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John Derick Mendoza

CASE 2: Preserve the Luxury or Extend the Brand?

I. Case Background / Summary

A. 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 reputation
B. Gaspard de Sauveterre, a septuagenarian, owns 50% share of the estate and has the
final say on business decisions
C. Claire de Valhubert, granddaughter of Gaspard, owns 25% of the estate through her
deceased mother
D. Francois de Sauveterre, son of Gaspard, owns 25% of the estate and has control of the
estates day-to-day operations
E. Jean-Paul Oudineaux, an agricultural engineer and the estate manager
F. Chateau 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 Puin,
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 names
G. As 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.
H. 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

II. Problem Statement

Should Gaspard accept Claires proposal to have Chateau de Vallois enter the affordable
luxury market? Or should Gaspard follow Francois recommendation to maintain Chateau
de Vallois exclusivity?

III. Case Analysis

The Group sees two independent courses of action for Gaspard, either he accepts Claires
proposal to cater to the mass market or to follow Francois recommendation to maintain

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their products exclusivity. To further analyze the situation, the Group used SWOT analysis
on these two options

Preserve Luxury (Francois) Extend the Brand (Claire)

Strengths Maintains excellent quality of Ability to tap into the newer,


harvested grapes due to terroir younger generations of wine
with ideal soil and microclimate drinkers with limited purchasing
Solidifies track record of wine power
quality and brand reputation New brand can capitalize on the
among loyal customers already established high-end
Preserves the good long brand
standing relationship with Affordable brand may build a
negociants and distributors solid customer base that may
Maintains focus on winemaking prefer the high-end Chateau du
and not worry about marketing Vallois brands once theyre
and distribution ready

Weaknesses Inability to reach the estates No expertise in winemaking


full profit potential since the utilizing grapes outside the
biggest margins will made by estates harvest
negociants No expertise in marketing,
Market is limited to those who distribution, and advertising
can afford luxury wines Current production levels cannot
support another brand and may
require purchase from other
estates
New brands may confuse and
worry the already established
loyal customers due to the use of
non-Bordeaux harvested grapes

Opportunities Maintains ability to command Changing market demands


top prices for its wines Entry of the new generation wine
The perception of high quality enthusiasts and wine drinking
and exclusivity will remain in behavior
the loyal customers minds International expansion
Sales are somewhat
guaranteed even in bad years
as negociants tend to buy the
total output just to preserve the
good relationship

Threats Entrance of less expensive and Perception of high quality and


lower quality winemakers that exclusivity may diminish
may capture the market of next In direct selling, sales are not
generation wine drinkers guaranteed during times of
Other top traditional Bordeaux recessions
estates have already started Direct selling might tarnish the

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direct selling good relationship with the
Entry of the new generation negociants
wine enthusiasts and wine
drinking behavior

The Group also analyzed the new target market for the affordable luxury brand proposed
by Claire. Porters five forces model was used to measure the new market segments
attractiveness.

Porters Five Forces Model

1. Threat 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 unmet

2. Threat 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 chain

3. Threat 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 beer

4. Threat of Buyer Bargaining Power (Low) - while the goal of Claires 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

5. Threat of Supplier Bargaining Power (Low) - Claires 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.

IV. Alternative Courses of Action

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1. Reject Claires proposal and preserve the exclusivity and focus on the two
Chateau brands

Advantages:
Maintains focus on winemaking and not worry about marketing and
distribution
Preserves the good long standing relationship with negociants and
distributors
Solidifies track record of wine quality and brand reputation
Maintains the ability to command top prices

Disadvantages:
Market is limited to those who can afford luxury wines
Inability to reach the estates full profit potential since the biggest margins
will made by negociants
Direct selling might tarnish the good relationship with the negociants
Inability to adapt quickly to changing market demands/behavior

2. Accept Claires proposal to enter the affordable luxury market and engage
in direct selling of the new brand

Advantages:
Ability to tap into the newer, younger generations of wine enthusiasts with
limited purchasing power
New brand can capitalize on the already established high-end brand
Build a solid customer base that may prefer the high-end Chateau du
Vallois brands once theyre ready
Ability to adapt quickly to changing market demands/behavior

Disadvantages:
Direct selling might tarnish the good relationship with the negociants
New brands may confuse and worry the already established loyal
customers
Chateau du Vallois has no expertise in marketing, distribution, and
advertising
V. Recommendation

The Groups Recommendation is to accept Claires 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.

Specific Action Plans:


The new brand must be independent from Chateau du Vallois other brands. This
can be done by establishing a subsidiary with its own CEO. Claire would be a

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perfect candidate for CEO. This new brand can be marketed as a subsidiary of
Chateau du Vallois
Choose an overseas production facility (land) preferably California. This would
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
using grapes of different variant from another country rather than downgrades from
not so ideal Bordeaux lands
Hire an expert on growing these California grapes, preferably a local from
California
Hire marketing, distribution, and advertising specialists to effectively compete in
direct selling
Apply the quality standards and techniques from Chateau du Vallois to this new
production facility

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