John Derick Mendoza John Derick Mendoza
CASE 2: Preserve the Luxury or Extend the Brand? CASE 2: Preserve the Luxury or Extend the Brand?
I.
I. Case Case Background Background / / SummarySummary A.
A. Chateau de Chateau de Vallois is a Vallois is a family owned winemaking family owned winemaking estate located inestate located in the Bordeaux regionthe Bordeaux region
of
of France famously known for its long-term track record France famously known for its long-term track record in quality and reputationin quality and reputation B.
B. Gaspard de Sauveterre, a sepGaspard de Sauveterre, a septuagenarian, owns 50% share otuagenarian, owns 50% share of the estate and f the estate and has thehas the final say on business decisions
final say on business decisions C.
C. Claire de Valhubert, granddaughter of Gaspard, owClaire de Valhubert, granddaughter of Gaspard, owns 25% of the estate through herns 25% of the estate through her deceased mother
deceased mother D.
D. Francois de Sauveterre, son of Gaspard, owns 25% of Francois de Sauveterre, son of Gaspard, owns 25% of the estate and has control of thethe estate and has control of the estate’s day
estate’s day-to-day operations-to-day operations E.
E. Jean-Paul Oudineaux, Jean-Paul Oudineaux, an agricultural an agricultural engineer and engineer and the estate the estate managermanager F.
F. Chateau de Vallois main brand, Grand Vin, sells Chateau de Vallois main brand, Grand Vin, sells for $999 for US consumers and arefor $999 for US consumers and are averaging 150,000 bottles sold each year. The remaining grapes are
averaging 150,000 bottles sold each year. The remaining grapes are used to make Puiné,used to make Puiné, their second wine, which is sold for between €100
their second wine, which is sold for between €100-- €450, €450, and and averages a averages a total total sale sale ofof 200,000 bottles per year. Any remaining gr
200,000 bottles per year. Any remaining grapes are sold to other producers anonymouslyapes are sold to other producers anonymously and repackaged under other brand names
and repackaged under other brand names G.
G. As a way to freshen up tAs a way to freshen up the traditional brand and to gain more exposure, Claire whe traditional brand and to gain more exposure, Claire wanted toanted to begin mass marketing a new “affordable luxury” wine brand. The idea would be to use begin mass marketing a new “affordable luxury” wine brand. The idea would be to use different grapes in order to be
different grapes in order to be more accessible to the younger generation. The target more accessible to the younger generation. The target priceprice range would be €20
range would be €20-- €25 pe €25 per bottle.r bottle. H.
H. Francois and Jean-Paul disagrees wFrancois and Jean-Paul disagrees with Claire, saying that ith Claire, saying that their current level their current level of productionof production cannot support a third brand and
cannot support a third brand and that they have no expertise in making that they have no expertise in making wines with grapeswines with grapes outside their estate. Furthermore, Chateau du Vallois does not have the marketing outside their estate. Furthermore, Chateau du Vallois does not have the marketing distribution expertise to engage in direct selling and that they may be risking the good distribution expertise to engage in direct selling and that they may be risking the good relationship with negociants
relationship with negociants
II.
II. Problem Problem StatementStatement
Should Gaspard accept Clai
Should Gaspard accept Claire’s proposal to have Chateau de Vallois enter the “affordablere’s proposal to have Chateau de Vallois enter the “affordable luxury market”? Or should Gaspard follow Francois’ recommendation to maintain Chateau luxury market”? Or should Gaspard follow Francois’ recommendation to maintain Chateau de Vallois’ exclusivity?
de Vallois’ exclusivity?
III.
III. Case Case AnalysisAnalysis
The Group sees two independent courses of action for Gaspard, either he accepts Claire’s The Group sees two independent courses of action for Gaspard, either he accepts Claire’s proposal to cater to the mass market or to follow Francois’ recommendation to maintain proposal to cater to the mass market or to follow Francois’ recommendation to maintain
their products’ exclus
their products’ exclusivity. To further analyze the sitivity. To further analyze the situation, the Group used SWuation, the Group used SWOT analysisOT analysis on these two options
on these two options
Preserve
Preserve Luxury Luxury (Francois) (Francois) Extend Extend the the Brand Brand (Claire)(Claire) Strengths
Strengths ➢➢ Maintains excellent quality of Maintains excellent quality of harvested grapes due to
harvested grapes due to terroir terroir with ideal soil and microclimate with ideal soil and microclimate ➢
➢ Solidifies track record of wine Solidifies track record of wine quality and brand reputation quality and brand reputation among loyal customers
among loyal customers ➢
➢Preserves Preserves the the good good longlong standing relationship with standing relationship with negociants
negociants and distributors and distributors ➢
➢Maintains focus Maintains focus on winemakingon winemaking and not worry about marketing and not worry about marketing and distribution
and distribution
➢
➢ Ability to tap Ability to tap into the newinto the newer,er, younger generations of wine younger generations of wine drinkers with limited purchasing drinkers with limited purchasing power
power ➢
➢ New New brand brand can can capitalize capitalize on on thethe already established high-end already established high-end brand
brand ➢
➢ Affordable brand may Affordable brand may build abuild a solid customer base that may solid customer base that may prefer the high-end Chateau du prefer the high-end Chateau du Vallois brands once they’re Vallois brands once they’re ready
ready Weaknesses
Weaknesses ➢➢ Inability Inability to to reach reach thethe estate’sestate’s full profit potential since the full profit potential since the biggest margins will made by biggest margins will made by negociants
negociants ➢
➢ Market iMarket is limis limited to ted to those wthose whoho can afford luxury wines
can afford luxury wines
➢
➢ No expertise in winemaking No expertise in winemaking utilizing grapes outside the utilizing grapes outside the estate’s harvest
estate’s harvest ➢
➢ No No expertise expertise in in marketing,marketing, distribution, and advertising distribution, and advertising ➢
➢ Current Current production production levels levels cannotcannot support another brand and may support another brand and may require purchase from other require purchase from other estates
estates ➢
➢ New New brands may brands may confuse anconfuse andd worry the already established worry the already established loyal customers due to the use of loyal customers due to the use of non-Bordeaux harvested grapes non-Bordeaux harvested grapes Opportunities
Opportunities ➢➢ Maintains Maintains ability ability to commandto command top prices for its wines
top prices for its wines ➢
➢ The The perception perception of of high high qualityquality and exclusivity will remain in and exclusivity will remain in the loyal customers’ minds the loyal customers’ minds ➢
➢ Sales Sales are are somewhatsomewhat guaranteed even in bad years guaranteed even in bad years as negociants tend to buy the as negociants tend to buy the total output just to preserve the total output just to preserve the good relationship
good relationship
➢
➢ Changing Changing market market demandsdemands ➢
➢ Entry Entry of of the the new new generation generation winewine enthusiasts and wine drinking enthusiasts and wine drinking behavior
behavior ➢
➢ International International expansionexpansion
Threats
Threats ➢➢ Entrance Entrance of of less less expensive expensive andand lower quality winemakers that lower quality winemakers that may capture the market of next may capture the market of next generation wine drinkers
generation wine drinkers ➢
➢ Other Other top top traditional traditional BordeauxBordeaux ➢
➢ Perception Perception of of high high quality quality andand exclusivity may diminish
exclusivity may diminish ➢
➢ In direct In direct selling, sales selling, sales are notare not guaranteed during times of guaranteed during times of recessions
direct selling direct selling ➢
➢ Entry of Entry of the new the new generationgeneration wine enthusiasts and wine wine enthusiasts and wine drinking behavior
drinking behavior
good relationship with the good relationship with the negociants
negociants
The Group also analyzed the new target market for the “affor
The Group also analyzed the new target market for the “affor dable luxury” brand proposeddable luxury” brand proposed by Claire. Porter’s five forces model was used to measure the new market segment’s by Claire. Porter’s five forces model was used to measure the new market segment’s attractiveness.
attractiveness.
Porter’s Five Forces Model Porter’s Five Forces Model
1.
1. Threat of Threat of Intense Segment Intense Segment RivalryRivalry (Low)(Low) - based on the case context, the - based on the case context, the competition in the new segment or younger wine enthusiasts or “affordable luxury” competition in the new segment or younger wine enthusiasts or “affordable luxury” market is not that high. Less-expensive and low-quality wine makers and even top market is not that high. Less-expensive and low-quality wine makers and even top traditional Bordeaux estates are starting to enter
traditional Bordeaux estates are starting to enter this segment. According to Claire,this segment. According to Claire, people are asking for websites for direct selling of this affordable french wines people are asking for websites for direct selling of this affordable french wines indicating needs that are unmet
indicating needs that are unmet 2.
2. Threat Threat of of New New EntrantsEntrants (Low)(Low) - - Lands in Lands in Bordeaux are vBordeaux are very expensive ery expensive for newfor new entrants and even expansions. While buying land
entrants and even expansions. While buying land overseas may be an option, overseas may be an option, newnew entrants must have the network and expertise to operate effectively in an entrants must have the network and expertise to operate effectively in an international supply chain
international supply chain 3.
3. Threat Threat of of Substitute Substitute ProductsProducts(High)(High) - less expensive and low-quality winemakers - less expensive and low-quality winemakers are entering the market. Also, there are a lot of alcoholic beverage available to are entering the market. Also, there are a lot of alcoholic beverage available to consumers and enthusiasts such as whiskey, brandy, scotch, vodka, and
consumers and enthusiasts such as whiskey, brandy, scotch, vodka, and the everthe ever popular beer
popular beer 4.
4. Threat Threat of of Buyer Buyer Bargaining Bargaining PowerPower(Low)(Low) - - while the goal of Claire’s proposal is towhile the goal of Claire’s proposal is to cater to the younger wine enthusiasts with limited purchasing power, wine is still a cater to the younger wine enthusiasts with limited purchasing power, wine is still a luxury product. As long as the new brand can bank on the success of the high-end luxury product. As long as the new brand can bank on the success of the high-end brands, Chateau du Valloi
brands, Chateau du Vallois can dictate the prices even in the “affordable” segments can dictate the prices even in the “affordable” segment 5.
5. Threat Threat of of Supplier Supplier Bargaining Bargaining PowerPower(Low)(Low) - - Claire’s proposal of directly selling isClaire’s proposal of directly selling is essentially a forward integration. Chateau du Vallois will still be managing the essentially a forward integration. Chateau du Vallois will still be managing the grape growing & harvesting. Winemaking is still the Core business thus grape growing & harvesting. Winemaking is still the Core business thus maintaining them as the Supplier
maintaining them as the Supplier
Overall, this new segment is attractive enough for Chateau du Vallois to consider entering. Overall, this new segment is attractive enough for Chateau du Vallois to consider entering.
IV.
1.
1. Reject Claire’s proposal and preserve the exclusivityReject Claire’s proposal and preserve the exclusivity and focus on the twoand focus on the two Chateau brands
Chateau brands Advantages: Advantages:
➢
➢ Maintains focus on winemaking and not Maintains focus on winemaking and not worry about marworry about marketing andketing and distribution
distribution ➢
➢ Preserves the good long standing Preserves the good long standing relationship withrelationship with negociantsnegociants and and distributors
distributors ➢
➢ Solidifies track record Solidifies track record of of wine quality wine quality and brand and brand reputationreputation ➢
➢ Maintains Maintains the abilthe ability ity to to command command top top pricesprices Disadvantages:
Disadvantages: ➢
➢ Market is Market is limited to limited to those who those who can afford can afford luxury winesluxury wines ➢
➢ Inability to reach the estate’s full profit potential since the biggest marginsInability to reach the estate’s full profit potential since the biggest margins will made by negociants
will made by negociants ➢
➢ Direct sellDirect selling might ing might tarnish the tarnish the good relationship good relationship with the with the negociantsnegociants ➢
➢ Inability Inability to adapt to adapt quickly quickly to chanto changing maging market rket demands/behaviordemands/behavior
2.
2. Accept Claire’s proposal to enter the “affordable luxury” market and engageAccept Claire’s proposal to enter the “affordable luxury” market and engage in direct selling of the new brand
in direct selling of the new brand Advantages:
Advantages: ➢
➢ Ability to Ability to tap into tap into the newer, the newer, younger generations younger generations of wine of wine enthusiasts wenthusiasts withith limited purchasing power
limited purchasing power ➢
➢ New New brand can brand can capitalize capitalize on the on the already esalready established high-end tablished high-end brandbrand ➢
➢ Build a solid Build a solid customer base customer base that may that may prefer the prefer the high-end Chateau duhigh-end Chateau du Vallois brands once they’re ready
Vallois brands once they’re ready ➢
➢ Ability Ability to adapt to adapt quickly quickly to to changing changing market market demands/behaviordemands/behavior Disadvantages:
Disadvantages: ➢
➢ Direct sellDirect selling might ing might tarnish the tarnish the good relationship good relationship with the with the negociantsnegociants ➢
➢ New brands may confuse and wNew brands may confuse and worry the already established loyalorry the already established loyal customers
customers ➢
➢ Chateau du Vallois has no Chateau du Vallois has no expertise in marketing, expertise in marketing, distribution, anddistribution, and advertising
advertising V. Recommendation
V. Recommendation
The Group’s Recommendation is to
The Group’s Recommendation is to accept Claire’s proposal to enter the “affordableaccept Claire’s proposal to enter the “affordable luxury” market and engage in direct selling of the new brand
luxury” market and engage in direct selling of the new brand. This new affordable. This new affordable luxury brand however must be inde
luxury brand however must be independent from the already established brands i.e. pendent from the already established brands i.e. GrandGrand Vin and Puine so as not to confuse the loyal customers and dilute the perception of Vin and Puine so as not to confuse the loyal customers and dilute the perception of exclusivity.
exclusivity.
Specific Action Plans: Specific Action Plans:
➢
➢ The new brand must The new brand must be independent be independent from Chateau du from Chateau du Vallois other Vallois other brands. Thisbrands. This can be done by establishing a subsidiary with its own CEO. Claire would be a can be done by establishing a subsidiary with its own CEO. Claire would be a
perfect candidate for CEO. This new brand can be marketed as a subsidiary of perfect candidate for CEO. This new brand can be marketed as a subsidiary of Chateau du Vallois
Chateau du Vallois ➢
➢ Choose an overseas production Choose an overseas production facility (land) pfacility (land) preferably California. referably California. This wouldThis would lessen the capitalization costs since Bordeaux lands are expensive. Also this lessen the capitalization costs since Bordeaux lands are expensive. Also this reinforces the notion that this new brand is independent. The new brand will be reinforces the notion that this new brand is independent. The new brand will be using grapes of different variant from another country rather than downgrades from using grapes of different variant from another country rather than downgrades from not so ideal Bordeaux lands
not so ideal Bordeaux lands ➢
➢ Hire an expert on growing these California Hire an expert on growing these California grapes, preferably a grapes, preferably a local fromlocal from California
California ➢
➢ Hire marketing, distribution, and Hire marketing, distribution, and advertising specadvertising specialists to ialists to effectively effectively compete incompete in direct selling
direct selling ➢
➢ Apply the quality standards and techniApply the quality standards and techniques from Chateau ques from Chateau du Vallois to du Vallois to this newthis new production facility