Chteau Valmont, France, has been producing an exclusive wine for over 200 years. Claire, the granddaughter of the owner, freshly graduated with an MBA, has a new idea to make the company grow: launch a more affordable wine under a new brand. Claire explains her idea as simply as possible. In her opinion, younger wine enthusiasts are priced out of high-end French wines. And although she knows that Valmont has been steadily profitable since the 1980s, she worries about what might happen if the estate allows less-expensive, lower-quality wine makers, particularly those from outside the traditional wine-making regions of Europe, to capture and retain the next generation of customers. She wants Valmont to enter the affordable luxury market, selling directly to customers, as some of the other top traditional Bordeaux estates have done. Current situation Currently all the wines are labelled with Chteau Valmont, which is the place where the wine is produced. The essential ingredient has always been there: a terroir with the ideal soil and microclimate, which, according to the French, determines a wines character. In a ranking of Bordeaux wine estates that recognizes their long-term track record in quality and reputation, Valmont had in 1855 been classified as a Premier grand cru class (First Growth), which allowed the estate to command top prices for its wines. Today, it sells about 150,000 bottles each year of its Grand Vin du Chteau Valmont, a combination of carefully selected cabernet sauvignon, merlot, petit verdot, and cabernet franc grapes. The estate uses the best of the remaining grapes to produce a second wine, the Puin, averaging 200,000 bottles per year. The rest are sold to other estates on condition that their origin would not be revealed. The distribution system is very traditional and cannot be changed: the still-maturing wine is sold to specialist merchants called ngociants under a centuries-old arrangement designed to let noblemen stay out of the business of commerce. The ngociants buy the wine a year before bottling and then sell it to distributors and importers. Visitors are always surprised when told they could not purchase a bottle of wine directly from the chteau. Prices for fine wine fluctuate widely, depending on the quality of the vintage, the reputation of the producers and ngociants, and the expected demand, and they are increasingly influenced by the opinions of expert critics. Chteau Valmont collects between 100 and 450 up front for a bottle of Grand Vin for which a U.S. customer, for example, might pay $999 now for delivery in a years time. Some of Gaspards fellow grand cru class owners complain about the ngociants margins. Assessment Brief Academic Year 2020-2021 Page | 2 Claires Proposal I propose that we introduce a branded wine at a price level of about 20 to 25 a bottle. Our first wine is way beyond what most people can afford, particularly the older vintages even a bottle of the 2000 sells for about 1,000. And our second wine, at 100, is still too expensive for the average person, particularly younger people, to buy regularly. I know this would work only if we produce at least one million bottles, so wed have to buy grapes. If youre uncomfortable with that, we could buy more land instead and grow them. We cant claim a Chteau Valmont origin on this wines label, but with Bordeaux grapes or land, we could at least state Bordeaux origin. OK, good land here is expensive, but we could also buy overseas, like some of our competitors. Why not make a branded wine with California grapes and a label mentioning that our team is in charge of it? Why shouldnt we capitalize on our brand, and if we can make such great wine here, why not make a wine for younger people somewhere else. Second, we need our own distribution channel. We do in fact know many of our customers, particularly the specialized importers, from their chteau visits. For others we could set up our website to allow them to order directly. Many are already asking for this Of course, we will need to buy grapes from other suppliers and to create a brand. This brand is easy to use, as the quality of the wine can be even from year to year and doesnt depend any longer on the weather. Grapes can be bought everywhere in the world. We can even buy land in another country like California or Argentina for this new wine. Third, I know how we all feel about even the best New World wines not aging well, too heavy, too fruity. But we can learn a lot from those producers in terms of marketing. They run great advertising campaigns and do market research, which means they can adapt quickly to changing tastes by changing the flavors they offer. Im not suggesting that we meddle with our first wine, but with a branded wine we could be much more flexible, and that would give us a chance to attract younger consumers, get ahead of drinking trends, and make sure that when theyre ready for more expensive wines, they come to us. Suggested Process A. Preparation Carefully read through, and internalise the facts of the case. You are strongly advised to carry out your own independent research into Chteau Valmont (a real vineyard), the industry, competitors, and evolving consumer tastes. Think through, and outline, the key elements of the strategic dilemma: What strategic objective(s) is Claire trying to achieve? Are there any inherent tensions / conflicts amongst these objectives? What challenges and opportunities is Chteau Valmont now facing, and likely to in future? What are their key strengths and weaknesses vis a vis these challenges and opportunities? Given these strengths and weaknesses, what alternative strategies could Chteau Valmont follow in order to achieve their strategic objectives? What are the risks / must-happens in order for each of these strategies to succeed? What criteria should Claire use to select the recommended strategy?

1. Evaluate the status quo at the outset of the case. After due evaluation of the external and internal environment, identify the threats to and opportunities for Chteau Valmonts business. 2. What market segment(s) is(are) being targeted by the proposed new product? Articulate a clear and compelling Value Proposition (Value(s) + Differentiation + Substantiation) for each.