Chateau Margaux [Case]: Marketing Chateau Margaux

Group D

Maryann Evans
Mona Nakib
Olga Sheyner
Elizabeth Kennedy

Florida Atlantic University

Prof. Gopalkrishnan Iyer

Advance Marketing Management

MAR 6815

October 20, 2015

Problem Statement
 Chateau Margaux (CM) wine has been a premiere Bordeaux wine since the inception
of the Bordeaux region wine classification in 1855. Although the tradition of high quality wine
production has been mostly consistent for over 150 years, Chateau Margaux must evaluate its
existing strategy. The management feels that the company is not doing its outmost best; the
company is missing out on chances to make more revenue. Currently, the wine consumption
levels and competitive forces have the owner, Corrine Mentzelopoulos, and general manager,
Paul Pontallier, considering looking for alternate means of distribution and/or creation of
additional products.

Situation Analysis

Chateau Margaux has been following the long-standing tradition of the Old World wine-
makers; however, the wine industry has changed. The young owner who has inherited the estate
is now faced with the dilemma of continuing with the status quo or considering other alternatives
to the current operations and processes. The wine market has changed because of the New World
wine producers, who have entered the market with drastically different strategies in terms of
wine tastes, process of wine aging, price point, marketing strategies, and means of distribution.
To keep up with the New World wine-makers, some first growths Old World wine-makers have
expanded their product lines using the left over grape and also by outsourcing additional grape
from other wine-makers in the Bordeaux region.
As per the case, the distribution is handled in the traditional manner; it is outsourced to
the Bordeaux wine merchants. The 400 wine merchants have well-established relationships with
the wine buyers. This distribution process establishes the price, based on quality, and scarcity
within a futures trading type of scenario.
The premiere wine market drivers have shifted. As per the case, the United States
presents a 50% of the demand along with Asia. In the past, the UK, Belgium, Netherlands, and
Germany were the main consumers. Mentzelopoulos is considering the loyalty of these
customers and wants to ensure that any actions on CMs part will not alienate the long-standing
relationships. Due to the unknown longevity of this new trend, the wine producers must consider
the time it takes to change the wine. It is unknown when another shift in the current tannic
taste trend could happen. Chateau Margaux has spent 150 years building a high quality,
uniquely elegant and sophisticated wine. Making drastic changes to the operations can pose some
risks. Lastly, the influencers of the wine trend have also changed from the formal wine
connoisseurs to new wine critics who use a less formal approach.

Major Strategic Alternatives

Distributing more directly is the first alternative for CM. This option would entail
eliminating the current distribution channel for something that allows more direct contact with
the customers. Chateau Margeaux would be responsible for selling their wines to everywhere it
is sold. All responsibilities and functions of the wine merchants will fall on the CMs shoulders.
 The second alternative is to utilize the 10% of the grape left over from making the first
and second wines. CM should develop a third wine, as a joint venture, with a well-established
New World wine producer, similar to what CMs first growths competitor, Mounton-Rothschild,
did with Robert Mondavi of California.
The third alternative is to maintain the status quo.

Decision Criteria

Brand Name Loss: CM needs to be careful with its reputed brand name. CM needs to consider
that its brand name and the reputation might become diluted by introducing less expensive
product. By distributing directly, it will be easier to attain the sought-after first and second wines.
If CM decides to maintain the original brand without making any changes, CM needs to ensure
that consumers still feel motivated to pay the higher price. If CM will create a new product with
an affordable brand, CM might attract a different market segment and gain more exposure.
Distributing directly could lower the price, if product becomes easily available.

Merchants Reaction: If CM decides to distribute more directly and less through other
merchants, this might impact the current relationship with the wine merchants. The merchants
have widely practiced a proven system; they are familiar with Chateau Margauxs wine
selections and culture. So would distributing and marketing Chateau Margauxs new product
through the existing merchants be less risky? Also, how will merchants react to the third, cheaper
wine?

Potential Profit Growth: CM should focus on increasing the revenue to increase profits. CM
needs to find out the best possible way to achieve it. CM can decide to sell a product directly to
consumers, extend the line of products, or maintain the status quo. CM needs to analyze which
alternative would provide CM the highest profit margin.

Analysis of the Alternatives

Distributing more directly would mean more time and monetary expenditure for Chateau
Margaux. Although at first glance, this alternative would suggest that eliminating the middle
man would be favorable because of the traditional cost-saving effects of such a choice, this is
not the case for Chateau Margaux. The case directly states that its understandable that
distributors sometimes out earn the owners of Chateau Margaux because they do almost all of
the legwork to promote the brand and make it accessible to consumers. This is part of what
contribute to the brand that is Chateau Margaux. Changing how the brand is distributed may also
affect the brand itself. The opportunity cost of Chateau Margaux taking on the role of the
distributors in an effort to distribute more directly would mean less time being spent on taking
care of the vineyard itself. Chateau Margaux would have to refocus on marketing, doing the
menial tasks like fighting with supermarket owners and wooing potential buyers. This is
possible, but it comes at the cost of having to take time away from their current tasks.This would
certainly affect the relationship that distributors have created with merchants. CM would need to
rebuild these and take the time to forge new relationships. Chateau Margaux as it is does not
participate in marketing, instead the case states that the distribution channel acts as a marketing
tool for the company. Eliminating this would leave Chateau Margeaux to design its own
marketing strategy beyond just the allure of a rare wine. The opportunity is present for CM to
increase its profits if it dedicates the time to developing the exclusive brand image. But to do
this, CM will most likely need the assistance of distributors. The case also mentions that since
the owners of Chateau Margaux are not involved in distribution, they did not know their
consumer. Distributing more directly would allow for the owners to make a true connection with
their consumers, thereby eliminating part of the need for a distributor. However, the convenience
of knowing the customer is not worth replacing the current distribution channel. The second
alternative calls for a third wine produced as a joint venture with a New World wine producer.
The CMs third wine will be on a lower end for CM, but should be on the higher end for the New
World partner (i.e. mass production wine-maker) to make the deal worthwhile for both parties.
This wine should have a different brand name (i.e. a spinoff), with only a mention of brought to
you by the makers of world-famous Chateau Margaux on the label. To inform the consumers of
what CM is, a brief history of the estate should be written on the back part of the label. A
different brand will ensure that the CM brand will maintain its high value. The third wine will be
targeting a different segment of the wine drinkers; it will not be in a competition with the CMs
first and second wines.
The third wine should target adults from 30-60 years old; the New Worlds wine drinkers
who enjoy wine, but who are not wine connoisseurs. This wine should follow the taste that the
targeted consumers expect. The taste change can be achieved by special aging techniques; it
should not be too costly to attain. The advantage of choosing the second alternative is that the
last 10% of the CMs harvest will be sold for a higher profit instead of being sold as a generic
table wine in bulk. Since the third wine cannot be produced in high volume (because it is made
from only the 10% of the harvest), it can be marketed as a special wine - identified as limited
edition. The targeted consumers should pay for the first growths prestige. The CMs third wine
should be a mid-price wine, with a price ranging from $30 to $0 dollars per bottle retail. The
third wine should be available in wine stores and three to four stars restaurants where patrons can
get a food and wine pairing recommendation from the salesperson or the waiter. The third wine
should not become a $5.99 bottle of wine sold at supermarkets. The third wine should be a wine
purchased as a treat for a special occasion. The price point and means of distribution will give
the third wine a prestige status. This wine should be marketed in the Wine Spectator magazine,
which targets mostly the New World wine drinkers. The New World wine-maker partner should
be responsible for the marketing and distribution end of the deal. The partner should have an
established, well-operating marketing machine as well as an established distribution network
to take advantage of the economies of scale.
The disadvantage of picking this alternative is that the low amount of the left over grapes
does not allow for mass production, which is where the big profits are made for the mass-
producers. As per page 3 of the case, the 10% of the harvest should approximately yield 42,555
bottles, if 90% of the harvest equals 383,000 bottles. It might be difficult to find a New World
partner who would be eagerly interested in starting a venture if so little product can be produced.
As per page 5 of the case, CMs first growths competitor, Rothschild, sold 22 million of $10-
bottles in a partnership with a New World mass producer. The Rothschilds wine contains some
of his own harvest and the rest is outsourced from other wine-makers in the Boudreaux region.
As of the date of the case, CM did not have resources or capacities to produce nearly the
quantities Rothschild can.
Moreover, the Brand Name Loss should not happen because the third wine will be sold to
a totally different consumer type who is not looking to spend $828 per bottle (as shown in
Exhibit 3 of the case). There will be no overlap in marketing. The Old World first growths wine
connoisseurs will continue to pay the high price for the first and second wines as long as the
wines meets the consumers expectations and gets high reviews by the critics. Also, CM should
not sell the third wine at the CM estate to avoid tainting the luxurious status of the first and
second wines. The CMs competitor, Mounton-Rothschild, has been able to keep its elite first
and second wine status while mass-producing the third wines with the New World partners. CM
should be able to do the same. As to the Potential Profit Growth, even though the case does not
mention how much CM sold the 10% of left overs to the local restaurants, it must be for less than
the proposed $30-$50 per bottle range. Its unlikely that patrons would pay such a high price for
a generic table wine. They would potentially pay more if they knew that it came from the
prestigious CM. Selling the third wine to a New World partner, who will market the wine as an
Old World luxury should have an economic advantage.
CM could ignore other possible options, as it described, to enter into the cheaper wine
and not miss out any opportunities that others were enjoying and instead, CM can absolutely
focus on the luxurious aspects of their brand, and preserve wine history, quality, and tradition.
By following their old tradition of distribution and production, they can ensure the stability of
their price and the establishment of their brand as a high-end wine producer without the possible
concerns of devaluation of quality. The demand for first growths wines is very strong and
growing. If less expensive products are introduced, CMs brand can be diluted. Chateau
Margauxs brand is one of their strongest assets. The current distribution system works well with
CM since their merchants have the sophisticated and trustworthy system.
Conversely, by maintaining the status quo active, CM will stay out of embracing the
opportunity of entering into the new markets and potential revenue growth.
By doing this, CM will maintain the superiority of their brand without possible concerns of
losing the quality of the products. The traditional methods of production and distribution, which
had elevated the company to a high-end wine industry, will be followed at all time.
The disadvantage of maintaining the status quo is that CM will lose the benefits of
expanding its operations to new markets. They will continuously be dependent on the current
merchants for distribution. They will lose their opportunity for possible growth on to the New
World that others are enjoying. Competitors are seemingly extending their products lines at a
faster pace and becoming strong and competitive. Without an expansion, CMs revenue growth
will remain limited, as it will only depend on the consumers who can only afford such expensive
and luxury products.

Recommended Solution

The recommendation for CM stands that CM should stay the course and not alter their
brand image. By remaining authentic to their brand, CM would be able to preserve their Old
World wine tradition and focus on maintaining the luxury aspects of CM. If CM were to opt for
more direct distribution or choose to enter into another wine category, this would essentially
cheapen the brand. Consumers of luxury goods would be unlikely to be attracted to Chateau
Margaux if it were a wine that could be purchased at any old supermarket. As stated in the case,
part of the allure of Chateau Margaux to the consumer is its rarity and the feeling of exclusivity
that entices in the luxury wine consumer. To offer a discounted version of a luxury brand is
always at a detriment to its status.
Although this would eliminate the possibility of CM entering into different types of
markets that a lower-end brand would allow, it offers the opportunity to develop the luxury name
of Chateau Margaux in the eyes of wine connoisseurs in the new and old worlds. Continuing the
use of the current distribution channel would continue to enhance that image. As implied in the
case, there are many markets of luxury wine consumers worldwide that Chateau Margaux has yet
to tap into. It would be in CMs best interest to maintain their brand image whilst they pursue
these new consumers.