Case Study Analysis Chateau Margaux

Case Study Analysis: Chateau Margaux Part 1: Analysis of Case Facts Section 1: Consumer Analysis The consumers of the wine of Chateau Margaux (CM) are mostly connoisseurs and luxury buyers. Connoisseurs are consumers who have profound knowledge on the taste of wine and they make their decisions on the wine to consume based on its taste. Thus, the most important factor when choosing a wine is the taste. They prefer to consume their wine in an environment where they have a variety of wines so that they can choose the one that will meet their taste expectation. Connoisseurs are insensitive to price as their main goal is to get a product that has the taste they are looking for. Luxury consumers make their buying decisions based on how the brands address their unique lifestyles. The most important factor they consider in wine selection is the quality and uniqueness. They do no it want to consume what everyone else consuming. They prefer to take their glass of wine in the most prestigious places such as five-star hotels. Price plays an important role in communicating the quality of the wine. Luxury consumers believe that the highest priced wine is the best and go for it. Connoisseurs and luxury consumers look for different things while making their buying decisions. However, the prominence of connoisseurs can influence the luxury consumers and the latter would start considering taste as an aspect of their unique lifestyle. Section 2: Trend Analysis In the last few years, the luxury consumers have increased rapidly in Asia and Russia, the demand in new markets have been growing, the company has discovered new geographical markets, the risks of the wine market has reduce and online sales have increased. Chateaux Margaux has also faced increased competition from other countries, shrinkage of wine consumption in France and expansion of substitutes. CM has responded to external forces by promoting its traditional strategies, adopting price distribution, using penetration pricing in the new markets and embracing modern technology in wine production. Section 3: Influencer Analysis Wine is an experience good because its value can only be determined in the true sense by consuming or experiencing it. The buyers choose the brand of wine depending on its reputation and recommendation. It is almost impossible to determine the quality of wine through physical examination. Both connoisseurs and luxury consumers consider a bottle of wine as an experience good and not credence good. It is not possible to truly know the value of credence good with certainty as it is a matter. The role of influencers in the wine industry is to talk about the brand so that they can influence other people to buy it. Social media is the most common platform used by influencers to talk about a particular brand. Influencers can be grouped into three categories: mega-influencers, macro-influencers and micro-influencers. Macro-influencers are actors, artists, athletes and social media star that have over 1 million followers in their social media platforms with 2-5 percent engagement in a single post. Macro-influencers are executives, bloggers and journalists with between 10,000 and 1 million followers buy drive 5-25 percent engagement in a single post. Micro-influencers are daily customers and employees with 500-10,000 followers and drive 25-50 percent engagement in a single post. Influencers are very important in marketing because it focuses on the specific individuals, making it more effective than dealing with the target market. The role of nà ©gociants is to gather the produce of small-scale growers and makers of wine and to sell it under their name. Their responsibilities include purchasing grapes, large volumes of juice and finished wine, bottling the wine, blending, and selling the finished products to consumers. The advantages of using nà ©gociants in distribution of wine are low cost of sales and distribution, high sales and reduced risk. The disadvantages of using these merchants are lack of connection with consumers, little control over the distribution channel and low quality of wine because of blending with other types of wines to reduce the price charge to consumers. Section 4: Brand Analysis The Chateau Margaux wines are regarded as prestige brands with strong brand equity. The brand is well established in France and it is making inroads into other countries such as Australia, Spain, Chile, Italy and the USA. The value proposition of CM is to provide quality wine at competitive prices using innovative marketing techniques. Section 5: Price-quality relationship of the first wine Step 1: Data collection on current prices of bottles of Chateau Margaux Table 1: Relationship between price and quality Restaurant name How many Michelin stars? Vintage (wine year) Price per bottle in $ UWV score (= quality points) First wine: Chateau Margaux (find at least twenty different entries of the wines in the wine lists) 1 Jean-Georges 3 2003 2650 96 2 Jean-Georges 3 2000 5000 97 3 Jean-Georges 3 1996 2650 95 4 Jean-Georges 3 1995 2500 94 5 Jean-Georges 3 1989 1700 93 6 Jean-Georges 3 1986 2000 92 7 Jean-Georges 3 1985 1800 94 8 Jean-Georges 3 1982 4000 95 9 Per Se 3 2000 3900 97 10 Per Se 3 1995 2975 94 11 Aquavit 2 2005 325 97 12 Aquavit 2 2010 450 97 13 Atera 2 2010 210 97 14 Atera 2 1996 1326 95 15 Atera 2 1986 1020 92 16 Atera 2 1970 840 90 17 Daniel 2 2005 2700 97 18 Daniel 2 2000 3500 97 19 Daniel 2 1999 1750 93 20 Daniel 2 1995 1500 94 Step 2: Data Analysis Step 3: Interpretation The R2 is very low at 0.076, meaning that there is a very weak relationship between quality and price. The price of a bottle of Chateau Margaux increases by $173.6 per quality point. Part 2 Section 6: Analysis of the effect of selectivity on profits Step 1: Completing the table Table 2: Relationship between selectivity and profits    Quantity Tranche 1 price (â‚ ¬) Tranche 2 price (â‚ ¬) Tranche 3 price (â‚ ¬) Quantity tranche 1 Quantity tranche 2 Quantity tranche 3 Revenue (â‚ ¬) Cost (â‚ ¬) (bottles) 2003                            First wine (99*) 183,040 120 160 200 61,013.33 61,013.33 61,013.33 29,286,400.00 6,864,000.0 Second wine (92*) 262,827 23 23 23 87,608.89 87,608.89 87,608.89 6,045,013.33 9,856,000.0 Bulk wine 23,467 5.42 5.42 5.42 7,822.22 7,822.22 7,822.22 127,189.33 786,133.3 Total number of bottles 469,333                         Total                      35,458,602.67 17,506,133.3 Total profits                         17,952,469.33 2009                            First wine (99*) 134,400 450 600 750 44,800.00 44,800.00 44,800.00 80,640,000.00    Second wine (92*) 153,067 50 23 23 51,022.22 51,022.22 51,022.22 4,898,133.33    Bulk wine 85,867 5.42 5.42 5.42 28,622.22 28,622.22 28,622.22 465,397.33    Total number of bottles 373,333                         Total revenue (â‚ ¬)                      86,003,530.67 17,506,133.33 Total profits                         68,497,397.33 Source: Ofek and Vogt Step 2: Interpretation The most striking thing in this calculation is that in spite of the lower production in 2009 than 2003, the profits were higher. The most profitable wine is first wine generating over â‚ ¬22 million in 20003 and â‚ ¬63 million in 2009. The effect of scarcity is to drive prices high and this ultimately increases profitability as long as the production costs remain constant and the reduction on production quantities does outweigh the price increase. It is more important to be more selective in 2009 because the higher the quality of wine, the higher the price the consumers were willing to pay. For example, 134,400 bottle of first wine were produced which generated over â‚ ¬80 million in revenue in 2003 as compared to 183,040 bottles which generated only â‚ ¬29 million in revenue in 2003. Therefore, using the outcome of this financial analysis, I would advice Chateau Margaux to focus their efforts on quality as it is through the reduction of yield of grapes and using only the best grapes to make the first and second wines that will fetch high prices in the market. I would discourage any attempt to increase the quantity of bottles with little regard of quality as this can only result in low profitability. Section 7: Calculating the profitability of the third wine Step 1: Completing the table Table 3: Marginal profitability of the third wine (vintage of 2009) Relevant yield (percentage) 13 Total number of bottles 373,333 Number of bottles (or bottle equivalents) that would qualify for the third wine 48,533.33    Bulk wine Third wine Price per bottle or bottle equivalent (â‚ ¬) 6 35 Marginal cost for bottling (â‚ ¬) 0 3 Gross profits 291,200.00 1,553,066.67 Marginal profits for launching the third wine    1,261,866.67 Source: Ofek and Vogt Step 2: Interpretation The marginal profits that could be realized from launching the third wine are â‚ ¬1,261,866 while the total profits in 2009 were â‚ ¬68,497,397. Hence, it is not worth it to lauch the third wine as this may negatively affect Chateau Margaux’s ability to focus on quality of the first and second wines. Section 8: Branding Effects The introduction of the third wine might have positive effects on the branding of the first and second wines by making them popular among all market segments including the low-income consumers. On the other hand, it might erode the perception of the first and second wines as premium brands and their prices are likely to drop if the bulk wine is bottled. Furthermore, some customers may be confused when selecting three categories of wines from the same company and this might lead them to move to other brands. Part 3: Strategic Options Section 9: Evaluation of strategic options The decision criteria applicable to the evaluation of the three strategic options for Chateau Margaux are the definition of the problem, identification of the decision criteria, assessing the criteria, generating alternatives, rating every alternative using each criterion and computing the optimal decision. Strategic Option 1: Connoisseurs are experts in wine tasting and since they have experience with the wines, the company will not have to carry awareness campaigns. The biggest problem with this market segment is that they already know how to differentiate the best wines in the market and they may not like to consume the third wine because of its low quality. The strategic goal should be to create a pool of consumers who are loyal to the third wine because of its taste. Strategic option 2: the next generation of connoisseurs does not have a lot of experience with wine and they are likely to be attracted by the low price of the third wine. However, they can easily abandon it for higher quality wines as they gain experience in wine tasting. The strategic goal of this option could be to lock up some consumers from moving to higher quality wines. Strategic option 3: Luxury buyers are those consumers who look for prestige and they believe that the high price tag of wine is due to its high quality. The advantage of targeting these buyers is that Chateau Margaux can set up high prices of the third wine and make huge profits from it. The biggest issue with this strategy is that it the company must invest a lot of resources in marketing to present the third wine as prestige and this might affect the sales of the first and second wines. The strategic goal could be to present the third wine as a premium product and make supernormal profits. I would recommend strategic option 2 of targeting the next generation of connoisseurs Table 4: Analysis of strategic options Decision criteria Option 1: Connoisseurs Option 2: Next generation of connoisseurs Option 3: Luxury buyers Definition of the problem Connoisseurs are experts in wine tasting and since they have experience with the wines, the company will not have to carry awareness campaigns The next generation of connoisseurs does not have a lot of experience with wine Luxury buyers are those consumers who look for prestige Identification of the decision criteria Market segment is that they already know how to differentiate the best wines in the market Low price of the third wine They believe that the high price tag of wine is due to its high quality Assessing the criteria Customers may not like to consume the third wine because of its low quality Abandon it for higher quality wines as they gain experience in wine tasting Chateau Margaux can set up high prices of the third wine and make huge profits from it Generating alternatives Differentiation strategy, low pricing Low pricing, extensive marketing The company must invest a lot of resources in marketing to present the third wine as prestige and this might affect the sales of the first and second wines. Rating every alternative using each criterion Difficulties in product differentiation and low-quality perception Low pricing may convey a message of low quality. Extensive marketing may increase overall costs Extensive marketing might bring new consumers on board. Computing the optimal decision Differentiation strategy can be achieved through additional services Low pricing will help the product penetrate in the market Marketing is the best way to attract the luxury buyers. Strategic goal To create a pool of consumers who are loyal to the third wine because of its taste To lock up some consumers from moving to higher quality wines To present the third wine as a premium product and make supernormal profits Chosen option No Yes No Part 4: Marketing plan for the third wine Section 10: Marketing Plan Place Chateau Margaux should continue to use negociants because they have already established distributions channels and they allow the management to focus on wine production which is critical in improving the quality of the final products. The negociants would be chosen on the basis of their experience in wine industry, past engagements and their prices.The agreements for the third wine would be separate from the first and second wine contracts so that the company can be able to monitor the performance of each category. However, if the company does not choose the negociants, it must prioritize in the two and three star restaurants and large retail wine stores in France, Australia, the U.S. and other countries where the brands have a market share of at least 5 percent. Price There are many wines that will compete with the third wine in the U.S. market. Some of these brands are well established and it will not easy to take up a market share from them. The most appropriate pricing strategy will be penetration where the price of a bottle of the third wine will be set below the market rate as this will attract customers who are price sensitive. The signals of the right prices are the competitors’ rates, bulk prices and the cost of production. Product I do not recommend for the growth of production of the third wine because the marginal profits are too low as compared to focusing on improving the quality of the first and second wine. The best option would be invest more on first and wine because they have the potential to boost profitability. Promotion The negociants should use advertising and influencers to promote the third wine to the next generation of connoisseurs. Advertising should be done through the TV and social media networks while mega-influencers should be used to drive traffic to the company’s websites where people can find more information about the product. The influencers should also create a positive image in the minds on potential consumers on the quality and taste of the third wine. Furthermore, it would be crucial to have an ambassador program where celebrities would promote the brand among their fans. Brand name Naming the third wine as Margaux du Chateau Margaux will help it to benefit from already established reputation of the first and second wine. Hence, some customers will see it as of high quality just like the other products from the company. However, in the long term, it might affect the sales of the first and second wine as customers will prefer it because of the low price. If the sales of the first and second wine go down, the overall profitability of the company will decrease because the marginal profits of the third wines are very low. An alternative brand name of the third wine should be â€Å"Chateau Ordinary†. The advantage of this brand name is that consumers who have no experience in wine tasting will feel that it is their wine and they should try it because it is not complicated at all. Additionally, the name resonates with its low prices and even consumers who are sensitive on their budget will feel that they are covered by it. The problem with the brand name is that it excludes luxury and connoisseurs consumers who look for uniqueness in the products they buy. â€Å"Chateau Ordinary† is for customers who have always felt excluded from the first and second wine because of their high prices.