Action Plan

For the sake of coherence with our own approaches and decisions, we will restrain our action to Asia in general and more specifically to China. According to our strategical axes, our main goal for China should be to increase our market share on the high end segment.

On the one hand, French wines represents 33.7% in volume and 43.3% in value of total imported wine. Moreover, survey shows that Chinese wines, accounting for over 80 percent of consumed volumes for a decade, are now losing ground. When young and well-educated middle-class becomes the major wine buying power in China, many Chinese wines are found increasingly hard to compete with valuable imported bottles.

On the other hand, China is a relatively new market where wine consumption still lays well below its maturity level. In other words, we estimate that the growth potential of this market is very high and that opportunities could be seized in order to ensure a sustainable stake in terms of value.

For that purpose we will follow the marketing mix process of the 4Ps (Product, Price, Place, Promotion).

P1: Product

A product, adapted to wishes of customers:

A special attention must be given to the wines sold in China in order to match their culture and thus be as efficient in sales as possible.

First of all, our strategy is to be leader on the Chinese high quality segment. Our products must thus be of the finest quality, and match the proposition. Chinese people will not appreciate at all a misleading in the advices given when buying their wine. Given their temper of buying only one time a product, there is no chance to make them buy regularly if they are disappointed.

In the different point of sales an arbitration will have to be made between the quality and the diversity of the offer. A broad offer will be appreciated but the high quality feature of shops will not be trusted if the offer is too broad.

For a complete offer, it is important to present also the different great names of French wines (Chateau Margaux, Chateau Cheval Blanc, etc.) as the image seekers we are targeting there only know superficially the subject.

The Chinese consumers take great care to the design and appearance of the bottle or the box. The gift culture is very present there and a nice design allows the consumer to identify himself and his personality to the bottle. The gift will thus be more accurate.

A very competent after sale services will be extremely appreciated as this mentality of post-purchase consumer support is not present in the Chinese trade culture. Everything for them should be made before signing the contract, whence the importance of the personal relationship between the signatories and the gift culture, but not afterwards. This can for example be a good warranty on the product (they can return it and it will be change if the wine is altered or perished). This kind of warranty costs a lot, specifically n our high quality and expensive wine segment, and should thus be included in the price of the bottle to avoid bad surprises.

P2: Pricing

Pricing strategy, thanks to a cost analysis:

Second is the price. In France we can find good wine from any prices, but it usually costs more than 10 euros. In this part, we are going to study the financial facts of our marketing plan. This is fixed and variable costs linked with importations and distribution in China. Once we have a production of bottle of wine to export, there are many costs to look at and these are operational costs.We are first going to see the costs of production of one bottle and then the costs of exportations.

For a harvest in 2011, the average cost were:

€20,645 of charges for a hectare (€469 per hectoliter produced)

€205 of winemaking expenses per hectoliter produced

€0.88/bottle for covering

€2.23/bottle sold of commercialization expenses

With the margin and taxes we may say that average price of the average bottle is at least €10 for a high quality wine bottle. Let’s move on to the other costs.

Transportation costs are very difficult to estimate but it takes into account the amortization of infrastructure (boats, trucks…), human costs and oil and finally management costs. It is usually around 10% of the selling price. According to World Bank, the estimation of the exportation costs of a container of 20 feet is $1335; it remained stable the past years. Each container could contain around 5,500 bottles of wine.($.25 per bottle only for the fees associated with the exports, for example documentation, administrative expenses).

About the taxes in China, there are customs duties and the rate is of 14% for bottle of wine and 10% for bulk wine. The tax on consumption if of 10% and finally the VAT is 17% on wine. For wine bottles, these taxes added represent already nearly 50% of the bottle (46,7%).

For our bottle that cost us €8,17 to produce, if we add the transport costs (and around them to 10%) and taxes, the price goes up by 61.4%. If we count only this costs, our €10 bottle of wine in France would cost €16,14 in China.

Since we have chosen to export only wine of good quality, the wine must cost at the very least €15.

P3: Place

Place in the market:

As for the channels, we have direct retailers (15%), off-trade (17,8%), and on-trade (66,9%). The two channels traditionally used for distribution are retail and cattering services (hotel, restaurant more precisely on-trade services). The distribution channels tend to mark-up wine by 100 to 200% and the Horeca 250 to 300%.

Basically we have multiple distribution channels and the majority is indirect. As we target enthusiasts and image seekers, we believe that we should sell more by direct retailers and Horeca rather than off-trade. In fact, a person that would care about their image or enjoy good wine wouldn’t think of buying their wine in a supermarket.

According to a KPMG report on e-commerce in China, “No matter how you slice the numbers, trends or forecasts, it is clear that e-commerce is booming in China”. More precisely, in 2020 Chinese e-commerce transaction are forecast to USD 540 billion; more than those of the US, Britain, Germany, Japan, and France combined. Therefore we want the wine market to be ready for the change.

One of the first reasons for a Chinese to go online is the price. As we have seen before, the price of wine in on-trade and off-trade is at least double (100 to 300% more) for mark-up. Therefore selling online will allow our customer to buy 2 bottles for the price of one.

The first step of selling wine online will be to subscribe to Tmall. China’s e-commerce system is lead by Tmall, which is a website on which retailers can put their product and clients can buy them. It represents 50% of all B2C commerce in China.

According to Bain, to be successful in this market, there are 4 main factors that can contribute. The first one is to build scale for the price sensitive, with wine we plan to have many categories from €15 to the highest which represents many different wines. Secondly we need to streamline the assortment and price in order to have a differentiated portfolio, we plan to do that in promoting our authenticity and quality values and to keep our position in luxury. Thirdly we need to hone a profitable business model and finally create a strong supply chain, since the supply chain is already there, we just need to reinforce e-commerce.

P4: Promotion

Conclusion

Promotion through communication and advertisement:

To create and implement a strategy in communication, an important step is to know the Chinese culture and way of thinking. This process is primordial in order to succeed in communication and advertisement. Indeed, the Chinese way of thinking is very different from western mentalities.

First of all for a bottle at 20€ in China, the customer have to pay around 150 Yuans. If we estimate that a customer spend 3 to 5% of his montly salary on wines, we are targetting people with a salary of more than 5.000 Yuan per month. The median salary being 473 Yuan, it is important to realise that we are thus targetting the few richest of China. We should addapt to their needs and expectations.

Chinese people are culturally not very creative. This is an important point to take into account when advertising in China. This is explained by their way to think and learn at school. Indeed, since their early age they are urged to learn mainly by heart due to the complexity of the language and the need to learn every character. Thus they have more of a mechanical than a creative mind. A recommendation is to outsource the communication to a local agency.

A behavioural feature is the one-shot buy. They like to test a lot of products. It is thus very difficult to create loyalty among Chinese customers. This is a real challenge for producers.

If a producer creates a brick and mortar shop, it is very important that the seller is dressed like a sommelier. This is a general feature of consumers, but it is also very coherent with our strategy to focus on image seekers. Those who want a wine with a good image will surely appreciate a wine shop with a nice traditional design. The government can also help by diverse means French sommeliers who would go work in China. An interesting proposition would be for the French government to invest in an agency based on the model of Business France or of the Belgian’s AWEX, Agence Wallonne à l'Exportation et aux Investissements. This state agency’s mission would be focus on developing the image of high quality French wines in China. They would organise among others conferences with world renowed wine-experts-speakers, they would interviene in every wine fair, interviene in sommelier school as CAFA China or Wild Tea Qi and why not even create a “French School of Sommeliers” there.

When they need to sign a contract for instance, the affect in interpersonal interactions is much more important than in Western world, where results are primordial. This is why there should be as much interactions as possible with the customer.

One of the main feature of the Chinese market is the importance of the mobile phone use. There are 618 million of mobile users. Advertisement on mobile were in 2015 of $67.5 billion. The growth in the digital communication campaign is of 50%, whereas the drop in the classical ad distributor television and newspapers are respectively -2.79% and -9.17%.

It is very important to communicate to exist on the internet and try a means to differentiate from the competition.

Chinese people buy a lot on the internet and are used to compare specifics of products. A great amount and relevant information will be highly appreciated.

They also enjoy watching TV-shows. Product placements works very well there. For instance, a genius advertisement campaign has been made by Chateau Margaux during the miss China and universe TV-show election. They sponsored a whole segment of the emission during which 32 of the prettiest Chinese girls learned how to taste wine. There also are local specialists that have become real stars in the wine world who can be solicited. For instance, Jeannie Cho Lee MW.

Although the written press is declining and in addition to online communication it will be interesting to publish in specialised magazines such as Decanter China (醇鉴中国), the China Wine & Spirits Awards magazine (CWSA). But also furnish airlines that fly between Europe and China with special wine magazines to be given to the high-end travellers, to the First and Business Class.

Conclusion, concrete recommendations for the French government

To conclude this marketing mix analysis of the Chinese market and behavioural environment on a very concrete touch, here are few tips deducted from this part.

Even if we have made a very precise analysis of the Chinese market, local agencies will know more on the habits of the Chinese population. Therefore, a recommandation would be to use a local agency to promote French wine, so that they can target the different types of population and sell the right wine.

The goal is for everyone to have access to information on the wine. Therefore, QR code for each type of wine would be great to give every kind of information, for instance where it was produced, what kind of grape varieties the wine contains, a story telling that would be highly appreciated (just as Vivino, Tagdevin, or Winicode).

Partnerships with specialised blogs and online press should be implemented to have publicity and be well known on the Internet. Another essential tip in the same area is to be well referenced on Baidu (the Chinese “Google”). With lots of references, French wines will frequently appeared and therefore well-known.

Celebrities and key influencers can help make certain types of wine famous and drive. Create the buzz should be an objective, so the idea is to use viral videos with or without celebrities to have exposure.

Another technique is to use marketing events. The only difficulty here is to target the right place and the right moment. At a wine-selling commercial fair in September is an example of it. The covering of the bottle is also key since it is the first image that the consumer has. In order to bring up our authenticity value, a covering that looks old and anthentic would suit. In fact, taking into account the wine culture is key.

Once the wine is sold, the consumer can have some recommandations and comments. One has to consider them as gift and have a strong after sale service: if a wine is corked, one has to take it back and replace it.

In terms of cost, the broad majority of the price is costs. There isn’t much to do about it since China is far, exportation costs are high; just have to make sure that they are optimized. That means to make sure that the company that operates the transports is the cheapest for the quantity and distance of the exportation.

E-commerce is just at the beginning of its development. Therefore a priority is to focus on it. Since 50% of all sales are made on Tmall; the first thing to enter the online market is to have a flagship store, and then to explain our product; which is shown above, is a key element. On November 11th, there is what is called “Singles day” a day with major sales (60%). The revenue just for this one day was $14 billion in 2014. This would be an opportunity to bring French wine forward since there is million of Chinese online. In one month, there are more single users connected than the whole population of Brazil.

Lowering the price by negociate margins. Entering the e-commerce will create competition in distribution and can lower the margins of the catering institutions and supermarkets. An option is to negociate the margin and have them at least below 150% on average for a start in negotiations.

Again, information is key. Therefore having more specialized shops to inform people, teach them our culture and how is our wine made is a solution. Another solution is to have specialized employees in supermarkets.

A last solution is to send French specialists just as the AWEX is doing. A French ambassador of wine. They would organise among other conferences with the world most renowed wine-experts-speakers, they would also intervene in every wine fair, sommelier schools as the CAFA China or Wild Tea Qi and also create a “French School of Sommeliers” there.

According to the Canadian government, usually a publicity campaign on drinks cost 7,5%. Since the marketing of wine needs to be aggressive, a cost of 8,5% on a marketing campaign seems logical. With the imports of 2013, this would mean a cost of €43 million.

The cost of an agency is calculated on the cost of the whole campaign and in 2006 cost 3,1% which is €1,4 million. American wine producer Robert Mondavi was selling exclusively with Tmall, and he was thrilled with the results. He saw an increase of Chinese visitors in his winery. The cost of having a flagship store on Tmall can be divided into 3.

The first category is the deposit, it is basically a sum that will reimburse the consumer in case the Tmall shop breaks the “Taobao Mall Selling Agreement” (for example if the store sells counterfeit products). The costs are between $8,000 and $25,00 depending on the store format and trademark status.

The second is Tmall’s annual service fee. It is either $5,000 or $10,000 depending on if the store reached the sales target.

The third is a 5%-commission on each transaction.