John Derick Mendoza CASE 2: Preserve the Luxury or Extend the Brand? Case Background / Summary Chateau de Vallois is a family owned winemaking estate located in the Bordeaux region of France famously known for its long-term track record in quality and reputationGaspard de Sauveterre, a septuagenarian, owns 50% share of the estate and has the final say on business decisionsClaire de Valhubert, granddaughter of Gaspard, owns 25% of the estate through her deceased motherFrancois de Sauveterre, son of Gaspard, owns 25% of the estate and has control of the estate’s day-to-day operationsJean-Paul Oudineaux, an agricultural engineer and the estate managerChateau de Vallois main brand, Grand Vin, sells for $999 for US consumers and are averaging 150,000 bottles sold each year. The remaining grapes are used to make Puiné, their second wine, which is sold for between €100-€450, and averages a total sale of 200,000 bottles per year. Any remaining grapes are sold to other producers anonymously and repackaged under other brand namesAs a way to freshen up the traditional brand and to gain more exposure, Claire wanted to begin mass marketing a new “affordable luxury” wine brand. The idea would be to use different grapes in order to be more accessible to the younger generation. The target price range would be €20-€25 per bottle.Francois and Jean-Paul disagrees with Claire, saying that their current level of production cannot support a third brand and that they have no expertise in making wines with grapes 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 relationship with negociants Problem StatementShould Gaspard accept Claire’s proposal to have Chateau de Vallois enter the “affordable luxury market”? Or should Gaspard follow Francois’ recommendation to maintain Chateau de Vallois’ exclusivity? Case AnalysisThe 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 their products’ exclusivity. To further analyze the situation, the Group used SWOT analysis on these two optionsPreserve Luxury (Francois)Extend the Brand (Claire)StrengthsMaintains excellent quality of harvested grapes due to terroir with ideal soil and microclimateSolidifies track record of wine quality and brand reputation among loyal customersPreserves the good long standing relationship with negociants and distributorsMaintains focus on winemaking and not worry about marketing and distributionAbility to tap into the newer, younger generations of wine drinkers with limited purchasing powerNew brand can capitalize on the already established high-end brandAffordable brand may build a solid customer base that may prefer the high-end Chateau du Vallois brands once they’re readyWeaknessesInability to reach the estate’s full profit potential since the biggest margins will made by negociantsMarket is limited to those who can afford luxury winesNo expertise in winemaking utilizing grapes outside the estate’s harvestNo expertise in marketing, distribution, and advertisingCurrent production levels cannot support another brand and may require purchase from other estatesNew brands may confuse and worry the already established loyal customers due to the use of non-Bordeaux harvested grapesOpportunitiesMaintains ability to command top prices for its winesThe perception of high quality and exclusivity will remain in the loyal customers’ mindsSales are somewhat guaranteed even in bad years as negociants tend to buy the total output just to preserve the good relationshipChanging market demandsEntry of the new generation wine enthusiasts and wine drinking behaviorInternational expansionThreatsEntrance of less expensive and lower quality winemakers that may capture the market of next generation wine drinkersOther top traditional Bordeaux estates have already started direct sellingEntry of the new generation wine enthusiasts and wine drinking behaviorPerception of high quality and exclusivity may diminishIn direct selling, sales are not guaranteed during times of recessionsDirect selling might tarnish the good relationship with the negociantsThe Group also analyzed the new target market for the “affordable luxury” brand proposed by Claire. Porter’s five forces model was used to measure the new market segment’s attractiveness.Porter’s Five Forces ModelThreat of Intense Segment Rivalry (Low) - based on the case context, the 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 traditional Bordeaux estates are starting to enter this segment. According to Claire, people are asking for websites for direct selling of this affordable french wines indicating needs that are unmetThreat of New Entrants (Low) - Lands in Bordeaux are very expensive for new entrants and even expansions. While buying land overseas may be an option, new entrants must have the network and expertise to operate effectively in an international supply chainThreat of Substitute Products (High) - less expensive and low-quality winemakers are entering the market. Also, there are a lot of alcoholic beverage available to consumers and enthusiasts such as whiskey, brandy, scotch, vodka, and the ever popular beerThreat of Buyer Bargaining Power (Low) - while the goal of Claire’s proposal is to 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 brands, Chateau du Vallois can dictate the prices even in the “affordable” segment Threat of Supplier Bargaining Power (Low) - Claire’s proposal of directly selling is essentially a forward integration. Chateau du Vallois will still be managing the grape growing & harvesting. Winemaking is still the Core business thus maintaining them as the Supplier Overall, this new segment is attractive enough for Chateau du Vallois to consider entering. Alternative Courses of ActionReject Claire’s proposal and preserve the exclusivity and focus on the two Chateau brandsAdvantages:Maintains focus on winemaking and not worry about marketing and distributionPreserves the good long standing relationship with negociants and distributorsSolidifies track record of wine quality and brand reputationMaintains the ability to command top pricesDisadvantages:Market is limited to those who can afford luxury winesInability to reach the estate’s full profit potential since the biggest margins will made by negociantsDirect selling might tarnish the good relationship with the negociantsInability to adapt quickly to changing market demands/behaviorAccept Claire’s proposal to enter the “affordable luxury” market and engage in direct selling of the new brandAdvantages:Ability to tap into the newer, younger generations of wine enthusiasts with limited purchasing powerNew brand can capitalize on the already established high-end brandBuild a solid customer base that may prefer the high-end Chateau du Vallois brands once they’re readyAbility to adapt quickly to changing market demands/behaviorDisadvantages:Direct selling might tarnish the good relationship with the negociantsNew brands may confuse and worry the already established loyal customersChateau du Vallois has no expertise in marketing, distribution, and advertising RecommendationThe Group’s Recommendation is to accept Claire’s proposal to enter the “affordable luxury” market and engage in direct selling of the new brand. This new affordable luxury brand however must be independent from the already established brands i.e. Grand Vin and Puine so as not to confuse the loyal customers and dilute the perception of exclusivity.