and this is clearly depicted in the diagram below. The new player in the industry needs to focus more on product development. Product development mainly focuses on developing new products for the current and existing markets. By doing so, they will be able to attract customers in their target market and with time increase their market share locally and globally (Ansoff 1957). In India, the views of people on wines have significantly changed, and a greater number of people are now consuming wines. Based on the changing needs and demands of their Indian consumers the company need to apply product development strategy (Stone 2001). Additionally wines are seen as being a better alternative to beers and spirits. Conclusion In conclusion, it is crucial to note that, the wine industry in India seems to be growing at a faster rate, and this can be attributed to the reduction in import duties, quantitative restrictions are minimal and there is also the simplification of domestic regulations and changing lifestyles of Indians living in the urban centres. The new player needs to take up the opportunity and set up business in Indian to sell to the local people and export to other countries. To achieve a greater number of consumers the new player in the industry need to differentiate its products and offer high-quality wines to the consumers. This will go a long way in creating a healthy market share of loyal customers. The new player in the industry also needs to take note of the success factors and implement them when marketing and basing their operations in India. References Ansoff, I.1957, ‘Strategies for Diversification’, Harvard Business Review, Vol. 35 Iss. 5, pp. 113-124. 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