Globalization and Marketing Strategies in Wine Industry - Case Study Example

 Globalization and marketing strategies in wine industry: A case study of Australia’s Casella Wines Pty international marketing plan Module: International marketing strategic and operation Executive summary Globalization has reduced boundaries of marketplaces generating various expectations from marketers. Apart from making important decisions on target market segments in different countries and entry modes to be applied, the marketer needs also to formulate marketing strategies, oversee coordination and implementation in the chosen market segments (Cool 2005). The current global market currently characterized by international capital inflows and outflows, world trade, global portfolio investments, foreign direct investment, e-commerce, and technological diffusion, form realties that firms face in launching products on international markets. Ignorance of these global trends by a firm amounts to business suicide (Cox & Bridwell 2007). Therefore, business executives have an obligation to understand industry drivers needed to propel their firms’ competitive advantage on the international market. This calls for a sound development of marketing and management policies and strategies to face real international market environment. Growth of global economy leads to marketing dynamisms brought by different cultures meeting on the global market. Therefore, international marketing analysis of firms venturing into this complex arena seeks to describe relevant concepts and addressing global issues encountered by international business executives (Matthias et al.2008). This paper gives a summary overview on how a real life international marketing plan is an essential tool to unravel mysteries and impossibilities surrounding entry to global markets. This paper selected Casella wines pty as a Model Company to develop an illustrative international marketing plan. Casella’s international marketing strategies faces huddles, for example over the past decade marketing battle have been simmering in the Chineese market. China is culturally inclined to tea revering deeply, therefore spirited persuasion is required for it to adopt new drinking habits. The frustrations Australian wines meet in China is because of cultural disadvantages. There is a general belief that Australian Wines lack romantic gene compared to French wine. Secondly, Chinese historical glory favors tea compared to wine, this is complicated further with views that Australia had a role in the USA war of Independence as well as trading India’s freedom from Britain colonization (Gang 2009). Table of contents Executive summary 1 Introduction 4 Mission statement 4 Company overview 5 Advances in International Marketing environment 6 Product Description 7 Chinese Market segment 9 Discussion and Conclusion 11 Bibliography 13 Appendices 14 Introduction Casella Wines won the coveted Australian Agribusiness Exporter Award in 2004 for a record third consecutive year. Winning the award meant Casella Wines joined the few select companies in Export Awards hall of Fame. On receiving the Award, John Casella as the managing director was quoted commenting how the Yellow tail brand propelled the company’s fortunes to wining the prestigious award despite its five year stint on the market (Steane & Dufour 2006). It is true that Casella Wines ascended too fast into the legion of Australia’s top twenty wine exporting companies. The company was ranked at position eighth in 2001, moving consecutively to fifth, fourth and third by 2004. The order of Australia’s top five wine exporters has drastically been reshaped with the arrival of Casella both in terms of value and volume. At present time Casella is credited with over one third of Australian wine exports to the US market. It is amazing how Casella Wines, in just less than ten years it has managed to grow from five to over three hundred employees in its winery business alone (Steane & Dufour 2006). Mission statement (goals domestic and international) The vision and mission of Casella wines as its managing director John Casella asserts is by protecting, maintaining and improving yellow tail’s winning formula now and in future. This vision is envisaged in “a basic, easy-drinking and full-fruit flavored wine with reasonable complexity and palate length” (Steane & Dufour 2006). This paper has a goal of providing strategic analysis concepts in understanding how globalization enabled transformations in Australian wine industry. Analysis used two strategic management perspectives. First is the concept of Michael Porter on market positioning and second is Richard D’Aveni hypercompetitive framework, with particular emphasis on Australian Yellow Tail brand. Michael Porter’s strategy encompasses leadership cost, focus or differentiation while hypercompetitive framework draws from simultaneous importance of both quality and price in winning competitive advantage. D’Aveni emphasis is also known as industry disruption using global economies of scale as basis of bringing change in wine industry. In contrast porter’s differentiation model elaborates the consistent success of relatively expensive wines in the mid-price market portfolio (Cox & Bridwell 2007). Company overview Wine making in Australia has been going on since the first convict settlers arrived in 1788. The industry remained obscure until 1980s when government officials and entrepreneurs discovered opportunity in US and UK resulting from demand growth. Investors were offered incentives to plant vines and within a short period, wineries opened up at breakneck speed (New York Times, 2009). Casella Wines started operating in 1969, and since then it has positioned itself primarily as a low-profile bulk wine producer. Filippo Casella and his wife, the post-war immigrants of Italian origin managed the firm. The winery is stationed 600 kilometers south-west of Sydney along Riverina region in New South Wales. The site is in a prime and efficient region for wine production due to availability of mechanical pruning and harvesting as well as easy access to greater volumes of cheap but high quality grapes. Success of Casella Wines may be attributed to Sicily skills brought by the founders who acquired them through three successive generations in the hinterland of Italian grape growing dating back to 1820. The founders started Casella Wines as a way of adding value to their newly acquired 16-hectare farm, purchased from laboring savings as itinerant workers in North Queensland cane fields and New South Wales fruit fields. Similarly, they wished to transfer wine making skills to their next generation as well as perpetuating ancestral traditions of sharing and selling good wines with friends and family. There is nothing satisfying currently to the patriarch Filippo Casella like seeing his sons and recently grandchildren working on the vineyard and attending luncheons at their family farmhouse (Steane & Dufour 2006). In early years, Casella winery used to sale its products to the ‘big four’, (See appendix 3) however, at times it engaged in wines combination, blending and packaging into their own label. Business fortunes sprung up in 1994 after John, one of Filippo’s sons took over management of the winery to release the aging parents. John after graduating from Charles Sturt University in 1982, worked for twelve years as a winemaker with neighboring wineries in Riverina Estate. John’s comments were quoted saying, “after I returned to my parents business in 1994, I knew the secret for success of the family business was through branded bottles mend for export destinations. His initial strategies were to heavily invest in development of export markets. He got assistance from both Australian trade commission (Austrade) and Export Market Development Grants (EMDG) schemes. He had vision of turning the winery from family to compete with other wine companies in Australia. The first strategic decision was to phase out bulk wine production in favor of bottled commercially premium wine production. Next was to build strategies the entailed forgoing domestic market completely and draw more focus to US market by setting prices in the range of $US5 to $US10 for its commercial premium wine market segment. This strategy was unique to Casella wines compared to the ‘big four’ operating on traditional strategies focusing on top quality and high margin policies (Steane & Dufour 2006). Advances in International Marketing environment The Australian wine industry appears to be in turmoil, this is according to an Australian critic and winemaker Jeremy Olive, who was quoted in New York Times Article. The reversal in fortunes is sending wrong signals and stakeholders in the sector are struggling to reinvent the industry through image makeover of shifting to undeveloped Asian market (New York Times, 2009). Australian wine industry has interesting features, for example, most successful brands of Australian wines are often less known to Australians, because winemakers develop products with set minds to the export market. Casella did not have necessary skills and knowledge in marketing for export business, Austrade and recruitment of John Scouter from Cranwick Premium Wines, provided the avenue to conquer international market. Entry to international needed a right person to get the right marketing mix. Scouter’s first task was to reorganize Casella’s administrative system to facilitate export sales. Then look for foreign market importers with substantial supply chain channels. Casella’s first brand Carramar estate performed poorly, which led Scouter back to the drawing board. This time Casella opted to go directly for customer satisfaction strategy by developing a different style of wine overlooking what wine buyers, retailers or distributors wanted (Steane & Dufour 2006). Product Description Casella’s R&D sought to develop unique fruit-forward wines, devoid of tannins and green tastes, ready for immediate consumption rather than the ageing process in barrels and one that will appeal to consumers needs. In addition, the wine does not mature but keeps improving in the bottle over time. Casella came up with a product that catered for young and price sensitive new consumers. John Casella commented that the product was a value innovation opening new consumers to taste profile of wines. However, critics in US formed a panel to discredit the new product by equating it through verdict that it is reminiscent to pineapple juice (Russell & Battaglene 2007). John Casella rebuffed the sentiments because the consumer segment of about 20 to 30 million Americans was truly satisfied with the brand. Casella shifted efforts to pursue link with local importers in the US market. This was achieved through signing of a fifty percent joint venture between Casella and Deutsch & sons, a New York based family owned importer. Both companies issue of family ownership featured as a great influence on the joint venture initiative (Steane & Dufour 2006). Barbara Harkness design, a young entrepreneurial company helped the new business set up by designing the “yellow brand label” (See figure 1 bellow). Branding of Casella wines with the yellow tail trade mark boosted sales 40 times the anticipated case volume just within one year. The sales exponentially rose to over ten million cases by 2005. This mark erased what Orlando-Wyndham one of the competitor among the ‘big four’ achieved for over 26 years market presence of its famous ‘Jacobs Creek brand’. The yellow brand successfully incorporated the five ‘P’s’ of market mix, Packaging, product, price, promotion and people. This success is within D’Aveni framework of hypercompetition where strategies focus on the right product, distribution and marketing (Steane & Dufour 2006). Figure 1 shows Casella’s Yellow brand labels. (Source: Steane & Dufour MGSM Case study: Casella wines and the success of ‘Yellow-tail’). Although Casella’s yellow brand scored highly in US market segment. The story may be different in other markets especially non-English speaking Asia pacific segment (See Chinese market segment bellow). Australian products reception in US may be attributed to staging of magnificent Sydney 2000 Olympic Games and the support of Australian federal government towards US after “September 11th”. Likewise French government’s condemnation of military campaign wedged by US in Afghanistan helped marketers to push products from Kangaroo’s country to more consumers in America (Russell & Battaglene 2007). Another marketing strategy involved marketers identifying their brand with clothing line “Aussie outback” to be worn by retailing staff as an incentive to open up a wide distribution chain. Casella wines added new product lines to yellow tail leveraging it by exploiting brand power it had gained such as a blend of cabernet shiraz, merlot, pinot grigo and cabernet sauvignon. In addition yellow tail reserve lines priced at between US$10 to $15 were developed. After success of yellow brand on global market, Casella found it necessary in 2003 to push for Australian domestic market (Steane & Dufour 2006). Advertisement and sales promotion strategy was used to achieve a sizeable share of local market as well as adding value to the brands critical volume. Casella’s future looks bright, with a long list of potential investors making queues after the unprecedented success and awards attained by the yellow tail brands. However, the family looks at the investors a potential threat to control family-owned winery in whole or part in the long run, thus they assume a weary and protective sovereignty compared to listed top five wineries in Australia now owned by global beverage conglomerates. According to John Casella, the winery will not be listed as long as he is still there, but sticks to the original honor of reinvesting profits coupled with strong R&D of new brands into the future. For example Casella’s extensive vine nursery also thrives in business of clonal selection, in 2005 alone they received over three million orders for vines (Steane & Dufour 2006). Chinese Market segment Campaigns by foreign firms to export wine to China began in 1999. French vineyards were the first to conduct wine tasting in Chinese cities like Shanghai and Beijing. However, Australia secured a major step in Chinese market by signing two memoranda of understandings to allow local wine access to China and Hong Kong. French wine has historic association with fine production and the romanticism belief of Paris. French marketers took advantage of this notion to cement most of Chinese minds, conquering majority of celebratory dinner tables. Currently French wines are on the top list of imported wines to Chinese Market. Arrival of Australian wine exporters met several complicating factors (Australia – china free trade agreement. June 2005) Casella is one of Australia’s biggest wine makers and well known for its Yellowtail brand. However, Richard Owen the Export Manager for Asia Pacific block laments that a big cultural gap is the main obstacle hindering penetration Australian wine voyage to China. Chinese market is characterized by consumers who careless about wines because of availability of many alternatives to wines. For example, Chinese rice wine, tea, whiskey and spirit or beer (Gang 2009). Another impediment is reflected by the names given to Branded wines, these names are an obstacle for Chinese consumers, because most of them are not English and consumers are less bothered to learn a new language just for the sake of luxury in taking wine. Thirdly, the quality of Australian wine generates doubts, limiting its market success in the Chinese segment, French wines score highly on this competitive advantage. China currently has a large population of middle class, which is a great opportunity for market entry and exploitation by marketers through acculturation rather than facing established competitors head on. Casella Wines mastered this avenue and formulated a Chinese slogan “You ni Zuo Zhu” meaning the choice is in your hands, whether you cocktail wine with spirit, sugar or coca cola, as long as you take wine (Gang 2009). However, winning the hearts of Chinese consumers by Casella wines requires a Chinese ally or designing a simplified Chinese food recipe that matches with alcohol, in this way marriage between Chinese food and Australian wines would definitely open up market niche. This strategy can be borrowed from Starbucks coffee, it applied similar entry strategies in 1999. Starbuck noticed how population young Chinese easily acculturate to western styles to fulfill certain dreams. Therefore it cooperated with local partners, currently, Starbuck has over 300 outlets in 26 different Chinese cities and still windows for expansion exists (Gang 2009). According to figures from ministry of agriculture, Australian wine exports to China is currently about A$ 81.2 million for twelve months to march 2009. This is a great achievement practically illustrating how strategic frameworks learnt in academic theory can be applied in different industries. Consequently it reflects how emerging globalization forces can sweep across the world causing dramatic industry and economic changes (Cox & Bridwell 2007). Discussion and Conclusion From the above literature on Casella Wines one can conclude that the globalization forces exploited through entrepreneurial skills by most Australian wineries have resulted to significant transformations in a historically stable industry. The Yellow tail success demonstrated how focus on the right product, marketing and distribution causes significant industry turn around. As a result, the D’ Aveni hypercompetition framework may now only operate in mid-price wines because of speed of the ultimate value dynamics. To be more specific, availability of high-quality wines at low prices generated pricing pressures to that extend of average wine sold having a stagnant value and limitation of profit margins in the industry (Cox & Bridwell 2007). The Michael Porter generic strategies as has been witnessed in this paper are relegated although they may still be applied especially for France. In terms of market differentiation, France as the main competitor to Australian vineyards has upscale and is increasingly capable of generating higher demand prices. However, in low-price wines portfolio, France has lost edge and market share. This can be attributed perhaps to the country’s structural cost being expensive than is the case in Australia and other continents. The wine industry is currently a unified global marketplace, but natural geographical differences nonetheless have created a significant variety in wines ranges. As a result there exists certain level of diversity in experience and taste. Similarly, as consumers across the globe become more and more educated, disruptions as seen above will increase and form daily norm in the complex wine industry (Cool 2005). Casella’s real success cannot be measured in terms of sales volume, profits or market shares, but on how family pride makes contribution to their country of adoption more than five decades ago. This perhaps is a weakness in the context of internationalization of business enterprises. Casella wines score card in terms of organizational change and management depends on individual’s own corporate and ethical views and judgment. Despite international success of the yellow tail brands, the winery is virtually still under control by post-war Italian immigrant workers, with aims and goals revolving around fostering family relationships, transfer of winemaking skills from one generation to another, and sharing good wines with good friends thus maintaining family traditions (Steane & Dufour 2006). Bibliography Australia – china free trade agreement. June 2005. Australian wine and brandy corporation submission. Retrieved October 11, 2009 from < http://www.dfat.gov.au/GEO/china/fta/submissions/2NAG_11_Australian_Wi~000A.pdf > Cool, J. P. 2005. Marketing Triz in the global marketplace: a primer. Retrieved October 11, 2009 from < www.triz-journal.com/archives/2005/07/06.pdf> Cox, J and Bridwell, L. 2007. Australian companies using globalization to disrupt the ancient wine industry. International Business Journal, 17(4) 209 221.Emerald Group Publishing Limited. Retrieved October 12, 2009 from Gang, S. 2009. Australia’s wine exports to China. Retrieved October 11, 2009 from < http://webdiary.com.au/cms/?q=node/2818> IBISWorld.1999-2009.Australian Industry Report: Wine Manufacturing in Australia. Retrieved October 12, 2009 from Matthias, G. R, Thorsten, S & Helge, M.W. 2008. A Decision-Analytic Approach to Blue-Ocean Strategy Development. International Council for Small Business World Conference. Retrieved October 11, 2009 from New York Times, June 22, 2009. Jeremy Oliver quoted in NY Times article on Australian wine : A Grim Morning After for Australian Wines Retrieved October 11, 2009 from < http://www.onwine.com.au/_blog/Jeremy_Oliver%27s_Blog/post/Jeremy_Oliver_quoted_in_NY_Times_article_on_Australian_wine/> Russell, A & Battaglene, T. 2007.Winemakers’ Federation of Australia. Retrieved October 11, 2009 from < www.wfa.org.au/resources/1/Reports/Trends_in_Env_Assurance.pdf > < www.wfa.org.au/.../2008_AWBC_and_WFA_Joint_Submission_on_ASEAN.pdf > Steane, P & Dufour, Y. 2006. MGSM Case study: Casella wines and the success of ‘Yellow-tail’. Retrieved October 11, 2009 from Appendices Appendix 1 (Source: Cox & Bridwell 2007 ) Appendix 2 Shows value of Australian wine exports to UK and US Appendix 3 Key Competitors in this Industry Major Player Market Share Ranking 2004 Constellation Australia Limited 1 Foster's Group Limited 2 Casella Wines Pty Limited 3 Australian Vintage Limited 4 Pernod Ricard Pacific Pty Ltd 5 Appendix 4 Casella Wines Product range Product/Services Share White table wines Red table wines Sparkling wine Fortified wines Flavored wines, vermouth and brandy (IBISWorld.1999-2009.Australian Industry Report) Read More