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Contemporary Wine Issues

A modern look at wine marketing

Damien Wilson

on 25 October 2012

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Transcript of Contemporary Wine Issues

Contemporary Wine Issues Wine's Aim Producers think it's about selling wine... Consumers think it's about promoting wine... What's your point of view? Or 'How we're trying to brush away the cobwebs' Break into pairs
Get on-line and find an example of a winery with a good web-page
And another example of a web page in need of attention...
Take 5 mins to choose... Let's start with a simple exercise... Let's consider a winery webpage... Why do people visit a winery's webpage?
Primarily, because they want to know 'something' about the winery
What is that 'something'?
... Let's come back to this question after some facts about the wine sector What makes a good webpage for a winery? Supply side:
The world produces roughly 27 Billion litres of wine per year (Trade Data and Analysis 2010)
Top producers by volume are:
France (4.6 Billion Litres)
Italy (4.5)
Spain (3.6)
US (2.7)
South Africa, 8th (0.92) What do we know about the wine market? Global Volume consumed is approximately 23 Billion Litres.
The leading consumer markets are
US (2.91 Billion Litres)
France (2.89)
Italy (2.4)
Germany (2.0)
South Africa, 15th (346 Million L) ... and the demand? We've got big differences in supply and demand
Net exporters
Net importers, and
Self-sufficient markets
And a product that is complicated!
So, how is wine going at attracting consumers? So... What does this all mean? Economy and Fashion
Critics and Awards
The Outlook? Let's Look at the trends in the Wine Market Surplus wine
Alienated consumer
Evolving category...
Even before considering the technological innovations... So, what should we be doing? Can't they enjoy wine without having a degree?
Does a Mercedes owner know the location of the factory where the engine parts are made?
How long did Lady Gaga take to write her last song?
Does a consumer of [yellowtail] enjoy wine less than someone drinking a glass of Burgundy... Chapel Down or Helen Mountain? We've just gone through the era of 'wine education' Let's take a look at what's happened to wine as it's become all about drinking better quality... Because it's all about quality? France – The struggling wine sector Let’s look at history…
A focus on terroir
Quality wines
Wines of AOC
Approx 10% of wine was classified as quality
Consumption: 140L/yr
65% of wine is quality
Consumption: 55L/yr
Coca-cola effect? ONIVINS (2007) Australia - known for commercial and fruity wines
1960s: 10L wine per person (AUSSTATS)
2010: 25L (OIV 2012)
Italy - More branded wine than regional wine
1960s: ~120L (Robinson 1999)
2010: 42L (OIV 2012)
Systems differ, markets differ...
Demand differs!
Even though Appelation dominates,
there's still this myth... What about other countries? We can't all create good brands
But we need to communicate with the consumer!
As of this moment, we suck at it in the wine sector... So, how to respond to the challenge? <iframe src="http://player.vimeo.com/video/12022846?title=0&byline=0&portrait=0&color=999999&autoplay=1" width="400" height="300" frameborder="0" webkitAllowFullScreen mozallowfullscreen allowFullScreen></iframe> Let's see what the font of knowledge says... Australia - known for commercial and fruity wines
1960s: 10L (6:1 fortified to table) wine per person
early 1970: 12L (1:1 table to fortified)
2010: 25L (50:1 table to fortified)
Before 1980, Chardonnay was almost unheard of. By the early 90s it was the number 1 white grape in Australia
Italy - More branded wines than regional
1960s: ~120L (mainly red regional)
2010: 42L (mainly red branded)
Preferences change. And they're not hard to follow... Volume changes, but what about styles? But packaging? Surely everyone wants thick, heavy bottles with a long cork stuffed into the neck of the bottle... Format
Aesthetic Not as influential as have been
Integrity and disaffectation
New markets and no history
Award in China has opposite effect to an award in New Zealand
Critics? Awards and Critics? Is digital! The Outlook? But how do we get it to work? We know that... Branding?
Event Management?
Sales? What are the priorities of a wine business in the modern age? Because wine should be all about quality, right? http://www.vintank.com/ Segmentation Identifying common differences between groups of wine consumers.
Segmentation is often conducted by
varying benefits sought
Level of product involvement
psychographics (attitudes and values)
price paid.
Or any combination of these
Consider the rationale for each?
How to appeal- Branding and the Marketing Mix Wine Packaging Shape
Bottle colour, Design, embossing
Options and considerations
Labels, neck-tags

To communicate the brand Decision Process Promotion Advertising and personal selling are the most commonly used promotional tools to inform consumers of wine products.
Advertising is the most effective tool for lower priced wines. The effect of advertising on increasing product usage is inversely proportional to the price of the wine.
Conversely, personal selling becomes the preferred tool for promotion, indirect proportion to the price of the wine.
These promotional tools often work in conjunction in the consumer market, with many of the more commercial wines also relying on word of mouth advertising to increase customer interest. Setting the price Image based
Icon pricing
Cost plus margin
Accounting based, but may not reflect the market
Based on existing prices
Consumer Expectation
Based on focus group research or similar
Price point pricing
When a price point shows signs of growth
Price skimming
Based on vintage quality Before setting the price… Evaluate price sensitivity, and
Select the appropriate pricing strategy
Retail specialty. Either regular discounting or loyalty discounting
Consumption locations (Retail, HORECA)
Geographic dispersion
Common to all (Distinctions can still be made among segmented lines. Eg. White/Red) Pricing considerations Consider in the following order
Category life cycle
Stand-alone or ranged
Production, processing, maturation costs
Distribution Pricing considerations Price should always reflect perceived value
Benefits/costs to the consumer
Reflects the image to the consumer
Is fastest way to encourage a change in consumer behaviour
But is also the most easily challenged Pricing mix decisions Price is the most complex yet the least considered by wine marketers.
Price is also the most important decision that a wine marketer can make. The considerations of the price of wine has suffered due to:
Wine being treated as a commodity and therefore the belief that all sales are made based on price.
The price of wine is established by a third party or component of price (cost of grapes for example was set by the government) or by an Inter-professional body of an appellation or by the Negotiant.
The lack of marketing experience makes price the easiest of the mix factors to change (just print another price list).
The tying of price expectations to climatic difference (good/ bad / indifferent vintage quality). Options for ranging Strategic
Long-term considerations, where a sustainable competitive advantage can be achieved
Typically in reference to line decisions of vertical or horizontal nature
When time is short, and pay-offs can be great
Eg. Acquire external products to meet demand for a specific harvest. Launch of a concept brand Leading to ranging considerations Few wine marketers promote single products, but usually focus on developing product ranges. Range management is a necessary skill in order to maximise market penetration.
In the “ old world “ (mainly continental Europe), appellation systems are used to define quality, where the performance of a wine product is made to a prescribed formula which is enforced by legislation and regulation within the designated confines of the geographical indication and physical boundaries. (eg. Vin de table, VDP, AOC)
The hierarchical system of quality tends to start at the top, believing that this will provide greatest returns. In fact quality is judged at the bottom of the hierarchical pyramid
e.g. airlines are judged not on their service in first class because few experience travel at that level, but, at the (coach, economy, club class) and business class where the majority of people travel.
However it must be realised that it is more effective for the business to expand down the quality pyramid than to crawl up
Similarly the wine sector needs to consider this aspect when developing product ranges to meet the needs of consumers. Product mix- considerations Quality
Misused and misinterpreted
Varies by consumer and must be evaluated and categorised
Price points
Reflect the range of prices that any segment of consumers is likely to consider in their purchase
These vary by market and must be determined and reviewed regularly.
Becoming a popular distinction in HORECA consumption situations Product Breadth- Number of categories produced for sale
LVMH (very broad): wine, perfume, cars, fashion
Length- Number of brands, or alternate offers in the same category
Under LVMH Sparkling wines (Long): Moët et Chandon, Krug, Veuve Cliquot, Domaine Chandon, Cloudy Bay….
Depth- Under same brand, number of alternate styles
LMVH Sparkling wine of Moët et Chandon (Deep): Vintage, NV, Rosé, Blanc de blanc, Magnum, bottle, Methuselah… etc…
Consistency- Describes the similarity of offers within a firm’s portfolio of offerings
LVMH have an inconsistent overall offering, but consistent in luxury goods.
Defines the degree of control required and the scope of appeal to the market Wine Marketing Mix In simple terms, is regarded as the 4Ps of marketing
These are the components that the marketer adjusts in order to cater to the needs of the market
Placement The Appellation System Disadvantages
Despite these rigorous controls, an appellation of origin label has never been a guarantee of quality (Loubière 1990).
Policing very difficult & Contravention of regulations rarely publicised.
Limits experimentation & wines that can be produced.
Brand equity difficult to maintain.
Confuses consumers (except highly involved ones).
Detrimentally affects perceived quality.
Branding relates directly to marketing strategy. Strong brands offer the potential for enduring financial rewards. For a Competitive Advantage Is the goal of strong branding
Differentiates your brand from competitors and prevents your wine from becoming a commodity
Commodities are simply compared by price, as the products are not perceived to be differentiated in the mind of the consumer.
Takes much time, effort and conveying of a clear and simple, consistent message. Components of Brand Equity Loyalty
As consumers become more familiar with a brand, they increase their attachment to the brand every time that the brand meets their expectations
If not aware, naturally, the consumer cannot select the brand. Often, awareness is the key goal of advertising. The more people who know of your brand, the better the brand’s capacity to be purchased.
Perceived quality
Has nothing to do with objective quality. Must be measured according to the demands of your consumer.
Proxy indicators of quality and perceptions. Eg. Who drinks this wine, what events are sponsored by the brand, what awards has the brand won. Etc…
Other proprietary assets
Quality of packaging, cost of grapes and winemaking, service provided and distribution of brand Developing Brand Equity Brand equity is the extra (discount) value attached to your brand, that consumers use to determine how much they will pay for your product
Ie. Hypothetically, if everything is the same between two products (region, winemaking procedures, sensory indicators…), the consumer will buy the product that they believes is better because of the higher brand equity.
There may be no rational reason that one brand is perceived to be better than another. The value of brands The brand's identity should represent the organisation's vision, culture and values in an effective manner to customers.
Brands must be developed so that they represent value to the consumer.
Consumers will perceive value based on the performance of the brand in the marketplace.
The value of the brand will act as a multiplier on the success or failure of the brand, which will reflect the consequent value of (shares in) the business that developed the brand.
This concept is known as brand equity Wine Branding They knew nothing about branding
A brand represents the position of the producer in the marketplace and conveys the distinct personality of the product or service, to the consumer, simply by the viewing of an image, pattern or just by the name of the brand.
A brand is the best tool for communicating with your customer.
Why? The Divergent Response Old World
Reduced production instead of increasing demand/penetration
Defended territory instead of acquiring others
Two-pinned problem as consumption was falling while competition increased
No leverage off concept of terroir
Consumer loves Chenin, but must KNOW Jardin de la France…
Pandered to the demands of retailers
Therefore multiplying the number of choices at the expense of their brand…
New consumers don’t know what to buy and existing consumers were drinking less.
Basically, they just had no idea what they were doing in business Aus example- Domestic vs Export over time Source: Australian Wine and Brandy Corporation Domestic sales Exports The divergent response to changing markets New World
Identified growing trends
Planted vines at a rapid rate
Experimented with locations, grapes, wines, packages and services to find consumer’s ideal.
Held constant those things that ‘worked’
Parker Jr.
Cult wines
Emergent varieties/styles/trends
But never prepared for their approach to grow weary Wine MacroEnvironment Wine’s boom was best explained by these key factors:
Overproduction in Franco/Latin/Spanish countries
Export focus of new entrants
Exponential price increases based primarily on scarcity*
Key Point: why doesn’t scarcity work as well for countries like France?
Premiums attached to exploiting new markets
The countries that adapted readily to those factors were best able to exploit them as they arose.
So why did it all come crashing down? Continued… Distribution and selling
The credentials of approved sellers
Age when alcohol can be purchased
Licensed selling points
Times when alcohol can be sold
Public Nuisance (alcohol free or low alcohol sales only)
Limits on advertising and promotion
Concern for personal safety (eg drinking when driving )
Influence on children
Must not encourage non-drinkers to drink, or encourage excess.

These regulations are mandatory and are usually enshrined in legislation and as a result breaches are subject to legally imposed penalties (fines, jail, loss of licence etc).
These regulations are part of and additional to the standard commercial laws operating in all administrations (anti-trust, fair trading etc.). Regulatory Considerations on Wine Marketing Prohibitionist ( alcohol sales are illegal)
Government controlled sales systems
Marketer usually has clearly defined rules on what can and cannot be practised
Social regulatory systems (there are various systems).
Social hazard - Wine is an alcohol and a part of the alcohol stream
(Preventative) Health Benefit (social benefit).
Religious /Celebration role
Food Standards - disaster planning for food contamination
Intellectual property of appellation, process and brand name.
Terroir- appellation laws as related to a designated region. (Geographical indications). From Spawton 1991 Wine in a Business Sense Regulations
Differ by country/Region/Department…
Wine is both agricultural product, alcohol and food
Social impact
Poison control
Food standards regulations
Marketers must understand how wine interacts between the market and the administrators of the agrarian sector and social regulation. The Wine Business Environment Prosperity depends on the capacity of the wine industry to innovate and upgrade. Companies gain an advantage against the world’s best competitors because of pressure and challenges.
All countries should observe and review the regulations and industry success in many wine producing countries within the European community, and filter useful policy for their advantage.
Nations succeed in industries if their national regulatory framework provides an environment that supports this sort of behaviour. How to measure? More than just sales
Sales don’t explain customer satisfaction
Alternative measures?
Individually or Combined?
Operating window for new findings
Continue or quit?
Back-up plan
Importance of recognising when to conduct next stage of research
Identify triggers
Adhere to minimum/maximum delay guidelines for easier planning, but adjust with experience.
Because the goal is to conduct a profitable wine business. Monitoring the Results All about comparing the outcomes of research with the previous situation
Assesses the benefits of the research
What to evaluate?
Nett v Gross benefits
Forecasting the differences or then v now?
Importance in being able to determine the value of the findings of the research from the benefit of your firm, and for the market value of other interests. Implementing the Findings Follow the recommendations
That’s why the research was conducted
If systems aren’t in place to implement the recommendations, then investigate ways to change the system
Develop an action plan
A clear and measurable time-frame should be included.
Even f the results support what you're doing, be critical of your interpretation Look at this for an example…(Bardsley and Chambers 1984) Communicating the results Overlooked as a difficult challenge, but most common source of error.
The best research, technical methods and statistically significant results can be ruined at this point because…
The recipient must understand what’s being said
Like anything in marketing
Know your audience! Collecting data Primary or secondary?
Primary is ideal, but expensive and can lack subsequent applications
Secondary tends to be cheaper, but can lack insight for the specific problem
Evaluate validity and reliability trade-offs.
External v internally validity
Instrument v recall reliability So, where does the marketer begin? Ask your consumer.
Starting point for any marketing exercise
Ask ‘What does my customer want?’
Assess the nature of the marketing problem
The challenge is not that we don't know the answers, it's that we don't like the answers... Change has led to regulations to controlling the business environment Market change drivers
Social? Just look at this...
Labeling laws
Distribution and selling
The difficulty is that any, all or none of these may have been responsible for changes in the market. Causality is very difficult to establish. What has changed to make marketing so important? Increased competition
More placement options
Improved distribution
Changing consumer behaviour
Degrees of involvement
Surplus production
Product diversity
Increasing lifestyle enthusiasts Producer/Marketer perspectives The distinction is important
A producer sees a product and tries to find a market
A marketer recognises latent demand and responds accordingly.
Compare the rationale
Negotiants (and a sales perspective) trade in products for local demand.
But demand for wine is no longer a local issue.
There are markets everywhere, and increasing numbers of consumers in new markets. The wine industry evolved… Quality became important
Only in recent decades has it become a classless drink
This is the key for why
marketing has become
Knowledge of a product
vs. satisfaction of demand. History of wine commerce… Wine is a long established industry- thousands of years. Most of its history has seen it as a drink for wealthy upper classes.
Wine as a traded commodity, along with salt
Caucasus Mountains
Contrary to popular opinion…
Since 1537. Prior wines were just barrelled and called ‘Claret’
Industrial Age and crisis led to opportunity for wine as a commodity.
Branding and regulation was the birth of the industry having status in 19th and 20th centuries. A Number of Reasons Most salient- lag phase and production frequency
Fragmented global industry
No single, or dominant leader compared to other industries
Diverse priorities
Divergent consumption patterns
Highly segmented
By price and consumer category
Dynamic Industry
Production, consumption and adoption Wine Marketing- A Simple Theory Marketing as a concept
Ascertain the needs of your consumers and apply them in a financially prudent method to your business
Very easy!
BUT, applying this principle is very difficult in the wine industry
Pour quoi? Marketing and Wine The unique challenges for marketing of wine as a product
The reality of applying what is known
The importance of maintaining a long-term focus
Which is especially difficult when existing frameworks have worked successfully for generations What is wine in a marketing sense? All about mastering a three-step process
Identifying the needs of wine consumers
Developing an appropriately matching product
Monitoring the progress of that product

Simple, really. Overview What is Wine in a Marketing Sense?
The Wine Business Environment
Wine Consumer Behaviour
Wine Purchasing Behaviour
The 4 Ps
Wine Branding
Digital Strategy Part 2 - Wine Marketing Theory, Facts and Figures Branding? Compare it to the Appellation System Advantages
Establishes levels of quality, reliability and consistency in all products produced under these regulations.
Consumers are guaranteed of getting a wine made within guidelines stipulated by regulations.
Establishes a 'level playing field' for all producers. It’s all about creating a competitive advantage Competitive advantage means unique AND sought after
To create a competitive advantage in sophisticated industries demands improvement and innovation-
There is the continuous pressure to perform (Porter’s theory)
Because of the proximity to observers
Both from within the firm and from the market
Bragging rights has significant currency for the brand and the individual
Reputations can be made or broken
Consider the concept of ‘keeping up with the Joneses’
The reality is that a few countries’ wine industries have done particularly well in recent history
This has been due to a number of external factors Continued… Labels should comply to:
Integrity programs (all administrations have regulations on the necessary inclusions on a label(s)).
Product description (to include grape variety in some administrations)
Source of the grapes ( in some administrations)
Proportions of the grapes used in the wine( in some administrations)
Country of Origin ( in some administrations)
Brand name ( intellectual property)
Weights and measures (consumer protection)
Alcohol content statement (% by volume of alcohol.)
Name and address of the bottler, (for Food Safety purposes).
Additives, both preservative and allergen eg. 220 (sulphur dioxide) and/or fish products (isinglass) used in the processing of this wine
There are legal standards for the sizes of bottles / packaging that can be used.
Moderate consumption /warning statements (in some administrations only). In simpler terms… Bardsley and Chambers (1984) were trying to show that survey questions should not be repetitive beyond necessity.
Unfortunately, using that sentence doesn’t get the article published…
But the premise should be clear.
Outline the research
Conduct the study
Summarise the results and specify the implications. What do these things mean for wine? The reality is that they’ve only been used for a relatively short period.
Europe has the advantage in this area
Recent history
Necessity is the mother of invention
Complacency of New World
Should be driven by identifying latent demand(s), or responding to changes in the environment
Doesn’t need to be technical, challenging, difficult
Case in point- if consumers are losing interest in a category because of a lack of alternative styles available, then the answer is to develop a new style.
Really, this isn't rocket science... Cleaning and assessing data How clean is it?
Anonymity and confidentiality issues?
Analysis methods
(Non)parametric tests
Hypothesis testing and statistical significance
Don’t over–simplify these findings
Factor analysis
Trend (Longitudinal) analysis
Structural Equation Modelling What have we learned?
Consumption volume hasn't changed in 50 years
An increasingly heterogeneous offer
For an increasingly homogenous demand
Demand and supply trends are going in different directions! The problem with the evolution is... With that in mind, tell me about your wine personality... They could do better than that... The challenge is that there isn't a great level of understanding about consumers, nor current events
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