Marketing Strategy, Market Segmenting - Vinos Andinos - Case Study Example

SEGMENT ANALYSIS OF THE EUROPEAN WINE MARKET Vinos Andinos Prepared By Prepared for Date 1. Introduction In today’s market, consumers are becoming more and more sophisticated in terms of their needs. With the diversity of the global consumer as well as the global suppliers, the markets become more and more complex where the organizations need to identify the specific customer groups, which is to be focused upon to maximize both efficiency and effectiveness. It is of utmost importance that a firm use its segmentation and targeting process to drive the marketing strategy so that there is a cohesive and integrated approach to the company’s business activities. This report aims to identify the relevant criteria and their level of importance in segmenting the new markets, which Vinos Andinos, a medium scale Chilean vineyard is recommended to apply in its overseas expansion plans to the European market. The report also provides recommendations of the suitable markets to which the company should initially market its products. 2. Process of Strategic Marketing Today most companies are moving away from mass marketing and instead adopting market segmentation and targeting as their strategy which involves the identification of market segments, selecting the ones to be targeted with the organizational resources and efforts and then position the product in these chosen segments with suitable marketing mix (Kotler & Armstrong, 2000). Figure 1 below illustrates the steps involved in the strategic marketing process. Figure 1 – Steps in Strategic Marketing Process. Adopted from: Marketing: An introduction. Armstrong, G & Kotler, P. (2000) 3. Process of Market Segmentation In the Segmentation process, the market is divided in to distinct groups of buyers with different needs, characteristics or behavior. As the fist step of segmenting the market, it is important to identify the bases of segmentation or the criteria which will be applicable for the segmentation. Depending on the product or the service being marketed, the applicability and relevance of segmenting criteria will vary. Once the applicable segmenting criteria are identified, the level of importance of each criterion should be applied so that the segmenting is done progressively by applying these criteria in the order of its importance (Schultz & Barnes 2001). While segmentation offers larger consumer profiles, there are sub groups within these segments. For example, in the Wine market, segmentations can be done based on age groups and Key Benefits Sought (KBS). Within these segments, there will be sub groups divided by different spending powers, behavioral differences and usage occasions. It is based on these criteria that the profiles for the segmented markets are developed. Once the market is segmented, it is also necessary to asses and evaluates each market segment’s attractiveness and selecting one or more of the market segments to enter. Various levels of market segmentation can be observed from Mass marketing to Segment marketing, Niche marketing and Micro marketing. Mass marketing represents no segmentation in one end of the spectrum while micro marketing involves complete segmentation. For segmentation to be effective, the market segments should be Measurable, Accessible, Substantial, Differentiable and Actionable (Armstrong & Kotler 2000). In evaluating market segments, three key factors should be considered. These include the segment size and growth potential, segment’s structural attractiveness and the company’s objectives and resources. When choosing a segment, it should have growth potential as well as the right size. The right size will depend on the company itself, as some companies may not be able to cope with larger segments. The structural attractiveness of a segment will depend on how aggressive are the existing competitors, the customer bargaining power, the supplier strength and existence of substitute products (Porter 1996). When marketing strategies are executed, each of the chosen segments should be targeted with different positioning and marketing mix because if the same marketing mix is effective in two segments, it merely indicates that these two segments are the same and should not be separated. 4. Identifying the Segmenting Criteria In segmenting, there are various criteria which can be chosen. The main segmenting criteria include geographic, demographic, psychographic or behavioral factors. In Geographic segmentation, nations, regions, states, countries, cities or neighbor hoods are used to divide the market. While demographic segmenting considers factors such as Age and stage in life cycle, income level, gender, life stage and generation, the behavioral segmenting is done on decision role criteria and behavioral criteria (Armstrong & Kotler 2000). The Decision roles can be of an initiator, influence, decider, buyer or user where all these roles may be played one person or shared among family members, peer groups etc. Behavioral criteria such as usage occasion, buyer readiness, usage status and rate, benefits sought, consumer attitudes and loyalty status form some of the most targetable segmenting criteria. Psychographic segmentation divides buyers in to groups based on their social class, life style or personality traits. With rival marketing strategies competing against each other in the market place, companies look beyond a single criteria for segmenting their markets and consider sophisticated multiple segmentation tools to clarify their target market segments clearly (Wisner 1996). Therefore, it’s common to see segmenting criteria as demographics or geographic being combined with factors as “Key Benefits Sought” (KBS) to arrive at refined and clearly defined market segments. 5. Recommended Segmenting Criteria for Vinos Andinos For the purpose of Vinos Andinos (VA) business expansion plan to international markets, the following market segmenting criteria are recommended. It is proposed that VA uses geographic segmentation to focus on one of the European countries initially and further segment the chosen market on age, economic class, purchase patterns, and key benefit sought to arrive at segment profiles which it can target. The age group is a key segmenting criteria as the appeal of Wine as a beverage differs markedly across different age groups. The wine as a choice of beverage is high for consumers who are aged 35+ years who account for over 80% of total wine consumption in Europe. The younger people in the 18-25 age groups are more inclined to consume beer although an increasing trend can be observed where the younger people in 24-34 age groups increasingly trying out sparkling wines. There is very little difference in terms of gender where consumption of wine is concerned where women tend to consumer slightly more than men (Wilson 2007). The economic class is another recommended criterion for segmenting the wine market. An average wine drinking consumer usually belongs to economic class of AB or C1 which in total accounts for 73% of total wine consumption in Europe. AB category includes upper middle and middle class with higher or intermediate managerial and professional occupations. C1 includes lower middle class who are at the junior managerial level. While economic class which decides upon the disposable income levels should be a key consideration in marketing wine which has traditionally been a luxury beverage, the industry has changed significantly where imported brands from “New World” countries such as Australia, Chile, South Africa are offering cheaper options which lower economic classes can afford to purchase (. Purchase patterns are also important criteria in segmenting the market as there are distinct purchasing patterns for wine. Some or the majority of consumers opt to make their wine purchases on a weekly basis at the supermarkets where the wide variety of brands are available but most are at lower price points. Some other groups of consumers choose to purchase their wines from specialty stores where the offered products are high quality at premium prices. Still other consumers who are more of Wine connoisseurs may choose to visit vineyards and make purchases from their direct sales venues. Some consumers are also using the more technologically advanced mode of Internet shopping to purchase their wines. This segmenting criterion is therefore important to clarify to which purchasing pattern the marketing strategy would be pitched so that distribution and availability aspects can be tailored to suit the segment needs. The last criteria being recommended is “Key Benefits Sought” or KBS which is a powerful criteria to be applied in segmenting markets. This allows the marketers to identify what benefits are expected by different users of the product and then also identify different competitive brands that are catering to these benefits sought. For example, in the case of wine, some consumes wine as a status symbol while others use it to relax and unwind at home. There are also those who drinks wine at formal social gatherings. Another group may consume it, dining out in restaurants. Thus this segmenting criteria is important to establish to what need the company is catering to in order to formulate the marketing strategies such as suitable product, image, pricing, location of availability as well as promotions. 6. Importance of Each Segmenting Criteria Having proposed the recommended segmenting criteria which should be applied by VA in its marketing segmentation, it is also important to establish how they can be ranked in terms of the degree of importance within the segmenting process. As the importance of each criteria will depend upon the company and the product being offered, such a ranking will vary for different marketers of even the same product. For VA, the importance of these segmenting criteria can be ranked as below: 1) Geographic, Country segmenting 2) Key Benefit Sought 3) Economic Class 4) Purchasing Pattern 5) Age Geographic Criteria The reason why the geographic segmentation criteria ranks highest in terms of importance is that each country in Europe carries different market conditions which may or may not support the international expansion plans of VA. For example, countries such as Italy, France, Spain and German who are termed as “Old World” wine suppliers not only to Europe but to the whole world may not hold much potential for imported brands from the “New World”. Currently 10% of EU’s wine comprise of imports from the “New World” countries (Chekal 2007). Each country’s level of local production vs. component of imported wines is also a consideration when assessing the viability of a market. As different countries within Europe will have different tariff and duty structures, packaging specifications etc., this segmenting criterion becomes most important in deciding which market to target for those firms which will be using exports as its market entry strategy. Key Benefits The KBS is ranked as the second most important criteria as it will be the core need which the product and the marketing strategies will aim to meet. If a marketer does not understand what core need or the benefit sought by customer is being met by the product offer, then the marketing strategies implemented in marketing that product is likely to be ineffective. In the case of VA, the wines being offered are rather exclusive and at the top of the line. Carrying a small product portfolio, VA will have to identify the correct market segments that will spend up to £ 8-£18 per bottle while the average price point stands as low as £ 4. As the wines coming from Chile has a reputation for being cheap in prices although consistent in its quality, no other supplier from Chile has attempted to establish their brands in the exclusive categories where the benefits sought includes “image” and “status” associated with classic wines. Most of them have opted to compete in the low price point categories where the key benefit expected is “relax and unwind” in home setting or for informal social gatherings. Economic Class The third criterion in order of importance to VA in the segmenting process is the economic class. With targeted retail prices which are much higher than the average prices of branded high volume wines, the economic class representing the level of disposable incomes will be important to VA in segmenting its markets to identify those segments which can afford to purchase VA products. Purchasing Patterns Purchasing Patterns is ranked in fourth place of importance as it will relate to decisions which pertain to distribution and availability of the product. As different users of the product have different purchasing patters and these patterns are dependent to a greater extent on the key benefits sought as well as the economic class, this criterion has to be applied subsequent to applying the above mentioned criteria. For example, although most of the new world wines are targeted at those seeking to consume wine as a means of relaxation, VA’s premium products which are priced at a high price point will need to be offered to those who seek wines as a connoisseur and from higher economic classes. Therefore the product will have to be mainly made available through auction sites, specialty spirit stores and high end supermarkets. Age Last in the order of ranking of segmenting criteria is Age. Age in segmenting is a useful but automatically decided upon factor which is greatly influenced by other criteria. For example, it is unlikely to have younger consumers who fall in to the AB and C1 economic classes and it is also unlikely to have wine connoisseurs among the 18-25 age groups. Therefore, the age segmenting is dependent upon and influenced by other segmenting bases. 7. Recommended Countries for Initial Market Entrance Based on the proposed criteria, the following segmenting analysis is carried out to profile the various UK Wine markets. The geographic segmentation is carried out based on National attitude towards imported wines; the level of domestic production; the Wine consumption trends and the import restrictions and level of protectionist tariff rates. The subsequent recommendations for selecting the geographic segments for targeting should also take in to consideration factors such as the geographic profile of the population in the chosen market, the wine drinking habits; industry growth rates and level of competition within the market. The composition of economic classes within the population is also important to note as VA is offering premium quality, premium priced products to the market and if the AB economic class component of the chosen country’s population is low, then the market size is reduced. Table 1 - Segmenting the European Wine Market (Selected countries with high wine consumption)– Geographic Segmentation Country National Attitude towards Imported wine Level of Own Production of Wine Wine Consumption Trends Import Restrictions and Duty Protection France Highly Nationalistic Largest Manufacturer in Europe Stable High Italy Highly Nationalistic Second largest manufacturer in Europe Stable Medium Germany Medium A high component of local production but up to 30% imports Declining Medium UK Low Very little local production and up to 80% imports Rising Low Switzerland Medium – Biased towards Old World products Up to 50% local production coupled with imports mainly from Europe Stable Low Austria Low Low levels of local production and high imports from both Old and New world suppliers Declining Low Greece Low Small but established local production with up to 60% imports Declining High Spain Nationalistic A high local production with cheap production costs Declining High Based on the above geographic segmenting analysis, it can be noted that UK offers the most promising prospects for market entry for VA. The UK wine market is worth £9 billion per annum and growing at an average 12% (UK Wine Marketing Annual Report 2007). Although over 90% of the sales are below £ 5 per bottle £ 8+ market is also growing at a 6% rate which indicate good market potential for specialty premium wines the like of VA is offering at high price points (The New Research on UK Market 2004) Being the largest importer of wine UK is forecasted to be the largest consumer of wine in the European market by year 2010. Considering the UK consumer demographics of wine, almost two thirds of the British population consumes wine and the trend for consuming wine with meals is increasing at the expense of beer, as British life styles are increasingly becoming continental. “Average wine drinker is consuming 32 bottles of (75cl) per year” (UK Wine Marketing Annual Report 2007). The sales of Rose wine which VA is hoping to add to its product line is having exceptionally good growth rates in UK markets with 32% growth in 2007. Sparking wines are also doing well in the UK market which needs to be noted by VA in perusing their new product developments. Almost 80% of wine sales are from retail level and therefore, the product availability at specialty stores and supermarkets is essential for VA’s success in this market. Chilean wine holds 6% of the market share of UK wines and therefore has an establishes reputation as a supplier of wine to this market. However the Chilean wine has been promoted at very low price points and therefore VA will have a challenging task in positioning its premium product range at a high price point. To achieve this the company should deploy effective positioning strategies which will appeal to its targeted market segment which can be profiled as below (Rise & Trout 1986) Segment Profile recommended to be targeted by VA Wine Geographic – UK Demographics – 35 + age / Male & Female / Predominantly AB economic classes with C1 as a secondary market Purchase Patterns – Weekly and Occasion buying from Specialty Spirit Stores and High end Supermarkets Benefits sought – “A connoisseur’s interest in Exotic and Classic Wines from Around The world” 8. Conclusion Segmenting is a very powerful tool which marketers must use in its strategic marketing process to ensure that the organization’s efforts and resources are not diluted in a mass of customers but focused to reach the customer groups of whose common needs are met and tallies with their consumer behaviors. While there are a wide variety of criteria which can be used in segmenting markets, the relevance and appropriateness of each criteria will depend upon conditions and context within which different organizations are operating within. Once a set of criteria is identified, the marketers must apply them in the order of importance in relation to the product and average consumer profiles so that resulting segments are clarified and well defined. From the segmenting analysis carried out for VA, it appears that the company will have a promising segment in the UK’s Wine Connoisseurs who have the demographic profile of being 35+ and in AB economic class with purchasing patterns of buying from high end super markets or specialty stores. As this is not one of the larger segments, the company will currently have to target their limited product offering to this niche market. However in the future, when VA launches its sparkling wines and Rose wine, the company will have the opportunity to target a range of other market segments at lower price points. References: Armstrong, G. & Kotler, P. (2000) Marketing: An Introduction. 5th ed. Singapore: Person Education Inc. Chekal, A. (2007) “Officials Say Less is More in the Future of European Union Wine Industry.” Retrieved on 25/11/2007 from http://www.associatedcontent.com/article/303330/officials_say_less_is_more_in_the_future.html?page=2 Porter, M. (1996) Competitive Strategy. Harvard Business Review. Rise, A. & Trout, J. 1986, Positioning: The battle for your mind, McGraw-Hill Book Co., New York. “The New Research on UK Market” (2004) Wine Business Insider, 05/28/2004. Retrieved on 26/11/2007from http://www.winebusiness.com/SalesMarketing/webarticle.cfm?AID=87758&ISSUEID=87745Wisner, B. (1996) Applied Marketing. New Jersey: Prentice-Hall Inc. Wilson, J. (2007) United Kingdom Wine Industry Annual Report 2007. USDA Foreign Agricultural Service GAIN Report. “Wine in decline as consolidation grips UK market” (2005) Drinks Business Review. Retrieved on 25/11/2007 from http://www.drinks-business-review.com/article_feature.asp?guid=D2E86467-20AC-4968-B14E-36DD7851C3E5 Read More