Examples Factors supply & Demand

Question 1

Define the legislative and political factors affecting the price of a wine. Explain with examples.

Answer 1

1. Laws prohibiting/limiting alc sale:
   VB: state-owned monopolies
   VB: 3-Tier system)
2. Government policies to reduce alcohol consumption:
   VB: Loi Evin FR, 1991
   VB: minimum unit pricing, Scotland
   VB: drink/drive laws, varying per country
3. Taxation = revenue + reducing consumption:
   VB: Hong Kong reducing in 2008 > aim on becoming wine trading hub
4. International trade = revenue / protectionism:
   VB: EU > members + Chile + South-Africa
   VB: UK left EU > free-trade agreements > Australia
   VB: Argentina > limiting import + foreign ownership/investments
   VB: US/China trade war > imposed tariffs
   VB: trade embargos on/by Russia”

Question 2

Define Brand Equity

Answer 2

Defining the value of the brand, positive or negative, including the following aspects: 1. brand awareness > consumer’s familiarity with brand 2. brand image > how consumers perceive the brand ALSO: financial value of brand equity can be calculated for asset on balance sheet

Question 3

What is the definition of branding according to the CIM

Answer 3

A set of physical attributes of a product or service together with the beliefs and expectations surrounding it - a unique combination which the name or logo of the product or service should evoke in the mind of the audience.

ALSO: A product being an experience or an identity people would want to associate themselves with.

Question 4

According to Wine Intelligence, define and shortly describe (Who, Why, Where, What) the 6 devisions of their segmentation model.

Answer 4

1. Engaged Explorers: - Younger and confident, enjoy discovering new wines - part of lifestyle and social life (=time + money) - buying at shops and wineries, highest spenders on- and off-premise
   - broad repertoire, trying new varietals, regions and types of wine
2. Premium Brand Suburbans: - mid to older aged, frequent wine drinkers, lower spending but knowledgeable - enjoying wine in social situations in the on-premise for casual occasions - buying at supermarket or previously known wineries, often in bulk to get value - broad repertoire, but know what they like, preferring domestic regions
3. Contented Treaters: - Infrequent but high spending drinkers, know what they like - Enjoy in social situations as a treat or to pair with dinner - buying at liquor stores or wine shops or wineries
4. Social Newbies: - youngest segment, drinking frequently, lack of knowledge (rely on recommendations) - often on-premise and in social situations - many wine-buying channels used (=convenience) - exploring category, trying more niche varietals and regions of origin
5. Senior Bargain Hunters: - most infrequent and oldest segment with good knowledge - wine drinking around casual occasions at home (low confidence). -buying at supermarket, value-driven - narrow repertoire, stick to what the know
6. Kitchen Casuals: - old and infrequent drinkers with low interest - low interest, drinking at home for informal occasions - buying at supermarket (price-conscious) - very narrow repertoire, stick to what they know

Question 5

What is the aim of a Monopoly Market and what are the consequences of the system?

Answer 5

aim = limiting alcohol consumption: 1. less accessible for consumers, no price pressure (competition of lowest price for consumer) 2. no incentives > staff is selling objectively 3. more bureaucracy for producer > registration producer with importer, tender requests 4 times a year, second tasting+ chemical analysis ALSO: more access for smaller producers, volume potential. Examples are: Systembolaget and LCBO

Question 6

Explain the Three-Tier-System, why was it introduced and what are the consequences

Answer 6

Specific for the USA wine, which has to include three parties: supplier, distributor and retailer. - Introduced following the Volstead Act in 1933, 1. preventing a return to pre-prohibition situation and controling the consumption of alcohol 2. preventing direct sales from producer/supplier to retailer > avoiding producer monopolies and increased prices 3. implementing distributor tier = -providing additional jobs - easier regulation + collection taxes - extra generation of tax revenue for particular state

Question 7

Generally, what are the 3 different ways a state is able to implement the three-tier-system? Name examples of particular states.

Answer 7

1. Control state = monopoly over1 or more tiers:
   Ex 1. Idaho > controling off-premises sales > 16% ABV
   Ex 2. Michigan > monopoly on wholesale sales + spirits
   Ex 3. New Hampshire > only sold by state package shops and convenience shops, also private off-premise permits for smaller brands
   Ex 4. Pennsylvania > all spirits sold in state package shops from which on-premise licencees are obligated to buy from
2. Open state = minimal involvement of the state > suppliers and distributors free to enter/exit agreements to sell and distribute brands freely
3. Franchise state = restriction of suppliers to change distributor > protecting distributors
   Ex 1. Connecticut > - restricting number of off-premise licencees - restricting number of licences available in each city/town - prohibiting quantity discounts by distributor - enforcing minimum-bottle-pricing

Question 8

What is the big challenge of the Three-Tier-system?

Answer 8

Consolidation: number of distributors decreasing, while number of USA wineries increases, resulting in large portfolios
1. disadvantage for small producers
2. less control by producer on marketing and business-to business sales
3. growth of conglomerates > easier for larger distributors and importers, but limiting specialist distributors

ADVANTAGE: - increasing direct-to-consumer sales (shipping + cellar door sales) > restrictions by states being loosened - no volume needed for producers to participate in Three-Tier-System BUT: high costs for producer