The Marketing Opportunity Australian Wine Producers Have to Enter China - Term Paper Example

Executive Summary The Australian Wine producers are looking to sell their products in China due to the wide opportunity that the country presents. Since, China has a huge population and people having a lower median age are seen to consume more alcohol and look towards wine. This provides an opportunity to market their product and looking towards entering into the market through the strategy of joint venture will provide maximum advantage. This is due to the fact that the producers will be able to use the already developed infrastructure at the same time ensured that they are able to enter into China. A look at the segmentation shows that people in the age group of mid twenties to mid thirties, business groups, people having knowledge about wine and people who have come from abroad can be tapped. This provides an opportunity due to growing population. Along with it the strategy to marketing which looks towards varied products, increased promotional activities and strong distribution will ensure that the wine producers are able to ensure smooth business in China and ensure an opportunity to grow their business. Table of Contents Introduction 3 Market Selection 3 Segmentation, Targeting & Positioning Strategy 4 Market Entry Strategy 8 Marketing Mix Strategies 9 Product Strategy 10 Promotion Strategy 10 Sourcing & Distribution Strategy 12 Conclusion 13 References 14 Introduction The wine and grape industries have grown remarkably since 1990 as a result of concerted efforts by the government and other stakeholders in developing export markets for Australian-produced wine. Currently, more than half of Australia’s wine is exported to various countries throughout the world. Because of the Australian wine industry’s exposure to the world market, continued growth and long term success rests on the industry’s ability to maintain a keen awareness of current developments in the global market. This paper thereby examines the market which has been selected and looks towards examining the different factors which will help to ensure smooth business. This is followed by the market entry strategy which will suit the business and is finally covered through the marketing mix so that a framework which will help to develop their business can be identified. Market Selection The Chinese market presents more lucrative opportunities for Australian wine than the US. One reason is that China has a very large population (about three and a half times that of the US) hence more potential consumers. Another reason is that China’s economy is growing at a higher rate. Household incomes for Chinese people are also growing at a higher rate. China being the most populous country in the world has huge potentials for a ready and growing market for imported wine. In 2009, China became the second largest economy in the world, after the US (in terms of purchasing power parity). Rapid economic growth in China has resulted in a middle class population with the capacity to purchase high quality imported products of all types including wine (WARC, 2005). For many Chinese consumers, wine is considered a healthier alternative to spirits and other alcoholic products. Business people and young urban professionals account for most of the wine consumers in China. Moreover, the domestic retail sector is experiencing steady growth, stocking a wide range of imported wines (CBI, 2012). Finally, with the Chinese people income increase, there are more and more Chinese family send their kids to overseas. These kinds of overseas student when they come back to China, they are not only bring the new ideas but also bring the new life style such as drink wine and most of Chinese people start to learn how to drink wine and it already become the very popular drink among young people and business man (Peng & Pollard, 2010). Segmentation, Targeting & Positioning Strategy Identifying the potential customers who are likely to consumer wine in China will help to understand the market and the target customers that can be eyed at. Some of the factors which might reduce the consumption of wine are age, disposable income and government regulation regarding drinking of wine. It is analyzed that nearly half of the Chinese population qualifies the age of drinking which is 25 years. This provides an opportunity for the Australian wine maker to ensure that the younger generation look towards drinking wine and move away from the hard liquor. A break up of the demographics to understand the potential wine consumer in China is as The analysis of the potential market for wine is China shows that around 24 million potential wine drinkers which approximately 2.1% of the entire population. This presents a wide opportunity for the Australian wine industry to tap due to the high quality and world famous wine being served by them. The age segmentation of the Chinese population shows that nearly half of the entire population is under the age of 25 which has been prescribed as the minimum age for drinking. It is further seen that 25% of the population falls under the age of 10 which will ensure that in coming years an opportunity to tap the vast market will exist. Ensuing that a strategy to enter into China and tap the present potential customers towards wine will provide an opportunity in the future to be able to look at a much bigger market. The break up of age segmentation is as follows (Fredericks, Toit, & Krügel, 2011) This brings to the wide potential that the age segmentation provides for the wine industry and being able to gauge their relative strength and work on it will ensure growth for the business. Further, the estimated birth is around 22 per 1000 people which would mean that around 25 million people are added each year. With the drinking age at 25 it will provide a wide opportunity to tap a huge market that exists for the wine industry. Now looking at the segmentation based on gender it is seen that women has a preference towards wine and with the change in social outlook more female population are slowly seen to be taking towards wine in comparison to other hard drinks. Wine has a soft connotation which has looked towards luring the female population. Apart from it the Australian wine players can also look towards ensuring that they target the male population as well due to the growing trend being witnessed towards alcohol consumption. When we look at the income level it is seen that the disposable income stands at $850 which provides an opportunity to tap the market. This shows that the market segment has potential customers who will be willing to pay for the wine. This will help to increase the demand for wines which are expensive and will help to ensure an opportunity to tap a wider market due to increased eemand seen from different customers (Wittwer & Rothfield, 2006). In addition to it the taste and preference towards wine in growing in the Chinese market which provides an opportunity to be able to target the correct population. The manner in which the demand for different wines like Sauvignon Blanc, Chenin Blanc, Champagne, and other traditional red and white wine is increasing it provides an opportunity to ensure that the segmentation of the people look towards increasing consumption of wine. This has thereby ensured that the Chinese wine drinkers can be categorized into three profiles based on region, knowledge and income of the people. The Australian wine makers have to look towards targeting the three categories of customers to ensure better opportunities of growth. They are as Profile 1: Chinese population from the mid twenties to the mid thirties whohave limited knowledge about wine. This section looks towards drinking imported wine as it matches their taste buds which provides an opportunity for the Australian wine maker to look at Profile 2: Savvy wine drinkers who have a special taste and preference towards wine and belong to cities like Beijing & Sanghai who has a special preference towards wine Profile 3: People who have studied or worked outside China and have the required knowledge about wine will look towards preferring special quality of wine which provides an opportunity to the wine makers to be able to market the Australian wine Thus, the market of China presents an opportunity for the Australian wine market and shows the different profile of customers which the wine industry can look at. Market Entry Strategy The Australian Wine producers can look towards ensuring that they use different market entry strategies so that they are able to identify the best strategy which will help them to develop their business in China. This requires that the different alternatives are evaluated and identified so that the best possible strategy can be developed for the benefit of the business. The first strategy which the wine producers can look at is joint ventures. In this arrangement the Australian wine company will look towards entering into a partnership with local players. This will help the Australian wine producer to use the already established network of the local players. The strategy of entering into a joint venture will ensure that control is better as it will ensure that the problems seen at the local level are problems are dealt in a better manner. This will help the wine producers to ensure that the local firm facilities is integrated with the business requirements and will thereby help to ensure that the business is able to provide better return and ensure that the strategy to enter China provides the correct guidance (Terpstra and Sarathy, 2001). The second strategy can be through direct investment in China. On this front the wine producers will have to ensure that 100% ownership is made by the wine producers of Australia. This will help to ensure that an acquisition or merger is developed which will help to ensure that the strategy of entering into China suits the business requirements and will thereby ensure that the facilities are being used in the most possible manner. This will help Australian wine producers to ensure that they are able to develop their own facilities according to the requirements of the business. This will thereby help to ensure that the wine producers are able to look towards developing the business facilities in China as per their requirements (Terpstra and Sarathy, 2001). The third strategy which the Australian wine producers can look at is direct export. In this regard the Australian wine producers’ ties up with other player in China and look towards supplying their products. This doesn’t require any investment into infrastructure of other facilities but has to rely on the exporters for the business. This increases the risk as in situations when the exporters are not willing to accept the product might affect the sales of the company. This strategy will thereby require that the investment is limited and will have to comply with the minimum requirements which will thereby ensure that the wine producers are able to use the infrastructure developed for the best development of the business (Terpstra and Sarathy, 2001) The best strategy here would be to ensure that the Australian wine producer look towards joint ventures which will help the wine producers to develop their required infrastructure and will also transform into an opportunity to enter into China. This facility will also ensure that the producers are able to use the developed infrastructure which will help to develop the business in China and ensure long term opportunity of growth and business development in China (Oliver, Hooper, Gordon and Galeano, 2006). Marketing Mix Strategies The marketing mix strategy concentrates on the different aspect of marketing which is important from the perspective of the business. This aspect looks into different areas like product, price, promotion, and distribution so that better strategies can be developed to ensure that the business is able to plan their strategies better. This will thereby help the Australian wine company to make strategies through which they are able to work on their objective and ensure smooth business operations in China. Product Strategy Chinese consumer has a preference towards domestic produced wine which accounts for 49% of their wine sale. This is primarily due to the fact that the population assumes the domestically produced wine to be of a fines quality compared to wine which is imported from outside sources. This is an area where the Australian wine makers have an advantage as the quality of wine supplied by them is of the highest quality. The Australian wine suppliers look towards supplying dry red wine, dry white wine, sweet wine, sparkling wine, brandy, and healthy wine. The different portfolio of wine available in their product list will ensure that they are able to market their services better and supply people with different options to choose from. Since, the quality regulations are high and people prefer wine which is of very high quality this provides an advantage to Australian wine makers. Since, their product is world renowned and provides quality product to the customers this will ensure that their product is accepted by the target population and will help to provide the required developments which will ensure an opportunity to ensure increase sales. Promotion Strategy The Australian wine companies are presented with different options that they can use to promote their product. The availability of different media and the opportunity to use different media to develop its business based on it has helped to ensure that the business is able to use the different sources to grow their business. The Australian wine industry can use television to spread awareness about their product but since direct source of advertising is not allowed this has made the organizations look towards using surrogate advertising. Australian wines companies can ensure that they use surrogate advertising where they only display the name of the company and don’t show their product to spread awareness about the company. Magazines also prohibit the use of advertising by alcohol companies which will increase the complexities for the business as they will have to look towards finding dedicated magazines on wines which allow the advertising to be displayed. This will require that the Australian wine company find out some magazines which allow the promotion of wine and use it to spread awareness about their product (Selvanathan and Selvanathan, 2004) The company can also look towards spreading awareness through different trade fairs and expos so that they are able to ensure that their product is displayed and the customers are allowed to feel the product by seeing them. In addition to it the wine producers can look towards using special dedicated expo vans which are allowed to collect data pertaining to different surveys and look towards increasing popularity about their product through this medium (Davis, Ahmadi-Esfahani & Iranzo, 2008) The other mode which can be used to spread awareness about their product is onsite advertising. In this aspect the company has to look towards ensuring that they use surrogate form of advertising and instead of showing their product only show the name of the company and disguise the things in such a manner that it helps to attract more potential customers towards it (Andrienko and Nemstov, 2005). Thus, there are different forms and media that the Australian wine company can look at and while looking to choose a media special care has to be laid that the regulations and rules laid by the Chinese government is adhered to. Sourcing & Distribution Strategy To ensure that the Australian wine company is able to distribute wine and source it to China it is imperative that a trading company is established in the country. The Australian wine producers are allowed and open to different type of joint ventures or foreign owned enterprise to conduct their business in China as it is important that a relationship is developed which allows the producer to ensure that the distribution is even and smooth. The Australian wine producers can look toward ensuring that they purchase the company which already has a designated and defined supply and distribution network which will provide them a ready made system to conduct business. This will also ensure that through this process the Australian wine producers are able to take advantage of the already developed network which will ensure that their products are distributed to far off places and will help to ensure that all areas that have to be provided with the drinks are provided. In addition to it while looking to distribute wine in China the Australian wine producers have to get the required clearance from the custom department. This will require that all legal requirements with regard to the distribution of wine are received. This will require that the wine producers look towards using a strategy where they are able to ensure better strategies to be able to develop a required mechanism which will help to improve the distribution of wine (Anderson and Norman, 2003). It is imperative that the Australian wine producers look towards distributing wine to most of the big cities in China on the first instance where there are more people consuming wine. This will help to spread awareness and slowly with the growth of business they will be able to ensure that they are move ahead and look towards increasing their business so that they are able to ensure better distribution policy. Conclusion The Australian wine producers have an opportunity to enter China due to the widespread opportunity that the country provides. The different opportunity and different entry strategy that the business provides will ensure that the business is able to use the best strategy to enter. It is identified that using joint venture strategy will benefit the Australian wine producer as they will be able to ensure that they are able to use the facilities of the already established player at the same time ensure that they are able to step in China. This also requires that the business is able to develop strategies related to the product, promotion and distribution which will help to ensure that the business is able to yield maximum efficiency and ensure that the business is able to yield maximum efficiency. This strategy will help to ensure that the market entry strategy provides maximum leverage and provides an opportunity to grow their business in China. References Anderson, K. and Norman, D. 2003. Global Wine Production, Consumption and Trade, 1961 to 2001, Centre for International Economic Studies, Adelaide. Andrienko, Y. and Nemstov, A. 2005. Estimation of Individual Demand for Alcohol, Working Paper no. 05/10, Economic Research Network Russia and CIS, Moscow. CBI China Business Intelligence (n.d), China's Wine Industry Development and Import Analysis, viewed August 5, 2012, http://Chinabizintel.com/industry-updates/Chinas-wineindustry-development-and-import-analysis-part-1.html Davis, T, Ahmadi-Esfahani, F, &Iranzo, S 2008, 'Demand under product differentiation: an empirical analysis of the US wine market', Australian Journal Of Agricultural & Resource Economics, 52, 4, pp. 401-417 Fredericks, I, du Toit, M, & Krügel, M. 2011. Efficacy of ultraviolet radiation as an alternative technology to inactivate microorganisms in grape juices and wines', Food Microbiology, 28, 3, pp. 510-517 Oliver, M., Hooper, S., Gordon, W. and Galeano, D. 2006, A Survey of Wine Grape Producers in the McLaren Vale and Riverina Regions 2003-04 and 2004-05, ABARE report prepared for the Grape and Wine Research and Development Corporation, Canberra Peng, C, Pollard, D, Byung Hee, L, & Clarke, S 2010, 'CHINA SILK WINES: A CASE STUDY', Review Of Business Research, 10, 1, pp. 110-116, WARC (World Advertising Research Centre Ltd) 2005, World Drink Trends 2005, Henley-on-Thames, England. Selvanathan, E.A. and Selvanathan, S. 2004, ‘Economic and demographic factors in Australian alcohol demand’, Applied Economics, vol. 36, pp. 2405– 17. Terpstra, V. and Sarathy, R. 2001. International Marketing, 8th edn, Chicago IL, Dryden Press Wittwer, G. and Rothfi eld, J. 2006. The Global Wine Statistical Compendium 1961 to 2004, Australian Wine and Brandy Corporation, Adelaide Read More