Wine Marketing in Britain - Term Paper Example

STRATEGY FOR MARKETING WINE IN BRITAIN Evaluation of State of Wine Industry in 2000 The wine industry in Europe has been traditional given the highly fragmented nature of agro based production, segmented players with vested interests in the status quo and inflexibility to adjust to the competition and changing environment. The companies are mostly based in France, Italy, Germany and Spain. A detailed analysis of the wine industry in 2000 has been covered based on the four Ps model of Product, price, promotion, and placement. (McCarthy : 1999). Briefly product marketing provides inputs for development based on consumer preference and demand, a facet totally neglected by old World wine producers of Europe. Promotion entails not just advertisement but also branding while pricing refers to balancing what the consumer is prepared to exchange in relation to production costs. Placement in a globalised environment creates the greatest challenge of retailing the product. Product and Pricing Issues Wine Production. Wine production in Europe has traditionally been labor intensive, based on fragmented production of grapes by small sized farmers spread over a wide area. These are dependent on a long chain of producers, distributors and marketing agents and are thus impervious to the needs of the consumer, a cardinal sin in product marketing. On the other hand new world wine growers, in the United States, Australia, Argentina, Chile and South Africa, have large land holdings averaging 158 hectares compared to 1 acre in Europe and with mechanization and use of modern techniques have full control of the production, supply and distribution chain thereby being responsive to product development based on consumer preference. Modernization of production has been rejected by French wine growers who do not want to lose the, “poetry of wine.” Product and Price Differentiation through Packaging. New world wine producers also made innovations in packaging with the half gallon flagon in America and collapsible plastic bag in Australia which contributed to cost cutting, reduced transportation load in ships and eased storage in refrigerators. This enabled raising the market share with European wine producers sticking to the bottle. Flexibility of Product. Australian and American wine producers have displayed greater flexibility in product development focusing on the change in demand to premium and super premium brands, switch from red to white wine and vice versa based on health benefit perception of consumer, fashion trends and even preference based on variety of grapes. This has been achieved by cultivating the identified variety in larger acreages. Old world wine growers did not have this flexibility as land continued to be scarce as also its use for growing grapes was regulated. Pricing. Apart from the factors covered above, new world producers were able to achieve a price advantage due to economies of scale while French and German wine growers were restricted by small holdings and limited scale of operations. Ease in transportation costs and liberalization of tariff regulations due to execution of World Trade Organization norms also assisted the new world producers in pricing their products competitively. Promotion - Impact of Branding. While branding a product is an important tool for its promotion, in old World Europe, regulation and classification of wine led to a deleterious impact creating a hierarchy of regression with a government panel allotting quality certificates. Branding or classification in France was carried out based on an antiquated system of terroir or the unique qualities provided to wine due to factors as soil conditions, rainfall and so on. But when phylloxera struck affecting wine production in the last quarter of 19th Century, it was only through the process of grafting with phylloxera resistant roots from Californian vine yards which transposed wine industry beyond Europe. The regression in branding is exemplified by the fact that a resolution was passed by the European Union banning selling wines in Europe of names as Burgundy and Chablis which had not been produced specifically in those regions. New World producers quickly overcame this encumbrance by naming their wine based on the variety of grapes being used, which ironically appealed to the customer. Large market players as Coca Cola, at one time entered the wine business though for a short while which provided a boost to development of marketing techniques in the wine industry in new world wine producing countries. The use of modern techniques for promotion such as, the Judgement of Paris 1976, wine tasting competition held in Paris in 1976 and followed up in California two years later led to growth in perception of Californian wines being better than the French wines. This promoted wines from America and broke the exclusivity of French wine. But it took some time for traditional wine growers to overcome their snobbishness and customary restraint for modernization. Placement - Full Scale Distribution Chain. The new wine players having large holdings established a full value chain for production and distribution of wine, eliminating middle men, thus extracting maximum margins at each level and retained bargaining power. This soon outdid the traditional wine grower who had due to the regulatory nature of the industry had a long distribution chain and with profit margins inflated at each level, there was no incentive for the wine producer to increase efficiency and pass the benefits in production to the consumer. Though some French cooperatives did attempt to break the organizational disadvantages of disparate production, wine making, distribution and marketing, this did not have a wide spread impact in market share. Marketing of Wine in Britain Market Share and Branding. Britain is seen as the bellwether for wine demand and the battle for market share in Britain is fought closely between Australia and France. In the ten most popular brands in Britain in 1998, there were 5 Australian brands, three French and one each American and British, though the American brand, E & J Gallo was the largest selling. European companies who depended on reflected value of their products over the ages did not display interest, resources or skills for branding. Leaving the field open to competitors from other parts of the World and decline in preference for European wines by customers. Placement- Distribution. European producers also lost out on negotiating with super market retailers as they had limited experience of retailing and did not operate at large scales to meet the burgeoning demand in Britain. While wine producers in countries as Australia having gained experience in scale and integration to capture market share within their own countries were quick to exploit this experience in the export market of Britain. It would thus be seen that lack of development of a holistic marketing strategy based on the four Ps led to traditional wine producers being challenged by New World wine companies from Australia, United States, Chile and South Africa on their home ground. In 2002 as per a market forecast, Australia was expected to surpass France as a leading wine exporter to the United Kingdom. Strategic Options – France. An appraisal by the French agricultural ministry in 2000 had led to a proposed strategy, for adopting technological and management initiatives of new world companies particularly branding. Some French companies continued to be skeptical of the new approach and demanded that it should use the fragmentation and diversity of French industry to advantage, as it still had 40 percent of the world market share. Marketing is a management process of anticipating, identifying and satisfying customer requirements profitably. (http://www.cim.co.uk/cim/index.cfm). Marketing in a globalized environment even of goods which are traditional strengths of suppliers as France has to be undertaken considering the global environment for the 4 Ps, Product, Pricing, Promotion and Placement. This is so as the dynamics of the global market place has permanently transformed the way products are consumed by the international customer. France cannot depend upon merely its old World concept of, “poetry of wine” to market it any more. While fragmentation and diversity are the strengths of French wine industry, unless producers are provided full support based on effective knowledge management in product development, pricing, promotion and placement, retention of primacy of France in the wine industry is under threat. Brand building alone may not be the panacea as proposed by the French ministry of agriculture, as it is more applicable to an item which can be produced uniformly. There is a need to have a full scale development programme based on the 4 Ps of marketing. The total value chain from product development, supplying, retailing and promotion needs to be addressed based on a systemic analysis of the present status of each facet. This can be done from a modern management perspective based on the following factors:- Understanding the product. Review the product based on its strengths over the years and perception by the consumer, particularly in Britain and then develop strategies for product development based on consumer needs. For this there may be a need for amending regulations within the country lifting age old restrictions on land use, classification of wines and so on. Knowing the consumer and his preference. Resourcefulness and adaptability to consumer preferences with deftness and speed. Competition from the new World wine growers has to be firstly accepted as a threat and then suitable counters developed. (Gelb: 2005). This is particularly important as they are more aggressive and have scant respect for wine growing tradition and culture and are amenable to promotion strategies attracting the customer. Thus it is fairly obvious that depending merely on a diversified and traditional product as proposed by the antagonists of the French agriculture ministry is not likely to enable the French sustain their primacy in global wine business. Recommended Strategy for Sustenance of French Wine Share in Britain The characteristics of the market in Great Britain need to be understood. 89 percent of British consumption of wine is sourced from outside the country with more than 45 countries exporting wine to the United Kingdom. This not only makes it a very competitive but also a price sensitive market. (US Department of Agriculture Survey : 1995). Thus marketing strategy should be able to address these charateristics of the British wine market. Product Development “Reverse engineering”, of product, producing a wine which is based on customer preference needs to be carried out based on a survey of the market to include a number of factors such as age, consumption patterns, incomes and so on. Niche marketing is another aspect which needs to be considered in Britain by targeting specific groups for acquisition and retention. These are the lessons borne out of globalisaton and internationalisation of markets in the 21st Century. (Terpstra : 1987). A survey by the United States Deparment of Agriculture of the wine population in Britain has revealed that premium wines are consumed by older and more conservative buyers. While the younger buyers are said to prefer quantity and not quality. White wine has a market share of 60 percent, popular with all age groups but preferred by female consumers. Red wines are preferred by older age group. (US Department of Agriculture Survey : 1995). Development of wines and its promotion could thus be based on these factors which have been identified in the survey. Alternately a market survey on similar grounds could be carried out by the French Agriculture ministry to identify product development and promotion strategies. The French wine growers have considerable advantage in market for the younger age group as they are producing large quantity of relatively low grade wine and also have presence in the high end segment with a few premium brands to target the older age group. This will facilitate, two facets essential in any marketing strategy, acquisiton of new customers and retention and expansion of the relationship with existing customers.( http://en.wikipedia.org). Acquisition will have to be followed by ensuring development of long term relationship. Branding Promotion techniques as sensory branding propagated by leading branding expert, Martin Lindstrom to exploit the sense of smell and palate which are suited for wine can be considered for product differentiation by French firms. This can be further exploited by connecting with emotions and déjà vu of old world wine enthusiasts.(Lindstrom : 2005). Standardizing strategy for branding can be considered across the wine industry in France despite its fragmented nature. This will provide industry wide focus and support to the smaller and marginal producers in developing their brand image. It is also essential to understand that in a globalized environment it is not just important to develop a uniform brand building strategy since it is a very ethnic oriented phenomena but a localized branding strategy as well.(Littler : 1995). There would thus be a case for adopting a differentiated brand strategy for growth of the market in Britain as opposed to standardization. Pricing Wines produced in the European Union were having an advantage in pricing which has been considerably reduced with World Trade Organisation parameters applicable to most items. The tariff rate was dependent on a number of factors as the percentage of alcohol, container and type of wine. This factor can be exploited to gain a pricing advantage in conjunction with the British commerce and European Union authorities for French wine and an appropriate strategy evolved. A separate pricing strategy for premium, super premium and standard grades of wine should be considered to cater for the price sensitive British customer. A survey in 1995 had revealed that 30 percent of the wine sold in Britain was priced at 2.50 to 3.00 British pounds per bottle with wine over 4.00 pounds being only 10 percent of the sales, this will enable evolving product percentage mix and also pricing strategies. (US Department of Agriculture Survey : 1995). Product Placement The retail chain in Britain is exclusively with departmental stores. Distribution can thus be channelised through the departmental store chains, thereby providing advantage of spread, reach and also appropriate assistance in market segmentation provided with a large data base of customers and their preferences available with the retailers. Conclusion Marketing wine in Britain is a challenging assignment for any modern manager. However with appropriate marketing strategies based on the proven 4 Ps of marketing, it should be possible for French wine to retain and even expand its market share, despite aggressive new World wine producers. References 1. Gelb, Amos. New media age, new marketing strategies. http://www.ojr.org/ojr/stories/060206gelb/(02 April 2006). 2. Lindstrom, Martin. (2005). "Broad sensory branding" which originally appeared in the Journal of Product and Brand Management. Volume 14 Number 2, pp84-87. 3. Littler, Dale. Schlieper, Katrin. (1995). “The development of the Eurobrand" originally published in the International Marketing Review Volume 12 Number 2, 1995. http://www.managementfirst.com/marketing/articles/branding.php (2 April 2006)... 4. Terpstra, V. (1987). "The evolution of international marketing", International Marketing Review, 47-59. 5. http://www.cim.co.uk/cim/index.cfm. (01 April 2006). 6. US Department of Agriculture Survey on Wine consumption pattern in Britain. http://www.findarticles.com/p/articles/mi_m3723/is_n10_v7/ai_17850382#continue. (01 April 2006) 7. http://en.wikipedia.org/wiki/Marketing. (02 April 2006) Bibliography 1. Bradley, Frank. (2002). International Marketing Strategy, Pearson Education. 4th Edition. 2. Chee. and Harris. (1998). Global Marketing Strategy, Pitman. 3. Czinkota and Ronkainen. (1998). International Marketing, Dryden Press. 4. De Burca, S et al. (2004) International Marketing, Prentice Hall. 5. Jean-Claude Usunier. (2000). Marketing Across Cultures, Pearson. 6. McCarthy, E Jerome. Perrault, William. (1993). Basic Marketing: A Global-Managerial Approach, 11th Edition (Hardcover) Read More