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To: Mike Roberts From: Brad Lau Date: 13, May 2008 Subject: A recommendation for Château Margaux Dear Mr Roberts, Château Margaux is a well-known French wine-making company that has established for more than 150 years. It mainly produces two types of wines, one is Château Margaux and the other is Pavillon Rouge. Though these two types of wines had been generating profit for the company, it is facing some challenges and improvements are needed. In this report, the problems faced by the company will be first discussed followed by some recommendations.
Among all the problems, competition from New World producers is the first one. New world producers mean the countries from Australia, South Africa and California. With better marketing, lower costs, modern production techniques and increasingly good quality, New World wines become great competitors of the company and it led to France’s share of the U.S. imported wine market fell 12 % in ten-year time.
The second problem is the change in tastes of wines. Lately, there is a trend that people prefer tannic taste and they like the wine with heavier and darker colour. This contradicts with the company as
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their wine is more balanced and elegant. By following the trend, more people will consume New World wines as their wines are more tannic.
Last but not least, the company did not have its own distribution system. As it had little knowledge on its customer base, they did not really know who their customers were. Consequently, they could not make appropriate marketing strategies as they do not know their target customers exactly.
Thanks to these problems, the market share of imported French wine in other countries has dropped dramatically. Plus, there was an anti-French movement in the United States and people are opposed to French products, including wine. As a result, this anti-French trend make situation of French wine even worse. To tackle the
aforementioned problems and gain back market share, the company should expand in new markets and grab more loyal consumers for the wine. China market is one of them and the following analysis will show why China is suitable.
From political aspect, after China’s entry into the WTO in the year 2001, the tariff has been reduced to around 10-14% and in the year 2007, it is even eliminated. With the cancellation of tariff, the retail
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price of the wine can be adjusted. A reasonable price combined with the established brand in customer’s mind, it will favour the company’s entry into China.
From the economical view, the economic environment in China has been booming in the past decades. GDP per capita of the Chinese people is increasing and they have higher purchasing power. As a result, they will be demanding for more luxury goods like wine. Therefore, high-income group in China is the target of the company.
Furthermore, social and cultural environment has to be considered as well. After the adoption of the Open Door Policy, Chinese people have increased the contact with foreigners through different social activities. Serving customers with expensive brand of wine can be treated as a mean to represent their high social status. Therefore, they will demand high-end wine, like Château Margaux.
In conclusion, entering China market is one of the best ways for the company to gain back market share in the world. To implement this plan, the company can rely exclusively on merchants in China that are experienced in selling wines. They have established distribution channel and people can only purchase the wine in selective places. This will give the impression to consumers that the wine is high-end and cannot be easily bought. It is hoped that by this measure, the
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company can gain back its market share in the long term without tarnishing its image. Yours sincerely, Brad Lau