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The Organization
Herbert Hall is a producer of English sparkling wine and is considered as one of the best up and coming wine producers in the world. The company has won numerous international awards for the quality of its products and has expanded into various markets within the UK and Western Europe. Through its Marden Vineyard in Kent and its Herbert Hall Winery and Vineyard which is located close by, the company can produce several hundred bottles of sparkling wine per year.
The Product
English Sparkling Wine is considered as a “young” product in the international wine scene since production has only started within the past two decades with relatively few brands in the market. The taste is similar to champagne, and it tends to compete in the same consumer markets in Europe with its only advantage often being its price (which is sometimes lower). Presently, the UK produces 3 million bottles of sparkling wine per year as compared to its Western European counterparts that make more than 300 million bottles, mostly champagne, within the same timeframe.
The obvious issue that English sparkling wine producers in the UK have is that they are competing in saturated markets (the United States and Western Europe) where they lack the same product and brand familiarity that many brands originating from countries like France enjoy. As such, despite numerous wine tasting competitions showing the superiority of English sparkling wine to its European counterparts, the product is simply up against competitors that are too entrenched.
What is needed is for English sparkling wine brands like Herbert Hall to expand into new markets that have lower levels of brand awareness and product saturation when it comes to mid to high-end luxury wine products. By doing so, this would enable the product to penetrate a market that does not have preconceived notions regarding the superiority of champagne or that France, Italy and Spain should be the only source of luxury wine.
Analysis of the Market
a.) Political Climate
The political climate within China is conducive towards future market penetration by foreign brands. While it is true that China has developed some reservations when it comes to interactions with western states, particularly the U.S., it has had fairly cordial relations with the UK. As such, it is likely that any UK based company that seeks to do business with China will receive a warm reception. [“Write my essay for me?” Get help here.]
However, before market penetration, companies should take note of the property bubble within the country which could lead to significant domestic turmoil should it “pop.” Given the sheer amount of control that the central government has over China’s economy, this potential danger is unlikely to happen but is still a significant concern.
b.) Economic
The biggest problem for many companies attempting to penetrate the market in China is the potential for their products to be surreptitiously copied by local manufacturers and sold at a much lower price due to the lower cost of labor. While corporations in western countries can often use intellectual property laws to prevent such an action from occurring, China has, unfortunately, a very lax perspective on IP (Wang, Sun, & Song, 2011).
As a result, companies often have to contend directly with blatant forgeries in the market which have almost the same quality as their products. However, there are some products that can be considered as being somewhat “immune” to this problem. For example, to produce sparkling wine you would need the right soil conditions, the necessary grape vines, and experts who know how to tend to these vines to make them viable.
All of these factors cannot be easily replicated given the difference in soil composition and weather conditions. While local Chinese companies could easily replicate the bottles, they cannot imitate the taste and flavor of an authentic bottle of sparkling wine. This gives English sparkling wine producers a distinct advantage over any would-be imitators within the Chinese market.
c.) Financial
Many of China’s banks are state-owned and heavily invested in the local real estate market. Unfortunately, given the potential bubble status it has, this exposes the local banking sector to a substantial amount of risk in the long term. Companies that wish to penetrate into the Chinese market need to understand that taking out loans from local banks may not be the best solution when it comes to financing any of its operations. As such, it is recommended that they use the banks only for their esquire services.[Need an essay writing service? Find help here.]
d.) Legal
As mentioned earlier, copyright violations are a constant concern when foreign companies operate within China. The lack of sufficient enforcement makes many companies wary of expanding into China since they may operate successfully in the short term but find that long term operations are not viable due to the presence of multiple copycats. Aside from filing complaints with the local government, there are few avenues of approach that small to medium sized companies can take.
e.) Cultural: Unfamiliarity of the Chinese with Traditional Wine Types and Products
The phrase “luxury for the sake of luxury” is an apt way to describe the current situation surrounding the high-end food market within China. Due to the unfamiliarity of the newly rich in China to the concept of luxury consumables, their product preferences are often based on conjecture and marketing hype rather than a product having a high value due to the rarity of its ingredients or the careful measures that went into its creation (Schroeder, Borgerson, & Zhiyan, 2014). One of the best examples of this concept in action can be seen in the marketing tactic utilized by the Pabst Brewing Company when it marketed its product the “Pabst Blue Ribbon 1844” as a high-end luxury drink and sold it for $44 a bottle.
While the company asserts that the contents of the bottle is distinctly different from its widely known beer products, investigations by various consumer groups reveal that the production process is roughly the same with no unique methods or ingredients to justify the price. Despite this, the product has sold well in China due to its branding as a “luxury” Western beverage. Chen and Kim (2013) clarified this odd consumer behavior by explaining that there is a certain “naïveté” to present day China’s upper class. This was due to a combination of the unprecedented growth of China’s economy within the past two decades and the association that many Chinese consumers had, before this economic boom period, that many western products were inherently luxurious (Chen & Kim 2013). [Click Essay Writer to order your essay]
Contributing to these factors is the general unfamiliarity of many Chinese consumers when it comes to classical Western associations of luxury such as not knowing particular types of champagne brands (ex: Dom Pérignon which is worth, roughly, $2,000 a bottle) and the locations where the best luxury drink products are produced (ex: France). Despite this, it can be argued that Chinese consumers would “know better,” so to speak, after tasting these products and determining that they lack the necessary flavor and richness that is attached to many luxury products.
However, as explained by Siu, Kwan, and Zeng (2016), luxury for the sake of luxury is an endemic aspect of the high-end Chinese market to such an extent that the inherent taste of a high-end product often does not matter; rather, it is the facade of luxury and how it shows off a person’s affluence that often influences their purchasing decisions. This helps to explain why, despite the inferior quality of Pabst Blue Ribbon 1844, it is still considered part of the mid to high-end of the spectrum for drinks in China (Siu, Kwan, & Zeng 2016).
Strategy that the Organization Should Adopt
Herbert Hall should not implement the same strategy that Pabst Blue Ribbon (PBR) implemented in China where they entered into a licensing contract with a company to produce their products within the country. While this may work with a product like beer, it is a process that is not replicable with English sparkling wine. The most efficient solution would be to export the product from the UK and into China and sell it via a local retailer. Before such activities, Herbert Hall needs to take into account the information that has been presented in this report so far when it comes to the demand for Western luxury goods in China and the general unfamiliarity of the Chinese to foreign luxury wines.
The Chinese market could act as a means for English sparkling wine to rebrand itself into a luxury wine that would have the same fame as champagne does in Western Europe and the U.S. This rebranding effort would present English Sparkling Wine and the Herbert Hall brand as one of the epitomes of expensive drinks from the west. The marketing campaign would offer the product as being high-quality, somewhat rare, a product for the elite and a much sought after item in Western markets. The focus would be on exclusivity, luxury and how the brand is something that people with discerning palates would enjoy. [“Write my essay for me?” Get help here.]
Lastly, the marketing initiative would show that English sparkling wine is primarily used as a drink for celebrations and other fortuitous events. Given the sheer amount of possible dates that this can encompass within a single fiscal year within China, it is likely that there will be a constant demand for the product. To accomplish this initiative, it would be necessary for brands like Herbert Hall to contact luxury item importers within China due to their greater familiarity with the present day market within the country.
After this is done, the company should spend money on endorsement deals with local Chinese celebrities to help the product gain fame through association. Lastly, the target market should be in mainland China and not Hong Kong since consumers within Hong Kong are more entrenched in their buying behavior when it comes to European products compared to their mainland counterparts.
Entry Mode
Herbert Hall should utilize an exporting strategy for penetrating the Chinese market with English sparkling wine. While this does add a significant cost to the product given the necessary precautions when it comes to shipping a fragile product like wine, it does have the benefit of maintaining the quality of the product sold. The taste of English sparkling wine is a result of the local conditions inherent in certain locations within the UK like Kent.
The soil must have the right chemical composition and the vines used for the grapes need to be of a particular type for this kind of wine to be produced. This prevents localized production within China since attempting to do so is likely to produce an inferior product that tastes nothing like the original. Maintaining product quality is important in this case since the company needs to appeal not only to the desire for luxury by upper-class Chinese customers but also to their sense of taste. [Need an essay writing service? Find help here.]
This would set English sparkling wine apart from brands like Pabst Blue Ribbon since it would have the accompanying taste and quality to back up the price of the product. It should be noted that different luxury items being exported to China are increasingly being subjected to high levels of taxation and tariffs due to the desire of the Chinese government to promote locally produced products. While this can be countered by Herbert Hall by just increasing the price of the wine to make up for the higher taxes, it does present an issue that should be taken into consideration. Given the increasingly contentious relationship that China has with Western governments, new taxes are likely to be implemented in the future which could affect the future viability of the Chinese market.
Factors to Consider
There are other factors also to consider once Herbert Hall decides to expand into China:
a.) Possibility of Copyright Infringement
It is likely that many imitator products could appear within the Chinese market with the same branding concept. While it is unlikely that the quality of the product would be the same, there is the potential for some consumers to be fooled (Wanhsiu Sunny, Qinghua, & Yu 2013). The company would need to develop a strategy to potentially counter these imitators to prevent people from thinking that Herbert Hall is an inferior product due to it being associated with its ill-tasting inferior imitators.
b.) Matching Market Demand
Should the brand gain a considerable following within China, Herbert Hall would need to consider how it would approach future sales. Increased demand would require the company to produce more bottles; however, grape vines need a considerable amount of time to mature and produce quality wine. The company would need to consider investing in more land early on should its venture into the Chinese market prove to be successful.
c.) Developing Partnerships with other Foreign Companies
Due to the size of the Chinese market, there are numerous other foreign companies within China that are attempting to profit over the sheer number of consumers. One potential strategy that Herbert Hall could pursue is partnering with foreign retailers like Wal-Mart. Ironically, Wal-Mart is actually considered one of the more high-end retailers within China and, as such, many luxury food product purchases can be made within its stores. Herbert Hall could approach Wal-Mart and arrange to have its products sold in the store using the standard retailer contracts. This has the advantage of allowing Herbert Hall to associate with a company that has a more recognizable business culture.
Conclusion
In summary, this report has shown the various strategies that English sparkling wine brand, Herbert Hall, can utilize to penetrate the mid to high-end luxury food product market within China. Considering the level of saturation that is present in Western Europe and the United States, expanding into China which has a high demand for Western luxury goods seems to be the best option for the brand to continue to grow and thrive.
References
Chen, S, & Lamberti, L 2015, ‘Entering the dragon’s nest: exploring Chinese upper-class consumers’ perception of luxury’, Qualitative Market Research: An International Journal, vol. 18, no. 1, pp. 4-29
Chen, J, & Kim, S 2013, ‘A Comparison of Chinese Consumers’ Intentions to Purchase Luxury Fashion Brands for Self-Use and for Gifts’, Journal Of International Consumer Marketing, vol. 25, no. 1, pp. 29-44
Schroeder, J, Borgerson, J, & Zhiyan, W 2014, ‘A Brand Culture Approach to Brand Literacy: Consumer Co-creation and Emerging Chinese Luxury Brands’, Advances In Consumer Research, vol.42, pp. 366-370
Siu, N, Kwan, H, & Zeng, C 2016, ‘The role of brand equity and face saving in Chinese luxury consumption’, Journal Of Consumer Marketing, vol. 33, no. 4, pp. 245-256
Wang, Y, Sun, S, & Song, Y 2011, ‘Chinese Luxury Consumers: Motivation, Attitude and Behavior’, Journal Of Promotion Management, vol. 17, no. 3, pp. 345-359
Wanhsiu Sunny, T, Qinghua, Y, & Yu, L 2013, ‘Young Chinese Consumers’ Snob and Bandwagon Luxury Consumption Preferences’, Journal Of International Consumer Marketing, vol. 25, no. 5, pp. 290-304
