CHAPTER REPORT

CRAFTING A NICHE IN A CROWDED MARKET: THE CASE OF PALLISER ESTATE WINES OF MARTINBOROUGH (NEW ZEALAND) Submitted to Fulfill an Assignment On English For Business

LILIS SUHARTIKA 09220248 CLASS B1 BP 2009

STKIP SILIWANGI BANDUNG PROGRAM STUDI BAHASA INGGRIS 2011

INTRODUCTION
Aconstant question asked by marketing students is, What can a small business do to establish a market position today? Many students think that small firms are powerless in an increasingly global marketplace, characterized by large global players with significant brand power and economies of scale, powerful channel members, and fickle customers. In this scenario, marketing is out of reach for most of these firms, as the advertising needed to create mass awareness is beyond their financial resources, and at best they can hope to develop a loyal but small following among local consumers. In this scenario, life for this firm consists of a day-to-day stunggle to make sales build cash flow, and make do with fewer resources. Marketing texts (e.g., Kotler, 2000) provide little guidance to these firms, being replete with examples of large global firms. The trategy literature provides little help, identifying as it does the conditions under which a general niche strategy is recommended (Poter, 1980), but provides little by way of practical guidance on the content of such strategy (Mintzberg, Ahlstrand, and Lampel, 1998). Finally, traditional marketing theorists have ignorend small firms, despite the fact that these firms overwhelmingly make up the bulk of existing marketing organizations (Carson, 2001), and most of these are destined to remain small (Beverland and Lockshin, 2001). However, strategy, marketing, and market orientation remain important for small firms that have business goals (Swaminathan, 2001; Beverland and Lockshin, 2001). Research suggests that as markets become morecompetitive, firms of all sizes must become more focused (Swaminathan and Delacocroix, 1991). Large generalist firms must focust on building mass brand aeareness and econimies of scale to meet the needs of global market niches that distance them selves from generalists (Swaminathan, 2001). As the resource base of the firm limits the strategic options available (Mintzberg et al., 1998), small firms are likely to place greater emphasis on relationship strategies whit a small target market of distributors and retailers, while large firms are likely to focus on building market share using transactional marketing approaches to build costumer awareness (Beverland et al., 2002). However, Webster (2000) suggests that all firms must build value both with end users and resellers, although how small firms can do so is unclear. Therefore, the marketing literature could benefit from rich examples of successful and unsuccessful niche strategists (Carson, 2001; Mintzberg et al., 1998). This chapter will report on the case of Palliser Estate Wines of Martinborough, New Zeland (herein referred to as Palliser). This firms is an

established niche producer and exporter of ultrapremium wines. The case is appropriate for several reasons. First, the world wine market is undergoing substantial change, with an increasingly clear partition emerging between large and niche players (Geene et.al., 1999). Second, research suggests thar wineries of all sizes will need to increase their market orientation, and focus simultaneously on building market awareness and relationship ( Beverland and Lindgreen, 2001) necessitating and increased strategic focus (Beverland and Lockshin, 2001; Swaminathan, 2001). Third, this case has been develop longitudinally and as such provides one of the few longitudinal examples of strategic emergence and evolution in a field dominated by cross-sectional research (Pettigrew et al., 2001 ; Varadarajan and Jayachandran, 1999). Finally, This case is a successful niche marketer, and as such offers insights into how such firms craft strategy in an in creasingly competitive market.

THE NEW ZEALAND WINE INDUSTRY AND THE GLOBAL WINE TRADE
New Zealand wineries operate in an environment of high competition, high barriers to entry, increasing costs, and sophisticated consummers. The number of new wineries in creasing(to 385 in 2001) , and they are competing for a share of a highly concentrated domestic market, with there big producers accounting for 78 percent of domestic sales. The other 382 winers are competing for just 10 percent of the local market, with imports accounting for 12 percent. Whit a static domestic market and an increasingly competitive export market, these wineries face significant challenges if they are to survive. Despite this, New Zealand producers have continued to thrive and have been uneable to meet growing demand. A New Zealand Category has been achieved in the United Kingdom, and exports continue to increase world at NZ$8.61L (in 2001). Future growth will be depends o winning over new domestics consumers or trough exports. The almost automatic growt of the late 1980s and early 1990s is being replaced by the need to become more focused and professional in a more competitive market, both at home and board. Lack of economies of scale (New Zealand accounts for 0.1 percent of world production) willmeant that produsers will need to sell where theycan gain the higest prices. development of these markets requires heavy focus and will require increased investment in distribution channels, marketing and branding. This present incumbents anf new entrans with a number of challenges and opportunities, requiring clear strategies and shopisticated system. The global wine market is experiencing both expansion and contraction at the same time (Geene et al., 1999). Deman for basic wine isin decline while consumption of quality wine is on the increase (see Table 7,1). Rabobank (Geene at al., 1999) found that the wine industry faced many challenges, including the following: Shifting demand: Consumers are enjoying new taste inwine, brougt about by New production and new varietals. They are increasingly drinking wine at home and are becoming more educated about wine and cuisine. Increasing competition: The number of wineries is incresing dramatically. At the same time retailers ar rationalizing their product lines. Increasing retail power: retailers, distributors, and wholesalers are consolidating through mergers and acquisitions, and as a result are demanding closer retaionshipwith fewwer suppliers of well-branded

products, with guaranteed supply and pricing. Creating brand value: Consumers, desiring more clarity, have moved away from traditional appellation (regional) labeled products of the Old World (e.g., Burgundy), toward varietal labeled products of the New World (e.g., Australian Chardonnay), leading to increased competition in the premium and super premium parts of the market. However, barand awareness remains low. retailers demand more brand development from wine companies and are also demanding both horizontal brand extensions thriugh adding more varieties and vertical brand extensions through developing more price tiers. Changes in distribution and retail are also affecting the structure of the wine industry. Loubere (1990) found that the rise of large-scaale chains forced many producers to get bigger, driving the incresing globalization of winery ownership and the development of global wine corporation. Rachman (1999) found that supply constarints present real problems for wine companies. Succsessful global companies would be those that understood the need of global wine consumers and have the necessary distribution arrangement to service those needs on a year-round basis. This would nessearily involves sourcing grapes from different regions around the world. In the superpremium/ultrapremium segment, more strategic choice is available. For example, wineries could become a significant player in one region, from alliances with other players to share distribution and marketing cost, or from global alliances or joint ventures (Swami-nathan, 2001). Beverland et al. (2002) argued that a rsult, wineries must target a clear niche, placing more emphasis on strategy and strategic planning than they had in the past. Coupled with this was a need to place greter emphasis on both relationship marketing approach and transactional approaches. Firms that placed too much emphasis on transactional (mass marketing) to the detriment of building relkationship would incresingly find their products discounted by disgruntled retailers. On the other hand, firms who placed all their emphasis on relationship with retailers but did little to make consumers aware of their products would find that their free rider position (where the promotion of a product is left up to retailers) was untenable (Beverland and Lindgreen, 2001).

PALLISER ESTATE WINES OF MARTIN BOROUGH

Palliser Estat is so-owned and managed by Richard Riddiford. Plliser was started in 1982 by group of six investors, with approximately 20 acres of vineyard. The first vintage for the company was in 1989. Between 1982 and 1989 not great deal was happening as the companys vineyards took longer to established than palnned, and grapes from the vineyard were sold to another winery. This reflects the emergent nature of company. Riddiford noted that the initial aims of the firm were unclear, and although he developed a prospectus, is bore little relation ti future reality. I dont believe anybody really knew what we were doing, and I must admit that I invested init for tax reasons, in1982 a prospectus was developed which would make interesting reading today, as it was totally irrelevant. Personally if you talk about business plans and strategies and visions. Im not a great fan. The world just moves so rapidly that you can write down what youre going to do this year, and on review something sntirely different happened. However were involved in a very long-term business because red grapes vines take about seven years to produces with white grapes taking about four years, so youre always trying to guess what people are going to drink in sevem years time, wich in itself is pretty high risk. We got it reasonably right in 1982 becaouse we just picked the four main varietals - Chadonnay, Riesling, Pinot Noir, and Sauvignon Blanc and our mix hasnt really changed much since The initial impetus to start a wine-producing company came after Riddiford returned from a period of working overseas and tasted a 1989 Pinot Noir1 which had been made by a local winemaker. I didnt know what Id invested in to be honest, but when I tasted that wine I thoughtthat is outstanding. It wasnt just good; it was outstanding! In 1990 Plliser won a Liquorland Top 100 Gold Medal (a top local wine show) for its 1989 Estate Pinot Noir. The company became a publicly unlisted company in 1991 as in Riddifoeds experience most wineries of Pallisers initial size start undercapitalized. The company did nothing to established the brand in 1989. In effect the company producedsome wine and sold it to the partenrs. However, as he was positioning his brand in the ultrapremium end of the market, Richard realized that with New Zealands small population base, he needed to focus on building export markets to drive future growth. Therefore, the company started exporting to the united Kongdom in 1991 and now serves 18 different export markets. This rwquires a strong focus with clearly identified positioning. Richard stated,

With my particular brand, I appeal to about 5 persent of the winedrinking population of New Zealand, a potential market of 36,000 people. I currently export 60 percent of my production; Ill go to 80 precent over the next four years. I will do that by positioning my product in the international marketplace with restaurants and retailers who share my vision. I dont think a company like mine, wich is small and niche focused, can ever be everymans wine.Ive got no desired to be everymans wine. I dont want to bein every restaurant in the world. I have a vision and its very simple. Its (a) to be the best winery of my type in the world, and (b) to have my wines served at the best restaurant in every major capital city of the world. By best winery of our type, Palliser aims to be an ultrapremium producer with a world renown barand name, The stated aims in the previous quote were developed early on, although Richard notes that they sere controversial and ran contrary to the dominant culture in New Zealand. When I formulatif this vision, my colleagues had no trouble with the best winery of our type in New Zealand, but as for beingbest world, when I first said that the rest of my colleagues thought I was nuts, but over three years that has changed. Now I think they genuinely share that goal. It doesntreally matter whether it happens in our lifetime-it probably wont, but if you dont have that vision, you end up with a mentality like the English rugby team who do a victory lap of honor after theyve been beaten by seven points. To them that was the ultimate, so how do they hope to win the World Cup with that mentality? I know trough experience, if you want to do something bad enough then you can do it. Youve just got to set our what you want to do and go for it! The vineyard has grown in planned stages to reach the current size of 80 hectares( all in the Martin borough area), 60 of which are currently producing fruit. The companys producing and growth is heavily dependent upon weather conditions and therefore growth is financed through retained earnings rather than debt. Marketing Strategy Palliser has developed a number of marketing strategies over time. these can be divided into marketing mix, branding, and relationship marketing. Richard believes in the importance of developing both storng relationship with costumer and an awareness of his brandamong his target market. This latter

aim dificult given the companys positioning. Finally, the company positioning. Finally, the company also makes use of colaborative marketing approaches such as even marketing and overseas marketing networks. These are all supported by a focused marketing mix strategy and a strong culture. For Riddiford, the future lies in branding. He regards a bottle of wine as the ultimate in branding: take off the label and the wine is wort nothing. To buyer the first impression is visual: the average cosumer has hundreds of labels to choose from in a single outlet. Thus Palliser reflects the regions beauty and Maori history in its imagery, while retaining the English connection in the name of Rear Admiral Sir Hugh Palliser, after whom nearby Palliser Bay was named. I regard Pallisers brand as its most valuable asset. We will never put out a wine that does not fit our Quality parameters because you can ruin a brand with a bad Vintage. If Youre selling a product at NZ$35 bottle, Quality has to be a given. The brand building strategy was not just about getting the positioning and image right. Riddiford stated,From a production point of View we must be the best in the world for turning grapes into wine. But all the link in the production, distribution, and selling chain have to be rock solid.Richard sees this as critical, as New Zealand has high production costs, low economies of scale, long distances to market, and a fluctuating exchange rate. In 1996, with the exchange rate high, Richard spoke to exporters at an exchange rate summit: Our real challenge is refocus experters on the importance of some fundamental and strategy issues. By invisting heavily in brand Pallisser, we have maintained profitability in exports to Britain, despite a shift in the Sterling-$NZ exchange rate from . 28 to .44 in the last four years. Currency is just one issue that needs to be managed whitin the bussines mix. Exporters of our size need to produce quality products and not worry about the end of the market where there is no price elasticity to absorb changes in currency rates. To be at this end of the market requires investment in your brand in order to get the right quality association to take the focus away from price. The development of the Palliser brand has involved, and continues to involve, a number of spesific marketing actions that aim to build and enhance relationship throughout the demand chain, build internal commitment to the firms goals. When combined, these strategies result in a number of value, and respond to future market changes.

Endorsements A firms of Pallisers size cannot affroad to undertake mass advertising