Yellow tail wine blue ocean

[ yellow tail ]

Brand Management and Strategic Marketing Installment

BSAD 445

Dr. Cartwright

Table of Contents

Introduction to the Industry

Definition of the Industry

Demand-Side Description

Supply-Side Description

Substitutes

Situation Analysis

Industry Structural Analysis

Profitability Analysis

Environmental Analysis, Trends, and Key Success Factors

Competitive Analysis

Key Competitors

Analysis of brand’s pursuit for competitive advantage

Welfare Strategies

Growth/Stability/Consolidation Strategies

Yellow Tail SWOT analysis

Customer Analysis

Potential Segmentation

Targeting Strategy

Market Positioning

Positioning Map

Customer Motivation

Focus Group

Sources

Introduction to the Industry

The Budget Wine industry is a fairly new blue ocean industry that has gained global attention in its sales, methods, and overall popularity among consumers. In today’s economy, consumers are more informed, and price sensitive to different alcohols. Wine purchasing has been seen as a intimidating process. So many different brands, different pictures on the label, complicated words and ingredients, and a price that makes you think twice about your purchase. With the understanding that customers just wanted a good tasting wine at a price that allows the customer to make the purchase without customer remorse, the budget wine industry was created.

Separating from a old and established industry was not going to be easy. The budget wine industry was going to face many challenges along the way. Yellowtail wine was the company who created this blue ocean, and remains to this day one of the best selling wines in America. Yellowtail was able to jump into the new market by identifying and applying the four actions to help create value innovation for their customers. The four actions included: Understanding which factors should be reduced below industry standards, What factors should be created that are new to the industry, what factors should be raised above industry standards, and what factors have been completed over for too long in the industry and need to be eliminated (Marion, para. 2). The budget wine industry is being dominated by millennials. The rosé category reached $389 million in January of 2017 which was a 57% increase from the previous year (Taylor, para. 2). What

Definition of the Industry

Demand.The budget wine industry consists of all companies satisfying the need of alcohol consumers who want an affordable wine. The beauty of the wine industry is that no matter the experience of the consumer, there are various different price ranges of wine. In 2016, there was a increase in sales of wines in the $6 - $8.99 price range (McMillan, p.18). In today’s wine industry, the average amount of money spent by U.S. consumers on a bottle of wine is $9.89 (Bosker, para. 2). Millennial consumers have shown an interest in more craft beers and cocktails which has forced the price of wine lower to appear more attractive to this market. Due to the demand for a cheaper wine that still tastes great, companies have turned to science to help create chemically manufactured wines (Bosker, para. 2).

Even though these wines may be frowned upon by the minority of wine snobs out there, studies of both experienced and amature wine drinkers showed that no matter their tastes, these chemically engineered wines could please any pallet (Bosker, para. 9). Replacement ingredients such as powdered egg whites, fish bladder granulate, or oak staves can not only change the flavor, but also cut down on time and money. More than 60 additives can legally be added to wine, and besides sulfur dioxide, winemakers aren’t required to disclose any of them (Bosker, para. 11). Like Yellowtail, these chemically engineered bottles of wine are great for both first time wine drinkers or experienced ones. The fact that they are able to be mass produced allows for people who may not have picked up a glass before to be able to explore their pallet with low cost to consumers.

Supply-Side.On the supply side, the budget wine industry consists of all companies that supply wines with the following characteristics. The wines are under the $25 range and are chemically created to both meet demand and lower costs. The reason we are only focusing on the budget wine market is because natural wines are very expensive and are marketed towards an entirely different demographic. For millennials, brands like Yellowtail are a big seller because they offer various flavors to attract various pallets, and remove the wine jargon to make the purchasing process less intimidating. With a great tasting wine at an affordable price, Yellowtail and other companies have a large following and only continue to grow.

Plenty of companies such as Franzia, Winking Owl, and Fish Eye all fill the supply of budget wines. The budget wine industry is more than just the classic bottle. It is also expanding into the new canned wine trend. canned wine which doubled in 2016 reaching $6.4 million in sales (Taylor, para. 5). The can allows for wine to be more portable and accessible which fits well with the on-the-go lifestyle of millennials. Canned wine is also a good alternative to many substitutes (Olmsted, para. 3).

Substitutes. Substitutes of the budget wine industry include beer, cocktails and spirits. All of these meet the same need of alcohol consumers who are looking for an affordable beverage that isn’t going to break the bank. All of these are substitutes because it meets the same needs as Yellow Tail and other budget wines, but doesn’t deliver the same product. Customers that are shopping in the budget wine industry have lower brand loyalty and have low switching costs due to the affordability of the products and ability to try various different items such as cocktails, liquors, and beer (Chaudhuri, para. 4).

Situation Analysis

Industry Structural Analysis (Porter’s Five Forces).Yellow Tail wine is in a much different situation now in 2017 than it was in the early 2000s. While Yellow Tail did create a blue ocean in the low budget alcohol industry, Yellow Tail’s low budget wine industry is highly affected by Porter’s Five Forces.

Barriers to Entry. The first force, barriers to entry, is in Yellow Tail’s favor. The cost of entry is high so it is a weaker force. The primary reasons the cost of entry is high are the capital requirements/start-up costs, incumbency advantage, and access to distribution. The capital requirements alone to start a winery from the ground up-pending on number of cases/year-exceeds the $2 million mark (Ball, Clary, Fickle, Folwell. Para. 1). In addition, investors would not be attracted to a highly saturated market, which the low budget wine industry currently is. Next incumbency advantage plays a huge role in increasing barriers to entry. Producing wine comes at a steep learning curve that current low budget wines have already mastered and patented. Geographic location serves as an incumbency advantage too because there is limited land to nurture a successful vineyard. For example, it would obviously be disadvantages to try to start a winery in the middle of Arizona. The weather is too cold at night and too arid during the day to produce the quality grapes that can be produced in a superior geographic location such as California. Lastly, new entrants will have difficulty with access to distribution. Yellow Tail and the plethora of its competitors in the low budget wine industry have already swarmed the available distribution channels such as restaurants and grocery stores. In order for new entrants to gain menu or shelf space, they will have to not only have financial competency, but also industry connections. This force overall is a weak force meaning that the industry is profitable in this regard. However, the next force will speak to why the industry has restraints on profitability as well.

Rivalry among Existing Competitors.Rivalry among existing competitors is one of the most important of the five forces that impact Yellow Tail because it is incredibly strong. The entire wine industry is highly saturated by a few large firms. As of 2012, “Wine sales are dominated by a much smaller number brands, and an even smaller number of firms” (Howard. Para. 2). Honing in on the low budget wine industry, there are a myriad of options, but it's dominated by roughly ten brands, Yellow Tail being one of those ten. Statistically speaking Yellow Tail ranked fifth with a 3.08% market share for leading table wine brands (Statista. Para. 1). While Yellow Tail ranked number five, the industry leader with a market share of 6.58% was Barefoot (Statista. Para. 1). Since most people do not know the difference between cheap and expensive wine, it can be said that most people cannot differentiate between low budget wines with taste (Taylor. Para. 2). With Yellow Tail at a disadvantage of being in an industry where differentiation is difficult for consumers, Yellow Tail has utilized marketing to try and gain more market share. Yellow Tail is currently positioning themselves as “being the custodians of simple fun and dismantling of seriousness in people lives” (Samios. Para. 9). In the low budget wine industry, switching costs are considerably low. Switching from brand to brand is relatively common for consumers since the the bottles are so cheap. In addition, there are no repercussions to switching aside from consistency. Consumers know that the all options will have around the same alcohol toxicity for the same price. With the wine industry being such a specialized industry, the assets (vineyards and machinery), high fixed costs, and emotional attachment (wine companies are typically rooted in strong values) are high exit barriers. In summary, the rivalry among existing competitors is very high. With this force being exceptionally strong, Yellow Tail is negatively impacted by the red ocean of competitors in the low budget wine industry.

The Threat of Substitute Products. The threat of substitute products is not as strong as the previous force; however, this force does present unfavorable conditions for Yellow Tail in the sense that the substitutes for wine are highly substitutable. Yellow Tail’s substitutes for wine include beer and liquor. The price-performance tradeoff for beer is similar to that of Yellow Tail Wine. For about the same price, consumers can get the same amount of buzz that they would get from drinking a bottle of Yellow Tail wine. The difference is the delivery system and the toxicity speed. Beer is drank out of cans, and there are more fluid ounces total. With toxicity, beer takes longer to affect consumers since it is lower toxicity per can than toxicity per bottle of wine. Liquor on the other hand has comparable price, but very high toxicity speed. According to a business article, “Alternatives -- beer, spirits and ready-to-drink cocktails -- have captured three times as many U.S. consumer-alcohol sales” (Chan. Para. 2). As alluded to earlier, switching costs overall in the low budget alcohol industry are low. Since switching costs are low, brand loyalty is as well. Consumers in the low budget alcohol industry purchase various types of alcohol pending on the mood or occasion and less the quality or brand.

According to our focus group when consumers are purchasing alcohol, consumers are looking at three aspects: price, toxicity, and drinkability. These aspects are all fulfillable by Yellow Tail’s substitutes.

Bargaining power of buyers.The bargaining power of buyers is relatively high within the wine industry. This is due to low switching costs within the low cost wine industry. Due to the low costs it is easy for consumers to try different brands at their leisure, and explore different tastes that they might have. There are also many substitute products that are low cost that consumers can choose from such as cheap beers, or liquors. These alternatives increase buyer power even more because it increases the options available to consumers and offer very low prices as well. Brand loyalty is very low amongst buyers in the wine industry. Younger generations are very susceptible to change their tastes. Furthermore there is often very little differentiation other than the bottle design, alcohol toxicity, and the story on the label (Boyer, para. 3) Another reason that people struggle to differentiate between wine brands is that many consumers are not able to distinguish the difference between cheap and expensive wines (Taylor, para. 2). This makes differentiation even more difficult because it takes a high level of skill and a refined pallet to even appreciate a superior quality of wine. Meaning most consumers are going to make their choice of low price rather than superior quality. Overall the bargaining power of buyers has very bad implications for the overall profitability of the industry. Since there are different substitutes and alternatives, brands are going to have work hard to gain a substantial market share. Furthermore since brand loyalty is so low they will have to work even harder to maintain the market share that they do have. Perhaps the worst implication for profitability is the fact that consumers are typically unable to distinguish different levels of quality. Because of this it makes differentiation much more difficult, and consumers are more likely to make their decision off of price. This could potentially lead to price wars between brands in the future which could severely limit profits wants the industry of low cost wines is fully matured

Bargaining Power of Suppliers. Lastly, the bargaining power of suppliers is a not as strong a force as the other four. Suppliers do have leverage over companies in the low budget wine industry, but the companies themselves do many of the duties that the supplier typically does. The main aspect of the supply chain that companies control is the grape production. Most companies own the vineyards that supply the grapes for their wine. The supplier products that give suppliers bargaining power go into the bottling process of the supply chain. The cork, bottle, capsules, labels, case boxes, and warehousing are expenses that companies in the industry face (Krigbaum. Para. 9) . There are few substitutes for these products. Corks can either be wood or plastic. Bottles can be glass, plastic, or aluminum (in rare cases). Capsules (the foil on the neck of the bottle) are only made of aluminum. Labels are made of paper, vinyl, and polyester materials. Case boxes are wood or cardboard. With these few substitutes, the suppliers can rest assured that they will always be in business. However, there are many suppliers for these products, and many low budget wineries are looking for the cheapest supplier to gain cost advantage. As alluded to, the industry is a very important customer for these suppliers. Without the wine industry, these suppliers would not be able to sustain. For the industry, switching costs are very low for switching from supplier to supplier. Corks and bottles are easy to switch suppliers for simply because wine can be bottled and corked by any bottle or cork. Especially in the low budget wine industry, companies are searching for every avenue to cutting costs. For example, low budget wines often use plastic caps instead of real corks due to the significant cost cut (Krigbaum. Para. 5). In respect to labor, the SVB 2017 Report reported that labor is scarce for US wine companies (McMillan. Pg. 60). This is favorable for Yellow Tail because the scarce labor will increase costs for domestic US wine companies which could affect price or long term profitability for domestic US competitors. Lastly, suppliers do not pose credible threat of forward integration. Corking and bottling companies would not be able to raise enough capital to start their own wine companies. If anything, wine companies are threats to corking and bottling companies in that those services could be built inhouse. Overall, the bargaining power of suppliers is a weak force. The low strength of the bargaining power of suppliers is positive for Yellow Tail and the low budget wine industry’s profitability as a whole.

Profitability Analysis. Considering Porter’s Five Forces for the low budget wine industry, the industry is not an attractive industry for those inside and outside. The barriers to entry are high for those trying the get into the low budget wine industry. The competition in the industry is a red ocean despite Yellow Tail being the pioneer for its original blue ocean status. With beer and liquor taking over market sales, the low budget wine industry’s substitutes can be characterized as huge threats. Buyers’ bargaining power is high, and consumers are less than loyal to brands due to the low switching costs. Finally, suppliers have low bargaining power with the industry due to their heavy reliance on the industry’s long term sustainability. The main forces that can attribute to the industry’s low profitability are the rivalry among existing competitors, threat of substitute products, and the bargaining power of buyers. Theses forces all have high or moderate strength with negative effects on the industry. Fortunately, the barriers to entry are high and the bargaining power of suppliers is low; however, these two forces do not outweigh the strong negative forces the industry is facing. With the alcohol market being saturated with only wine, beer, and liquor, there is low profitability within the low budget wine industry. Yellow Tail may have created the last blue ocean for the industry. Marketing strategies and product innovation are Yellow Tail’s most optimal means of gaining market share within the industry. Unfortunately for Yellow Tail wine, the low budget wine industry may be finished reaching its full potential.

Environmental Analysis, Trends and Key Success Factors. There are many environmental factors factors that are affecting the wine industry today. The first is economic forces. While in recent years the U.S. economy has been in an economic recession, things have started to turn around that are allowing overall U.S. gdp to grow and allowing many industries such as the wine industry's move towards their previous levels (MacMillan, pg. 52). Another important environmental factor is demographic changes in the market place. Previously baby boomers have been the driving force within most markets. However, as the generation is beginning to reach retirement they are slowly relinquishing the purchasing power that the have held for so long. This vacuum is being replaced by the incoming millennials. While millennials will be able to replace baby boomers number of consumers in the market, they are much more severely handicapped when it come to economic means than the generations that have come before them (MacMillan pg. 52) For this reason they will not be able to help industries reach the same levels of performance that was seen when baby boomers were at the height of their purchasing power. Another environmental factor is natural resources available. The price of land for vineyards is becoming increasingly more expansive (MacMillan, pg. 44). This increased cost of land will drive up the costs of domestically grown wines, which could potentially lead to cost advantages for foreign wine distributors.

One of the biggest industry trends is the movement towards rose. Rose wines specifically have been among one of the fastest growing wine choices among consumers. Rose has seen an increase in sales of 57% (Taylor, para. 2). This is an important trend for companies to take note of as supplying a quality rose could be an important part of maintaining a profitable customer base in the wine market. Another growing trend is the increasing popularity of canned wines. In 2016 canned wines doubled their sales, and continue to gain popularity in the rising market of cheap affordable wines (Taylor, para. 5). Consumers prefer cans because they are more portable and easier to keep chilled in a variety of situations (Taylor, para. 10). This is also an important trend as it targets millennials willingness to try wines from unconventional ways other than just the traditional bottle (Pellechia, para. 4). Another trend is the increased purchasing of sparkling wines. Previously sparkling wines were seen as a choice only for special occasions. However, more recently they have moved towards more common choice of drink for consumers (Taylor, para. 13). This is an important trend to take note of, because as sparkling wine becomes more of a casual choice by consumers the need for a low cost option will become more important, similar to the trends for other varieties of wine.

One of the largest industry success factors is the ability to provide low cost alternatives that are still able to provide a superior taste. The development of of processed wines from brands such as Yellow Tail has allowed for the cheap manufacturing of wines that are still able to deliver a superior taste (Bosker, para 9). This is an increasingly important factor as the market for cheap wines continues to grow. As discussed earlier this market projects to continue to grow as millennials begin to gain more purchasing power, and the baby boomer generation's market power declines. In fact cheap wines that provide quality taste are important to the expansion of the wine industry as a whole as it allows new consumers to try a wine that is low cost, but still likely to turn them into repeat customers because of the quality that it delivers. Another important success factor that is emerging within the industry is the increased of wines being available on store shelves and having packaging that draws the attention of consumers in the store. The increased involvement of retailers is one of the qualities that Yellow Tail raised in order to create its superior brand image (Marion, para. 4). Yellow Tail also changed its packaging relative to many other wines. It eliminated all wine jargon from the packaging that might intimidate first time buyers. Instead it focused on simple approachable designs for their bottles that used vibrant colors to draw in novice wine consumers (Marion, para. 7). These changes in marketing practices and how wines attract new customers will continue to become an important success factor for wine brands. As more brands begin to try and compete over new wine consumers looking for cheap wines factors such as occupying shelf space and attractive packaging will become important for growing and maintaining market shares for companies.

Competitive Analysis

Key Competitors.When you walk down the aisle at a grocery store and see the neverending shelf line of wine bottles, it is easy to see there are more than a few wine companies in the market today. Three of our key competitors are:

Barefoot Wine

Strengths: The main strength of Barefoot Wine ties back into its size. When you’re the biggest player in the market you can produce the product most efficiently and often for the cost of your choice. Barefoot can also be found anywhere, and in the wine industry this is often not the norm. Although the big players have national grasps on the market, many run their brands across many different labels. Barefoot offers 33 flavors, all under the same label, and almost all can be found anywhere that wine is sold (Barefoot Wine, pg.1). When it comes to becoming the biggest label in North America, your label must actually stress across the entirety of the country.

Weaknesses: In almost any discount wine ranking that one could find, Barefoot is continually ranked near the bottom. According to multiple rankings such as the “Washington Post” and common alcohol blog “The Tab”. There appears to be quality ‘cheap’ wines available for purchase in the industry, but many of which simply don’t have the marketing budgets or global expansion capabilities that Barefoot does. This often drives consumers to consume Barefoot early on in their wine drinking careers, but then once they have become acclimated to the industry, Barefoot struggles to retain their customers in the long term.

Barefoot has adopted a broad cost leadership strategy. They have 33 lines of wine, and attempt to be one of the cheapest offerings in each. Based off their reviews, their is very little focus on actual quality of wine, but instead on how easy it is to drink. This strategy pays off in overall market share, as Barefoot is the industry leader in total market share. Barefoot’s most recent marketing campaign revolved around their line of spritzers, as they ran successful TV, internet, and print advertisements. Barefoot would be considered a selective competitor, as they are able to quickly respond to anything that they view as a threat in the market place. However, in a market that has so many miniscule players, vying for insignificant amounts of market share, it is not effective to respond to everything. With Barefoot’s size they are able to allow smaller brands to attempt new strategies in the market place, and then implement those strategies on a larger scale if successful.

Hardy’s

Strengths: The dominant brand in England and the UK, Hardy’s has a strong family background that was acquired by Accolade Wines and taken globally. This global expansion is what landed them on the “WorldsTopMost” of largest wine brands. This acquisition lead to efficiencies within the company that simply could not have been able to be put in place without the backing of such a massive wine conglomerate. Hardy’s strengths seem to lie in brand recognition. According to Victoria Moore, of The Telegraph, they are a leading partner in the English cricket leagues, as well as being a leading cricket partner in their home country of Australia (Moore para. 6). Although not incredibly popular in the U.S., cricket is one of the most popular sports in the world, and to be the flagship brand behind cricket could be equated to Budweiser and the NFL. Hardy’s is not an expensive brand, and with the low-cost brands, customer churn is often an issue that they continually face. However, Hardy’s prides itself on its ability to retain customers well past when they would typically switch to the fancier label brands. Their advertising and media would lead one to believe that this can once again be tied back to the sports branding. Just as in the United States; although a Guiness may be a higher quality beer, it simply feels wrong to drink that instead of a Bud Light during a football game.

Weaknesses: Hardy’s is a more expensive wine, but is often not consumed with that in mind. For a brand that focuses so heavily on quality, they have little clout behind consumption of their brand. Even their website matches this customer perception, as when you log on you are hit with a sort of English Pub vibe, instead of the elegance that most wine companies strive for (Hardy’s Wine, pg.1). Hardy’s just isn’t the brand that you would order at a nice restaurant (at least a majority of their lines are not catered towards this idea). If Hardy’s didn’t have such a loyal customer base, their lack of definition in the market could be a much more significant weakness.

Hardy’s market share is large on a global scale, but in North America they are only a mild competitor in the market. Without the brand recognition in the United States, their strategy of trying to be a little bit of everything has really hindered their growth. According to the Walmart online marketplace, Hardy’s isn’t even carried there (Walmart). Any major competitor in today’s age should be carried at Walmart.They’re not an $80 bottle of wine, but they’re also not a $5 bag of wine either. Whenever you’re neither of these things, cater to sports that aren’t incredibly popular in the U.S. (i.e. cricket and soccer), and don’t have some sort of innovation to set you apart from the rest of the market then your market share will suffer. Having been around since 1853, this Australian company has still had plenty of time to carve out their customer base, and is why they would be considered Yellow Tail’s main competitor from Australian brands. Hardy’s has a stochastic approach in response to its competitors, and does not alter its overall strategy in response to its competitors.

Sutter Home

Strengths: You can get this brand almost anywhere, and in almost any form. Their website will be the first clue at this, as they push the diversity of their offerings. Form referring to type of wine (i.e. white, red, zinfandel, pink, etc.) and form referring to their delivery method. Sutter home sells the classic bottles on store shelves, but also packages their wine in one-time use cartons and single glass bottles (Sutter Home). You can buy Sutter home at Walmart or on an airplane. With this widespread footprint, distribution expenses can grow quickly, but Sutter Home has been in production since 1948, and overtime has grown into a powerhouse brand (Pulscher, para. 2) With the advantages of economies of scale also came low pricing. Sutter Home carries a lot of influence in the wine industry and holds a lot of power over its various suppliers and buyers. With power over both of those sectors, Sutter Home can effectively drive down prices of its product and compete in the low-price market effectively. Sutter home also prides itself on its green-packaging as issuu points out in their brand review, that 5-6 times more water is used in the production of Yellow Tail than of Sutter Home, and Yellow Tail also uses far less recycled materials in its packaging (Pulscher, para. 5 ).

Weaknesses: Sutter Home’s weaknesses can be tied back towards their unfocused, try to reach everyone everywhere strategy. Although often it can be seen as a strength, and a supporter of this brand would almost certainly argue so, a diminisher of the brand would argue that they have a lack of focus. If Sutter Home wants to innovate the way in which wine is distributed to the everyday consumer, then they should invest their resources into marketing and pushing this concept. If Sutter Home wants to be a low-price competitor, then they should cut the loose ends of their business that have to do with these innovations, and focus on getting their price down to the level at which their main competition is selling at. Another problem that comes from being a low-cost wine producer is that often this strategy comes with very little brand loyalty. Whenever brand loyalty is low, and a company continually have to draw in customers, there needs to be something present to do so. Sutter Home isn’t a very fun and energetic name, their label isn’t colorful or exciting, there’s no Australian Kangaroo as a mascot, and a simple google search of any recent commercials will turn up blank.

Sutter Home thrives in the wine industry as a top 10 brand, and often becomes either the only option/ one of very few options in a select few niche areas of the wine marketplace. No matter the airline, they probably serve Sutter Home. No matter the gas station, it’s most likely going to be sold at the counter in their trademark 187mL bottles. Sutter Home has a stochastic approach towards competition, and unlike other brands, this seems to have hurt them. The brand as a whole seems to be behind on current marketing trends employed by their competitors, and is losing out on market share because of it.

Analysis of brand’s pursuit for competitive advantage

Yellow Tail is a little outside the box in its business strategy, as they famously successfully implemented a Blue Ocean strategy into the wine industry. Yet; it has been years since they conducted this strategy, and since the marketplace has become flooded with competitors. At this point Yellow Tail’s primary strategy has become a broad cost leadership strategy. They now want to be the lowest priced wine of the shelf, or at least the lowest price wine that is readily available to each and every consumer. Yellow Tail can be bought almost anywhere, and in those places it would be rare to find a wine that outright beats it in cost. For being a cost leader, Yellow Tail advertises much more than most cost leadership strategy companies would do; however, I think this is merely specific to the industry at which they operate in. The wine industry is intense and cannibalistic, and if a low quality Australian brand of wine is going to be a major player in the industry then they had better make sure consumers know who they are. Their competitors are also doing a lot of advertising, so to keep pace they must match that as well.

Being the cost leader will always offer some form of protection against many of your competitors, as the cost leader will always be in demand. There will always be consumers actively searching for the cheapest option on the market, and as long as the companies economies of scale can be used to their advantage, then being the cost leader continues to be possible. With the wine industry being so heavily fragmented, Yellow Tail has been successfully protected by their cost strategy, as they were the first ones to really implement a low-cost/budget wine, and because of this have been able to build in efficiencies throughout the supply chain that allows them to keep cost down. Yellow Tail has lost significant portions of their market share to competitors as of late, but they are still a global top 10 brand and are well protected from any substantial threats to their market.

Welfare Strategies. Yellow Tail is a market leader through and through. This more or less comes with the territory when the company has successfully implemented a Blue Ocean strategy, but they still continue to be one of the lead innovators in the discount wine segment. Their aggressive marketing tactics have lead to many other wine manufacturers to follow suit, and is the reason now that wine commercials are a bit more of a common place in the media. Yet, Yellow Tail recognizes that they need to keep innovating, and is aware that, just as before, other companies will eventually imitate them. With this in mind Yellow Tail should look to lead in new distribution methods that may not have been explored yet (such as what Sutter Home is doing), or continue to invest in market research and respond to the demands of their customers.

Growth/Stability/Consolidation Strategies. Up until now, Yellow Tail has used a market development expansion strategy. They looked at the wine industry as a whole, fixated on a segment that they thought was not being catered towards, and modeled their business to fit that segment. The implementation of a successful Blue Ocean Strategy is difficult, but once completed successfully the company will often reap the rewards for years. Those years of unrivaled success are now gone, and Yellow Tail has turned its focus towards market development. As many of our group’s sources point out, Yellow Tail has one of the largest focuses on marketing in the industry. They were the first wine label to take out a super bowl ad in this century (Atkinson, para. 3). Our group believes it should continue to pursue this strategy in the future as well. Whenever consumers find themselves in the wine aisle, looking for affordable products, there is such an array of choice to choose from. It can be stressful and intimidating to consumers. If your name is recognizable, the chances that a consumer will choose your product over the competition’s is high. We see this in why Yellow Tail continues to experience success, and is predicted to see that success develop further in the future as well.

SWOT Analysis.Yellow Tail’s outlook for growth potential is high, as the industry has increased in size by 3% over the past year (Weiner, para. 6). That’s reflective as well in our SWOT analysis, as many of Yellow Tail’s strengths set them up nicely to retain their position as market leaders. With high barriers of entry and high growth rates, Yellow Tail is poised to see their profits continue to be not only substantial, but increasing as well. With an industry such as the wine industry, where just a few firms dominate the market place, it can be quite difficult for a competitor to enter in on a national scale. It can be even more difficult for a competitor to rival Yellow Tail on cost, as any formidable competitor would have to have a massive initial capital investment in order to be competitive with pricing. This competitor would have to have immediate economies of scale to match the big brands such as Yellow Tail, and that is simply not feasible for many of the small vineyards trying to make it big. They do have some weaknesses though. Yellow Tail heavily depends on its international business to fund their operation, and if something were to happen to their international markets, the company could be in trouble (Weiner, para. 7). Yellow Tail is a predominant wine in Australia as well, but compared to the North American segment, Australia is dwarfed in market size. This coupled with low profit margins per unit creates quite the threat to the company.

On the opportunities side of the SWOT analysis, Yellow Tail has the chance to implement their strategy into other markets in the world that may not have been innovated with the cost awareness brand of wine yet. Markets that may be smaller than that of North America, but still carry few competitors and much opportunity for expansion. Yellow Tail has the distribution capabilities to heavily invest in any market of their choice, and can effectively pick and choose which one they would like to target. However, to make this choice requires heavy investment into whatever market they so choose, and with that comes the risk that it will fail. When a company takes on a venture capital approach such as this, it becomes risky to invest so heavily the amount of resources that it would take to expand globally. It’s a high risk and high reward strategy, and whenever that is the company’s primary strategy for growth, the company can expect to encounter the faults of the high risk side eventually. Then, as cited continuously throughout our group’s writing, the rising cost of labor in manual labor positions such as grape farming/ harvesting is a threat to Yellow Tail. It’s a threat to any company that focuses so heavily on price. If their low-cost production is not sustainable, Yellow Tail is at risk to lose its place in the market, and the value that it creates as a member of the industry.

Strengths

Barriers of market entry

Skilled workforce

High growth rates

Weaknesses

International market dependence

High investments in research and development

Low profit margins per unit

Opportunities

New markets

Global markets

Threats

Venture capitalist style

Rising costs of labor

Increased competition

Customer Analysis

Potential Segmentation. The most common segmentation of the wine industry tends to be based off of age. By looking at different generations it is easy to see that there is a diverse mix of customer bases that vary in their tastes and preferences for wine. There are many different age based demographics that make up the market for wines. The first is Matures, who are 69 years or older, and grew up during the great depression. This group is characterized by thriftiness due to the harsh economic times that they grew up in, and for that reason tend to choose cheaper wines (MacMillan, pg. 47). The largest customer base in the market for wine is the Baby Boomer generation, which is comprised of adults over the age of 50 which makes up roughly half of the current market (Pellechia, para. 6). To start off the baby Boomers typically drink wine at home or with meals, and are much more drawn to more expansive and sophisticated wines. This usually limits their preference to wines that come out of a bottle (Pellecchia 4). While baby boomers have typically been that main force in the industry other generations are beginning to take over as the main purchasing force in the market for wine(Huygh, para. 19). Gen X which is comprised of people between the ages of 39-50, have long been the second largest purchasing force of wine. This is quickly changing as the begin to pass the baby boomers. Many expect Gen X to become the largest wine consuming demographic by 2021. This trend is most predominant in the fine wine part of the market where there purchases steadily grown. Their current trends indicate that their taste is for nicer more expensive wines much like the baby boomers (MacMillan, pg. 48). The final demographic is millennials who also represent a growing market as they recently moved above matures and are no longer the smallest wine drinking demographic. However, as their economic standing slowly begins to strengthen, and they gain increased purchasing power, millennials are seen as the future of the wine industry (MacMillan, pg. 49). Millennials prefer drinking wine socially when they are with their friends. They tend to prefer much sweeter wines that are not nearly as costly, which is common among younger demographics that identify themselves as novice wine drinkers. In addition they are also much more open to consuming wine in not traditional ways. Such as drinking wine out of a box or can, as opposed to the classic wine bottle (Pellechia 5).

Targeting Strategy. Yellow Tails overall targeting strategy is undifferentiated. Their goal is to be an accessible and approachable wine for everybody. When describing their super bowl commercial a senior manager said it was meant to “feel inclusive and ‘for everybody’ – just like our wines” (Stilinovic, para. 1). Yellow Tail was able to tap into new customers across many different demographics by getting away from the idea of wine being a refined beverage based on tradition. An idea that was a turnoff to many American consumers (Kim, para. 6). While they make up a smaller part of the market millennials tastes are by far the most aligned with Yellow Tail. The idea of a cheap, fun, easy going wine appeals to the growing segment of millennials, who tend to drink socially with their friends and are willing to try something other than the more traditional styles of wine (Pellechia para. 7). In contrast certain demographics such as baby boomers and gen x are characterized by their preference towards nicer more expensive wines, but even within these groups there was a large portion of consumers who preferred cheaper more accessible wines. This is shown by the fact that baby boomers still make up over 40% of the market for wines cheaper than $15 (MacMillan pg. 47). Since there is still such a large portion of people within these demographics that are looking for cheap affordable wines, it allows Yellow Tail to appeal to the often forgotten customer bases that still exist within these older demographics. Yellow Tails inclusive and easy going nature is what allows it to reach so many different people across so many different demographics, and turn them into new customers.

Market Positioning. Yellow Tail is a low budget wine that is fun, and adventurous that appeals to non-traditional wine drinkers who are turned off by the stuffy sophistication of other wine brands. Yellow Tail employs a very aggressive blue ocean strategy that tries to completely separate itself from existing markets for wine, and create entire new markets within the wine industry. In order to do this it employs the four actions of the blue ocean strategy. Reduce, Create, Raise, and Eliminate. The qualities Yellow Tail chose to reduce are wine complexity, wine range, and vineyard prestige. Next they created a wine that centered around easy drinking ease of selection, fun, and adventure. Qualities they chose to rais were the low costs for wine and retail store involvement. Finally they eliminated qualities such as enological distinctions, aging qualities, and above the line marketing (Marion, para. 4). By employing these four actions yellow tail was able to create a type of wine that did not compete with the traditional wine market. Instead Yellow Tail created a brand that delivered quality taste without the complicated rules that often accompany purchasing top of the line bottles of wine (Marion, para. 5). The head of Yellow Tail’s marketing operations claims that its this laid back, casual approach to wine that allows the brand to be so successful and bring in customers who used to be the intimidated by the more sophisticated brands (Stilinovic, para. 9). By positioning itself in this new market Yellow Tail was able to create a new demand from customers away from other competitors within the industry.

Positioning Map

New Wine Map.jpg

Customer Motivation

Focus Group. Our focus group consisted of the following participants (all of which wrote down their names and waived any sort of confidentiality towards their names. However; the group did ask not to be cited with direct quotations; as many of which did not want some of their opinions related to how they like to consume alcohol related directly back to their name):

Finessa Rassel

Moriah Crane

Phil Starns

Spencer Hockman

Sydney Spain

Sean Applebaum

Katherine Nace

Taylor Coy

Collin Heisel

This group is comprised of various Truman students. Their ages all represented consumers who could be considered new to drinking, with none being over the age of 22. The group was made up of 5 females and 4 males. Our group intentionally selected this individual as they range in all aspects of a young adult’s life. We have 2 varsity athletes within the group, multiple members of Greek Life (4 different greek organizations represented, 2 fraternities and 2 sororities), the president of purple pride, and an array of majors that includes but is not limited to nursing, psychology, agricultural science, education, and philosophy.

We asked the following questions:

In your product category, what brands (excluding Yellow Tail) do they recall unaided?

The answers were as follows: Barefoot, Franzia, Sutter Home, and Silver Oak. There was also two wineries discussed named Mt. Pleasent and St. James. Both of these wineries are local to Missouri, which is where all participants were local to. The noticeable take away from these answers was that none of our participants named any wine brands that would be in the mid to upper level price ranges. This matches well with Yellow Tail’s blue ocean strategy, that these brands failed to cater towards the younger generation.

Do they buy the same brand each time? Why or why not?

100% of our participants answered yes. Our participants expressed that Barefoot and Franzia were both the most common purchasing decisions, and that once you became used to drinking a certain brand of wine it was a stark difference between that and what one may switch to. Comparing it to the beer industry; all beers are more or less the same, but the same cannot be said for all wines (especially in the discount category).

Why do they select and use a specific brand?

We created a list encompassing the different distinguishing factors across the wine industry:

Price

Alcohol Content

Flavor (this group preferred sweet over dry)

Branding

Amount per bottle/bag

Based off of these answers, Yellow Tail should be a popular choice amongst our focus group.

What elements of the product do they value most?

We created a list encompassing the different factors of the wine itself, which would make the focus group enjoy drinking it:

Alcohol Content

Flavor

Drinkability (ability to consume in large consumptions)

Aroma

Although these answers seem a little out there, they are honestly representative of this demographic and are what Yellow Tail brands themselves towards. This new to drinking age group represents people who want to have a good time, but remain within a heavily constricted budget. For years the wine industry didn’t cater towards that type of consumer, hence why we saw that a blue ocean strategy was able to be so successfully implemented.

Are there any unmet needs? Are any of you dissatisfied with anything related to the wine industry? Specific brands? Amount of selection? etc.?

The group agreed that wine is still too expensive to become the primary option for alcohol. Relating this back to what the group values in an alcoholic beverage; a $9 bottle of wine just isn’t competitive with the price points of hard alcohols, or the amount of beer that one could receive at a cheap cost. This matches the conclusions the group drew, as they listed better deals and bigger bottles as both the improvements that they would make.

Overall our group learned a lot from this focus group. Besides these structured questions, we spent a large amount of time discussing Yellow Tail specifically. Much of the group was familiar with their various advertisements, all of the group could name the mascot, and all of the group was aware the country that it is produced in. This shows that not only is Yellow Tail’s marketing strategy effective, but it is effective towards the demographic that they’re intentionally targeting. Based off of focus groups such as this, it is clear how Yellow Tail was able to notice a gap in the market that they could exploit. Our focus group discussed whether or not there were other markets that are currently going uncatered towards, and we ended up discussing the single serve glass wine industry. A concept similar to that of buying a ‘Tall Boy’ beer/ a 40oz beer from your local liquor store. These aren’t really options in the wine industry, and the group thought that it may have potential.

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