HBR Case Study_ Preserve the Luxury or Extend the Brand

1. HBR Case Study
PRESERVE THE 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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

3. People
•75-year-old owner of
Château de 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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

4. Brands
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Preserve the Luxury or 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
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Preserve the 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
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Preserve the Luxury or 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
 Vallois to 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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

8. François’
Argument
 Not enough grapes 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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

9. Claire’s
Counter
Argument
 We could buy 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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

10. BUT!
 Francois: “We might 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.”
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

11. ANALYSIS…
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Preserve the Luxury or 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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

13. Judging the new Market
 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
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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 can be)
•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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

15. Cost
Investment(distribution channel, marketing,
resource expansion)
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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

16. Indian Example
 OLD MONK- 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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

17. Recommendation
 As attractive the 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
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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
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Preserve the Luxury or Extend the Brand?Shivam Verma || IIT Delhi

19. THANK YOU !
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ENDShivam Verma || IIT Delhi

20. Disclaimer
Created by Shivam Verma, IIT Delhi, during an internship with Prof. Sameer
Mathur,
IIM Lucknow,www.IIMInternship.com ”
Shivam Verma || IIT Delhi
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