The wine in 2016 (Wine Institute, 2017).
The United states has been the single largest consumer of wine since 2010, consuming over 994 million gallons of wine in 2016 (Wine Institute, 2017). As such it has become the main focus of many wine producers. This paper will critically look at the importance of product strategy within the american wine industry.
Focusing on how product innovation is important to the success of brands, how wine is evaluated by consumers, and what the product actually is. This paper seeks to find that product strategy is reliant on the coordination of price strategy and promotion strategy.The wine market is a fruitful marketplace, valued in 2016 at over US $287.
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39 billion, with the United States, France, Italy and Spain as the largest producers. The driving force for americas high consumption is millennials, millennials are now legally of drinking age and are drinking more than any other generation. According to the Wine Market Council they consumed 159.6 million cases of wine in 2015, that’s 42% of all the wine drunk in the US (O’Donnell, 2016). The wine market is booming but with over one million wine makers globally (Mordor Intelligence, 2017) consumers find choosing a wine complicated. The way a wine is branded and marketed has become synonymous with its quality as a product (Mora, 2016). There are two general brand categories of wine, old world and new world.
Old world wine tends to be european and focuses on romanticising wine and the local identity of where it was produced, it focuses on the geography, climate, geology and even method at which the wine was created, these wines are usually perceived as being more sophisticated and consequently more expensive. By contrast new world wine prefers to focus on the varietals of their wine, how it tastes and how it pairs with specific foods, and are often considered cheaper (Mora, 2016, 5).According to Michael Treacy and Fred Wiersema to be product leaders, companies have to show that they can create a “steady stream of standout products that will keep customers awake with anticipation- products that turn peoples heads and make their hearts beat faster” (1995, 88). The wine industry is an interesting industry to study as some of the most popular and famous wines, the old world wines, are rooted in their traditions. Traditional winemakers produce wine with its own characteristics, it’s often made using ancient traditions and relies on geological or climatic conditions and as such winemakers don’t want to modify any of the natural characteristics of the wine through artificial techniques (Mora, 2016, 18).However as Nadeau and Casselman explain a product has a life cycle similar to organic life (2008, 402) and it is necessary for any successful organization to continue to produce new products to not become extinct. The millenials who are the driving force of the market are adventurous and want to try new things, and of the american millenials who categorize themselves as frequent wine drinkers two-thirds of them are women (O’Donnell, 2016). According to a study on consumer behavior and sensory preference differences, it was found that women strongly prefer white wine because of the fresh fruit taste and aromas (Johan Bruwer, Anthony Saliba, Bernadette Miller,).
As such wine producers should follow in the footsteps of US brand leader Gallo’s Barefoot wine. This new world wine saw profits of US $622 million in 2015, featuring fruity “Crisp White”, “Crisp Red” and “Perfectly Pink” wine, as well as a lower alcohol content to cater to the health-conscious trend (Stone, 2015). Through their understanding of the markets wants they found success in their new product development and what Casselman and Nadeau call “rapid innovation strategy”. By implementing small incremental improvements to their product more frequently and successfully managing the transitions between their 14 different new products, their strategy has had three outcomes.
(Stalk; Billington, Lee, & Tang; Erhun, Concalves, & Hopman, cited in Nadeau and Casselman, 2008, 406 ). Firstly their products come off as new and fresh to consumers, secondly the incremental changes and new products make their product seem sophisticated, and finally their competitors offerings appear obsolete (Nadeau and Casselman, 2008, 406). Modern wine producers like Barefoot are producing low calorie, sweet, fruity, organic wines as a way of adding features to their product to enhance and differentiate it from their competitors (Thompson, Hamilton and Rust, 2005, 431). According to Carpenter et al. “research has shown that added features provide positive differentiation by giving a product perceived advantages over competitive products. Consumers seem to use added features in an instrumental reasoning process that makes the brand with more features appear superior in a choice set ” (Thompson, Hamilton and Rust, 2005, 432). Another thing winemakers have done to adapt to the younger market is to create single serve and ready to drink formats, like juice pouches but for wine.
Finding ways to make wine more accessible for a wider range of occasions and consumers is key (Anderson, 2017). These product innovations have proven successful, however they would be in vain without the coordination of a strong promotion strategy that communicates effectively and efficiently to consumers. In a study exploring what consumers are actually paying for when they buy wine, it was found that consumers are most influenced by the price and brand of a wine (Combris, Lange and Issanchou, 2006). Moreover, an experiment by Johan Almenberg and Anna Dreber tested the effect of price and found that disclosing a high price for a wine produces considerably higher ratings for that wine. Their findings support the notion that price influences consumers expectations which correspondingly shapes a consumer’s experience. (Almenberg, J., & Dreber, A.
, 2011). In 2001, a researcher from Bordeaux named Frederic Brochet explored this point further when he conducted a study asking 57 wine experts to assess two glasses of wine. They were both white wine but one was colored red with food coloring, and yet the experts described the ‘red’ wine as though it were in fact red wine (Bell, 2012). Brochet articulated that “It is a well-known psychological phenomenon – you taste what you are expecting to taste. They were expecting to taste a red wine, and so they did. What we perceive is a mixture of thought, vision and taste.”(Bell, 2012).
Therefore, the quality or variety of the actual wine is nearly inconsequential as its all about the experience that surrounds the product that decides the consumers choice. As wine is an experiential product the product strategy is highly dependent on a strong promotion strategy, that differentiates one product from its competitors, and a tactical price strategy. Consumers have learned through experience that price is an accurate predictor of quality (Lichtenstein and Burton, 1989, 431), and will therefore believe they are choosing a wine of a higher quality, which as the above study demonstrates may not necessarily be true but the consumer won’t be able to tell.
Additionally winemakers know about the correlation of price and perceived value and set prices that have nothing to do with production costs (Mora, 2016, 4). That isn’t to say that the product strategy in the wine industry doesn’t exist but rather it works in conjunction with the other strategies and it broadens the horizons of what the product wine producers are actually providing the consumers is.The way a wine tastes may not actually make a difference but the way it is presented to consumers does, especially when trying to engage younger millennials. Eye catching, shelf standout, brand design, that causes an emotional response is most important (Anderson, 2017). The expectation set by good branding can “influence and sometimes supersede physical consumption” (Boulding et al. ; Kopalle & Lehmann; Nevid; Wansink&Chandon cited in Ariely and Norton, 2009, 478), if a consumer is convinced that a wine will provide a good experience prior to using it, expectation is a powerful enough force that it can influence not only their perception but it could even influence external events (Boulding et al.; Braun; Kopalle & Lehmann; Nevid; Wansink&Chandon cited in Ariely and Norton, 2009, 479). The effect of eye catching design is to create an emotional experience or feeling; consumers have moved past consuming products as functional products, they now consume products as concepts.
The meaning or emotions felt or communicated to others is more important than the actual consumption (Ariely and Norton, 2009). This experience or feeling that a consumer has with a wine is the actual product. The goal of wine branding is then to create a brand that evokes a feeling that the consumer desires. Most popular wines have the intention to make American buyers feel classy, sophisticated and European (Smith, 2017). Apothic Red for example, sports a luxe red and black minimalist label, the brand’s name is inspired by “Apotheca” where wine was blended in 13th century Europe, however the wine itself is actually produced in california (Smith, 2017).
Marques De Riscal a spanish wine and Casilllero Del Diable a chilean wine both employ a powerful wine marketing term: Reserva. In spain reserva means a wine was aged for a minimum of three years, however in the US the word has no legal definition, so it is used to manipulate american consumers into associating it with a greater level of Old World care, craftsmanship and class (Smith, 2017).Consumers aren’t buying products anymore, they’re buying meanings, and feelings. Product innovation is important, creating a good product and then meeting consumers wants is necessary, but as we learnt from the above studies wine consumers can’t tell the difference between wines, they buy wine based on it’s price, its labelling and the meaning created by the brand.
The Barefoot wine brand may have found success through new product development strategies, but brands selling Prosecco, which only has three varietals have seen enormous success without the need of innovativeness. Prosecco consumption is set to grow by 13.3%, by 2020 (Douglas, 2017), product innovation has not been the key to their success but rather their reasonable prices when compared to other sparkling wines, on average a bottle costs $12 (Douglas, 2017).
In a marketing strategy for the wine industry, product strategy is an important element; however, for it to be important it relies on a strong marketing strategy of promotion and price strategy.