(This was published in 99, and should be read as such. At the time,I was full of admiration for the achievements of the Australian wine industry.
Reading the paper again now, I am aware of how irresistible the forces of commoditisation are in our market. Most of the brands mentioned have struggled to retain equity. I must also admit that my attitudes to AOC have changed: I now see the INAO as an unnecessary evil.)
In the same way that light is refracted through a prism into its constituent colours, certain product classes divide spontaneously into their brands. So complete is this segmentation for products like cars, soft drinks and perfumes that our entire knowledge of the categories is almost entirely mediated by brand familiarity.
On the face of it, the wine market lacks such decisive brands. “Ernest and Julio Gallo” and “le Piat d’Or are the categories two most popular brands, yet with less than 2% market share neither has any claim on sector dominance. These statistics offer something of a puzzle. Outwardly the wine market seems disposed to branding - consumption is growing year on year, and drinkers are familiar with the notion of a highly differentiated product – so why is it that individual brands show such a disappointing lack of penetration?
Branding begins with the realisation that what people buy are not products, but ideas of quality associated with products. These ideas and associations far from being imaginary must be anchored to the brand. The cycle of consumption means that customers have the chance to measure the brand against the projected ideal, and a brand position based upon far-fetched claims will be unsustainable. In order to count, these associations must be relevant. If the differences between brands do not make any difference to consumers, then price will provide the only reason to buy. Once established, such commodity style markets are characterised by low margins and cut-throat price competition.
At first sight, grape varieties and appellations provide a huge reservoir of available associations that can be tapped to create meaningful points of difference. Thus the Australians took up the batten of varietal labelling and effectively made “Shiraz”, “Cabernet” and Chardonnay their own. Just how successful this appropriation has been is illustrated by a story I heard last year. An Australian winemaker working in Europe was approached by a well-known singer to plant his Algarve estate with vines. “Sure”, the winemaker agreed, “And what should I plant?” “Some of those Australian grapes,” the singer replied.
Although labelling by variety is now common in Europe, the continent's strongest associations are still with geographical origins. Consider Burgundy: awareness is high from centuries of exposure, and the litigiousness of the INAO successfully protects the appellation nomenclature form imitation. . Moreover, the complicated dissection of the region into Crus has provided an enduring qualitative message. But just as the VW Golf tag-line “2846 improvements” doesn’t have prospective buyers reaching for the Haynes Car Manual, so Meursault drinkers don’t need to memorise the villages of the Cote d’Or to embrace Burgundian modishness. It is perceived quality associations that drive brands and seduce consumers; complicated facts are liable to leave them cold.
Burgundy provides the price ceiling to the wine market’s vertical stretch; at its base are the value brands, and these too have come synonymous with certain countries and regions. Bulgaria has been a reliable source of entry point and value wines over the past 10-15 years. Before the iron-curtain fell, subsidised sales provided valuable foreign exchange, but with the subsidies gone the domestic wine industry has been forced to consider other ways through which it can become self-financing. Raising quality in the hope that margins and prices follow suit is an attractive option that seems to have a precedent. Australia’s entry into the table wine market coincided with Bulgaria’s, and twenty years on, their profitability and premium image contrasts sharply with the latter’s value positioning. So, if Bulgaria follows Australia’s lead, will acceptance and profitability follow?
From a marketing perspective I think that in the short to medium-term the answer to this question is “no”. The reasons for my negativity are varied, but spring principally from the fact that delimited origins far from being an arbitrary source of association serve as a compulsory form of branding. As such, each delimited country and region has a value proposition, - a quality perception amongst consumers –that is fairly inelastic to real changes in quality.
Awareness provides a strong argument for the claim that countries and regions act as quasi-brands. The point was made above that product classes like cars divide almost hermetically into brands. Ask drivers to identify quality and value in the car market and they are likely to respond with brand names such as BMW, Mercedes, Ford and Nissan. Put similar questions to wine drinkers and you will be lucky to get a couple of brands, a few grape varieties and a short list of countries and regions. The fact that only a few brands are likely to be recalled shouldn’t surprise us. Origins have provided a means of distinguishing one wine from another for a long time. Furthermore, in most European wine regions production continues to be piecemeal, with appellations containing hundreds, possible thousands of individual growers. Their numbers may be thinned-out by the time they reach the UK market, but for regions such as Bordeaux, Rioja and Chianti, the choice is still manifold. Faced with this proliferation, consumers buy on words they recognise. It stands to reason then, that from both a simplistic and exposure standpoint what sticks for the occasional Rioja drinker are not the brands of the twenty or so Riojas he or she has been exposed to this year, but the name “Rioja”. The unfortunate truth for individual brands is that in a market that values brevity, their name runs the risk of appearing one complications too far.
If regions, appellations, even countries can function as brands in the wine market, then what are the values they communicate? At a time when wine has itself become fashionable, there has been a tendency to dress the product up in the jargon of the day as “just another product”. Inasmuch as it competes for supermarket facings this may be true, but from a marketeers perspective, we are also interested in what distinguishes our product class from others. I can buy a toothpaste endorsed by the Dental Association in the belief that it will freshen my breath; if people breathe easily in my company I can be satisfied that the brand has delivered on its promise. Likewise, I can buy a Nissan on the premise that it is reliable, and find that after 50,000 miles driving I haven’t lifted the bonnet once. Both brands communicate particular qualities, and their claims are tested during the brands use. With wine, the endorsement of quality is not so clear-cut. When poured blind, what can we learn from the fact that the majority of drinkers struggle to distinguish a £5.00 from a £100 bottle? Well, to start with the large difference in price tells that quality really does matter; presumably consumers wouldn’t be willing to pay for differences in quality if they thought they didn’t exist. Moreover, the vertical stretch in pricing shows these differences are very important to consumers even though they struggle to distinguish between them. In other words, there are acknowledged differences in quality, and these differences are communicated through price.
The link between quality perceptions and price provides the core for each region’s or country’s value proposition. It may well be that Bulgaria can raise the quality of production, but after decades of exposure to value pricing, consumers are unlikely to meet the new price demand. In fact, the most probable outcome is that they will trade away into another country's wines. As the German wine industry found out to its cost, low pricing creates a perception of quality that is difficult to escape. By the same logic, a brand aspiring to establish a reputation for quality within a lowly appellation will struggle, because the reputation, the value proposition of the appellation will hang like an albatross around its neck. Worryingly, the real opportunities exist for those who undermine the value proposition by producing poor wines that they sell-off cheaply. Perceptions of worth move downwards much more rapidly than they move up, and cutting price and quality to gain market share can all too easily accelerate the downward spiral towards commodity. This problem becomes particularly acute in regions where large numbers of producers qualify for the geographical designation. All too easily, price rather than quality becomes the driver of the market, sending the appellation’s value proposition into freefall.
In this context we can see how the spectacular rise of the Australian wine industry was facilitated by careful management of the “Australia” name. With four large companies responsible for 80% of the annual crush, the destiny of the country’s table wine industry was concentrated in the hands of a few individuals. These individuals soon realised a shared marketing vision would serve them better than disparate and possibly antagonistic strategies. As a consequence, the Australian industry was able to build brand equity through strong qualitative associations, without the fear that a competitor might milk these associations to gain credibility for an inferior brand. Thus, the image and equity of individual brands like Penfolds is intimately linked to the early articulation and protection of the “Australia” moniker.
The other feature that characterised the Australian revolution was rapid acceptance and use of technological innovation, and the practice of interregional blending to produce wines that are badged with a varietal name. The singer’s request for “Australian grapes“ shows the extent to which the Country has developed strong associations with imported grape varieties; yet unlike regional links, the names of grape varieties become the shared property of whoever grows them. Success breeds success, but it also encourages imitation, and the availability of Chardonnay and Cabernet is steering the Australian industry towards a system of geographically delimited points of difference.
I think, in the end, it is their very ubiquity, the looseness of the franchise that prevents grape varieties also being considered brands. “Chardonnay” maybe one of the key words that triggers the purchase decision, but burgeoning production means it lacks the fixture and solidity for other association to be meaningfully hung from it. Consumers may still search out “Australian” or “Chilean” Chardonnay, but as the tide of production rises, Chardonnay is likely to slip the anchor of its origins and drift towards the ranks of commodities.
The value of the name “Chardonnay” is one of the dilemmas currently facing the wine trade. Varietal labelling was welcomed by most of the trade when it came to the South of France as it simplified the purchase process by utilising more familiar and potentially friendlier associations. But simplification invites replication, and by projecting quality in the form of a grape variety the wine business runs the risk of losing points of difference that have traditionally added value. When I asked Mike Paul, MD of Southcorp, why Lindemans chose to market Chardonnay as “BIN 65” he replied it was a deliberate obfuscation: “The secret of strong branding” he said, “was to prevent people from completely understanding your brand.”
Above I claimed that what counts for consumers is perceived quality - a representation. Volkswagen realise that “2864 improvements” is a better way of communicating quality than an exhaustive list of their new Golf’s features. I think this is what Mike Paul meant when he spoke of “not completely understanding your brand”; it is a brand’s gesture towards a realm of complex facts that ultimately drives our perception of quality. Hence my assertion that Meursault drinkers don’t need to memorise the villages of the Cote d’Or to embrace Burgundy.
It has been argued quite seriously that what the wine market needs is simplification, and the popularity of labelling by variety is very much part of this strategy. Unfortunately, as the World’s Chardonnay growers are starting to realize, recycling the same associations means undifferentiated products. What seems to be at issue for those who are pushing for greater simplicity in the wine market is a conviction that consumers need to be in possession of all the facts about a particular wine before they can be persuaded to buy it. It therefore follows that the existence of appellations, sub-regions and crus provides a barrier to customers with no appetite for knowledge. As I see it, the weakness of this argument stems from the assumption that the specification of a brand needs to be immediately transparent to customer scrutiny in order for it to become part of some initial consideration set. Successful branding in other categories shows us how a background of opacity and complexity can add value by driving and anchoring qualitative associations. In other words brands can communicate complex information “implicitly”, as a reference; there is no further requirement that consumers should understand the brand’s specification “explicitly”.
This article began by considering why does a product class that outwardly appears so suitable to branding lack dominant and decisive brands. Why is it when ask consumers to define value and quality in product classes such as cars and perfume, they invariably give answers linked to brands, while the same questions put to wine drinkers yield a mix of brands, grape varieties, countries and regions. In part the answer to this question derives from the fact that the precedent for labelling wines according to their origins predates most wine brands. Moreover, the fact that the production of most regions is thoroughly shared means that exposure to a named origin is more frequent than exposure to individual brands, prompting greater awareness.
Accepting that origins exhibit brand characteristics can help us account for some of the problems regions and countries encounter when they look to improve their market positioning. As quasi-brands, origins communicate impressions of quality and value, and in a product class as inscrutable as wine, consumers will tend to take their quality prompts from price. This conclusion presents real problems for regions that have traditionally supplied the value end of the market or countries that see supplying entry level as a foothold into a market that can be leveraged at a later date, as all too easily perceptions of quality correlated to price become frozen in the minds of consumers. Moreover, even within regions with established reputations for quality, price competition can lead to the gradual erosion of equity, as shown by the weakness of the Grandes Marques in the French domestic Champagne Market.
The diminution of equity is common to most agricultural crops. The wine market faces similar pressures, but unlike other agricultural crops the drift towards commodity is resisted by the notion that grape quality can vary from site to site. In turn, this principal has become the basis for appellation prescriptions around which much of the added value of the European industry is structured. It is for this reason that origins as a means of differentiating wine should be encouraged. Those who prefer to divide up the wine world according to more utilitarian notions of quality, such as grape variety or winemakers, overlook the fact that wine drinking is still aspirational; a sign of social mobility and increased affluence. Wine’s status is maintained because quality associations are passed from the premium end of the market to entry level. By contrast, simplification of the category makes not only makes the procurement of quality associations easier, but also erodes equity as qualitative thresholds are unchallenging. Thus, we can understand the temptation of French farmers to label their d’Oc Syrah as “Shiraz”, but our sympathies must lie with the Australians who have spent years nurturing the reputation of the variety.
The articulation and protection of quality perceptions is an important part of our business and the responsibility of all those who work within it. Equity is eroded away all too easily, but by basing quality communications on inimitable origins rather than readily procured associations, the value added nature of the wine business can be preserved. The need for more detailed and discriminatory regulations runs in the face of those who advocate simplicity, but regions are notoriously bad at regulating themselves. Brand owners in other product classes are familiar with the idea that detailed specifications need only to be used implicitly, and this is the lesson that those who attack appellations as over complicated must learn. Idealistic, yes! But ideas are what we all buy.