Preserve The Luxury Or Extend The Brand PDF

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The Luxury Or Extend The Brand case study. ...

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Preserve The Luxury Or Extend The Brand? The Preserve The Luxry Or Extend The Brand case discusses the topic of how businesses face the issue of balancing production of luxurious products while also making products affordable. This case discusses the profitability and stability of Chateau de Vallois, which is a well-known wine-production estate located in Bordeux. Chateau de Vallois is a maker and distributor of prestigious wines. The estate’s owner, Gaspard de Sauveterre, purchased the vineyard from the previous owner, who was unsuccessful with the wine production. In order to recover and benefit from the purchased land, Gasprad has been working with Jean-Paul Oudineaux, who is an agricultural engineer as well as the estate’s manager. The estate is located in the win-win region of France due to its perfect microclimate and soil, which are the two essential factors for the wine’s quality. Due to consistently having warm and dry summers, De Vallois has been fortunate with improving the quality of its wines. In addition, Gaspard and Jean fully repaired the vineyard, which was the third factor for the achievement of the wine’s high quality. For the last three decades, De Vallois has become a well-known vineyard for the production of high-quality Bordeaux wines. De Vallois is especially known for its two high quality wines, Grand Vin du Chateau de Vallois and Puiné. De Vallois sells about 400,000 bottles of both wines together per year. The rest of the produced wines are “sold to other estates on condition that their origin would not be revealed” (McGraw-Hill, pg. 18). Chateau de Vallois is a family business. Gaspard de Sauveterre owns 50% of the business. Gaspard’s son and the company’s CEO, Francois de Sauveterre, has a 25% share of the estate. The left 25% of the estate are owned by Gaspard’s granddaughter, Claire. For the past five years, the day-to-day operations have been overlooked by Francois. Although, Gaspard has the power to make final decisions, such as to change the company’s operations and business strategies. De Vallois operates with the help of specialized merchants, knowns as negociants, who purchase “around 70% of De Vallois still-maturing wine.” The negociants purchase wines in bulk and re-sell them to distributors and importers. Gasprad and alike wine business heavily rely on negociants, because they purchase wines even if the vineyard experiences a bad year. Gaspard profits from the payments made in advance, which therefore help to maintain the vineyard and pay off additional expenses. De Vallois sells Grand Vin du Chateau de Vallois, which is the top level wine produced at the beginning of 2000’s, for about 1000 euros per bottle. Puiné, which is the second level of produced wines, gets sold from 100 to 500 euros per bottle (McGraw-Hill, pg. 18). In addition, such luxurious wines get sold for a doubled price to customers from overseas. Therefore, Chateau de Vallois has an average income of quarter of a billion euros (225,000,000) from the production of its top wines. Although Chateau de Vallois receives high profits from its current production of the two types of prestigious wines, numerous of their other matured wines have been experiencing a decline in purchases. In order to improve its business operations and increase the profits, Claire proposed a business plan. Wine is a product that can be both luxurious and affordable. De Vallois focused on operating as a traditional French vineyard, such as by specializing on production of two particular types of wines. Therefore, De Vallois is known in specific wine markets and appreciated by the loyal customers. The success of luxurious wines depends on those customers, who have knowledge in differentiating and appreciating wines as well as able to afford the highpriced products. The wine market is wide and will continue on growing, but the world economy

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is one of the major factors that dictates the increase and decline of the high-priced products. Claire proposed to engage in the globalization of production and enter the affordable luxury market. Her opinion is important and supported with facts, because she has a modernized look at businesses and represents the younger generation. Thus, by also producing lower-quality and less expensive wines (averaging around 20 euros), it would give an opportunity for younger generations to afford De Vallois wines. Wine has been part of the European cultures for centuries. People from all generations enjoy to consume wine during lunches, dinners, and events. Drinking of wine became part of the culture in numerous European countries. People are willing to spend money on purchasing wine, therefore wine should be affordable for all social classes. In order to beging the production of low cost wines, Claire proposed to either purchase more grapes or purchase more land for the growing of own grapes. The purchase of additional Bordeaux land would be costly due to the region, but the purchase of the overseas land would be less expensive. For example, De Vallois can produce a less expensive wine with California grapes. The company has an option to label the third level wine as De Vallois brand or Bordeaux origin. Additional expenses would be spent on marketing and distributing of the wine. Although, such operations can be managed by Francois’ wife’s family, which is highly “experienced in distributing, marketing, insuring, and transporting products” (McGraw-Hill, pg. 19). Since the third level of wines would be mostly aimed at the younger customers, it would be beneficial and profitable to develop a website. The globalization of production depends on both physical specialized stores as well as e-commerce. Thus, by entering the e-commerce market, it would help to introduce a variety of additional wines and an easy process of purchasing wines by new customers. As mentioned in the case study, “prices for fine wine fluctuated widely, depending on the quality of the vintage, the reputation of the producers and negociants, and the expected demand, and they were increasingly influenced by the opinions of expert critics” (McGraw-Hill, pg. 18) Chateau de Vallois fulfills all of these criterias, in order to achieve success in the wine market. Older generations are willing to pay for costly wines due to appreciating important grapes and how to taste wine. Although, according to the Wall Street Journal article, “Millennials spend less money per bottle than their older peers—79% of regular millennial wine drinkers bought wines in the $10-$15 range… Millennials don’t like ratings, but they like some kind of review” (Teague, 2015). The younger generation is less concerned about the wine’s region, growth period, and grape’s type. Millennials are more concerned to try new and affordable wines while hanging out with friends or eating in restaurants. According to the Wine Opinions research, “only 17% of millennials care about what wine columns say. In fact, just 22% subscribe to a print wine magazine or newsletter—that’s about half the percentage of Gen Xers (41%)” (Teague, 2015). Therefore, the studies support Claire’s business plan to begin the globalization of De Vallois products. Although there are such concerns as how the lower-quality wine will affect De Vallois’ reputation, it is the risk that Gaspard should take. De Sauveterre family has a strong reputation based on the experience and quality of products. Therefore, their respected reputation and the already high profits from Grand Vin du Chateau de Vallois and Puiné - will help to increase the company’s profits and expansion in the wine market. In conclusion, it is important for any business to contain the product’s uniqueness as well as fulfill the customers’ needs. It is important for the company to specialize in a specific sector of any market. Specialization in production provides stability, reputation in the global market, and

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customer loyalty. It is important for businesses to enter market and/or product globalization, in order to get exposed to a larger clientele, get familiarized with additional customer needs, and increase profits. The stakeholders have a corporate social responsibility to analyze social consequences of economic actions when making business decisions as well as the affect such decisions have on the economy and society. Business decisions should take into consideration the society’s culture, needs, religion, politics, and economy, in order to develop the appropriate strategy for company’s expansion. It important to not be a righteous moralist during the globalization process, because every country operates differently. If Chateau de Vallois chooses not to proceed with Claire’s business plan then they should consider entering the e-commerce market. Their brand has a stable clientele, which will continue to purchase their products. Developing a website for the selling of Grand Vin du Chateau de Vallois and Puiné will provide an additional and easier way for customers to purchase De Vallois luxurious products. Numerous luxurious brands have already entered the global e-commerce market, because it gives an opportunity to attract additional customers, send out newsletters, and activate promotions. Therefore, Chateau de Vallois should take the risk of disregarding the traditionalist way of thinking, such as the Friedman Doctrine approach. In order to expand the business and increase its profits – Chateau de Vallois should break out form the old rules of operating and develop new business strategies. It is the time for Chateau de Vallois to modernize while continuing the production of its luxurious wines along with affordable wines.

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Sources Hill, C. W., & Hult, G. T. (2016). Global business today. New York, NY: McGraw-Hill Education. McGraw-Hill Casebook: Preserve the Luxury of Extend the Brand?, Harvard Business Publishing Teague, L. (2015, November 05). How Millennials Are Changing Wine. Retrieved May 30, 2017, from https://www.wsj.com/articles/how-millennials-are-changing-wine-1446748945

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