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Preserve the Luxury or Extend the Brand
This case study examines the debate around whether the famous Château de Vallois wine estate in Bordeaux, France should preserve its luxury brand or extend into a lower-priced branded wine market. The estate has been family-owned for generations and is known for its high-quality, expensive Grand Vin wine. However, Claire, one of the owners, wants to introduce a lower-priced branded wine to attract younger consumers. The estate manager François argues they should preserve their luxury reputation and not risk damaging relations with their distributors. They also lack the resources and expertise for a new branded wine business. Both sides present arguments around the costs, benefits and risks of entering the new market segment.
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Preserve the Luxury or Extend the Brand
- 1. HBR Case Study PRESERVETHE LUXURY OR EXTEND THE BRAND?
- 2. Château de Vallois A famous wine producing estate in the Bordeaux region of France In a ranking of Bordeaux wine estates that recognizes long-term track record in quality and reputation, de Vallois had in 1855 been classified as a Premier Grand Cru Classé (First Growth) Steadily Profitable since the 1980s 2 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 3. People •75-year-old owner of Châteaude Vallois •50% estate Gaspard de Sauveterre •Gaspard’s Granddaughter •25% estate •Moved to Paris following the sudden death of her mother, seven years ago Claire de Valhubert •Gaspard’s son •Château’s CEO •25% estate François de Sauveterre •Estate manager •Was hired as young Agricultural engineer •30 years ago after buying Château de Vallois Jean-Paul Oudineaux 3 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 4. Brands 4 Preserve the Luxuryor Extend the Brand?Shivam Verma || IIT Delhi Grand Vin du Château de Vallois 150,000 bottles each year €100 to €450 up front for a bottle (a combination of carefully selected cabernet sauvignon, merlot, petit verdot, and cabernet franc grapes) Puiné 200,000 bottles each year The remaining grapes were sold to other estates on condition that their origin would not be revealed
- 5. De Vallois Journey 5 Preservethe Luxury or Extend the Brand?Shivam Verma || IIT Delhi The estate had fallen into a slow decline under its last owner. 30 years ago Gaspard bought Château de Vallois Gaspard and Jean-Paul had restored it to its former glory Overhauled the vineyards, improved the drainage, and subtly adjusted the blend Essential ingredient- a terroir with the ideal soil and microclimate, which, according to the French, determines a wine’s character
- 6. Négociants 6 Preserve the Luxuryor Extend the Brand?Shivam Verma || IIT Delhi Most of the wine is sold to specialist merchants called négociants under a centuries-old arrangement designed to let noblemen stay out of commerce Buys the wine a year before bottling and then sells it to distributors and importers High margins but would buy total output, even in bad years
- 7. Claire’s Desire Valloisto enter the “affordable luxury” market, selling directly to customers, as some of the other top traditional Bordeaux estates had done Introduce a branded wine at a price of about €20 to €25 a bottle Feared less-expensive, lower-quality wine makers, to capture and retain the next generation of customers Less than half potential utilized 7 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 8. François’ Argument Not enoughgrapes for a third de Vallois wine People could start worrying that we are mixing purchased grapes in all our wines Large Investment in Marketing and Distribution Channels We neither have the experience nor the means Risking the goodwill of the people who sell the wine we’re currently making 8 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 9. Claire’s Counter Argument We couldbuy more land and grow extra grapes ‘Bordeaux origin’ not Château de Vallois origin on the wine’s label Buy overseas land, like some of our competitors Ex- branded wine with California grapes and a label mentioning that the de Vallois team is in charge of it Specialized importers and website for direct order could reduce load of distribution channels Will give us a chance to- attract younger consumers Be more flexible get ahead of drinking trends 9 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 10. BUT! Francois: “Wemight not take full advantage of our reputation, but isn’t that partly why we have such a good one? And why spend money on a whole marketing and distribution machine for a low-priced wine?” Jean paul: “Who will make this branded wine anyway?”, “I have neither the expertise nor the interest in making fruity wines with other people’s grapes.” 10 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 11. ANALYSIS… 11 Preserve the Luxuryor Extend the Brand?Shivam Verma || IIT Delhi
- 12. Market (What is) Deals only in Single Segment Market Expensive quality wine market Deep knowledge on segment’s need Strong market presence Only demographic segmentation- income and life cycle Claire wants to explore complementary market in terms of income and life cycle 12 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 13. Judging the newMarket Michael Porter’s five forces can determine the intrinsic long-run attractiveness of a market segment Overall attractiveness of the segment vs Company’s objectives and resources 13 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi Threat of intense segment rivalry Threat of suppliers’ growing bargaining power Threat of substitute products Threat of new entrants Threat of buyers’ growing bargaining power
- 14. Alternatives (What canbe) •Continue to serve present customers as its less risky and doesn’t harm reputation Continue with the current Business •Doesn’t requires more grapes •Higher margins •Not harm negociants’ business Create an even more exclusive brand sold directly •Professional board •New market new customer •Won’t effect the main brands reputation Enter in branded wine market via subsidiary or a new firm 14 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 15. Cost Investment(distribution channel, marketing, resourceexpansion) Risk of goodwill Geographical barriers Process modification Less profit Margin Different type of Business Danger of pursuing the wrong marketing activities Benefit More Customers More usage of brand Product diversification Geographical diversification More sales Professional board of directors because larger business Cost Benefit Analysis Cost benefit analysis of each alternative should be done 15 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 16. Indian Example OLDMONK- an iconic vatted Indian dark rum blended and aged for a minimum of 7 years No advertising, its popularity depends on word of mouth and loyalty of customers Is served to both expensive and affordable market segments 16 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 17. Recommendation As attractivethe option of entering the branded wine market is, it is also costly for the de vallois to enter because of lack of experience and expertise, and resources. Though alternative 2 can be implemented, the company should aim to expand in other creative ways to deal with changing trends The branded market can be entered via a new company dedicated to only branded wine which can later be overtaken by Château de Vallois with professional team on board Enthusiastic and dynamic people like Claire with bright ideas should be brought in business 17 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 18. Credits & Reference All Photos are taken from google images The article itself- Preserve the Luxury or Extend the Brand? (by Daniela Beyersdorfer and Vincent Dessain) http://en.wikipedia.org http://www.vgulp.com 18 Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi
- 19. THANK YOU ! 19 ENDShivamVerma || IIT Delhi
- 20. Disclaimer Created by ShivamVerma, IIT Delhi, during an internship with Prof. Sameer Mathur, IIM Lucknow,www.IIMInternship.com ” Shivam Verma || IIT Delhi 20