Saturday, June 16, 2012

Yellow Tail in a Blue Ocean

In this week’s reading article “Blue Ocean Strategy” by Kim and Mauborgne, blue oceans are defined as new, uncontested market spaces that represent new growth potential; red oceans are defined as established market spaces that are either likely to shrink, or is already shrinking steadily. It makes perfect sense for companies to want to identify these blue oceans as competition is avoided, new demand is created, and more importantly, it is a very cost-effective way to build branding. Companies who are the first to identify a blue ocean will often be remembered for it by its customers for a long time, thereby giving it a substantial head-start in capitalizing that market space.

A company that has successfully harnessed these positive effects is Casella Wines, which is based in Australia. In the late 1990s, competition in the American wine market was already fiercely dominated by several major producers. Demand was stagnant as wine-drinking was a rather subjective affair, appealing to the country’s minority. This was not surprising as the taste of wine, characterized by dryness and sourness due to the presence tannin, oak and acid, was not well-received by a population used to sweet soft drinks and beer. Given the rather dire situation, how then did Casella Wines emerge to become the No. 1 imported wine producer in the U.S., selling more than 11.2 million cases in 2004?

Before entering the market, Casella Wines knew very well that if they were to stand a chance, they cannot stick to the traditional rules. They decided to target the remaining 85% non-wine-drinking Americans with a new genre of wine that is sweeter and easier to drink. In 2000, the Yellow Tail brand was born. As quoted from the reference article, “It didn't simply steal market share; it grew the market, bringing in 6 million new wine drinkers. Novice wine drinkers began to drink more wine, jug-wine drinkers moved up market and expensive-wine drinkers moved down to Yellow Tail”. It accounted for 11 percent of all U.S. wine imports in 2005.

Besides simply tasting different, Yellow Tail had other qualities that made it more appealing to the new wine drinkers. In the marketing department, a “no jargon” concept was adopted. Unlike other wines that come packaged with an “elitist”, traditional bottle label peppered extensively with wine terminology all over, Yellow Tail’s bottle label was simple and unintimidating. In addition, while other wines had prestige and legacy as the key fronts of their marketing, Yellow Tail was portrayed as a vibrant and fun wine to drink. And, if you were a new wine-drinker shopping for a Yellow Tail, you just needed to buy either the Red Shiraz, or the White Chardonnay – minimal confusion over Red or White wine varieties! Moreover, there was no need to procure expensive wine fridges or build underground wine cellars to age Yellow Tail wines – just buy and drink immediately!

As we have seen, Casella Wines had successfully identified their blue ocean and reaped the benefits in a short span of time that few new entrants would ever even dream of. As identified by the reading article, they created a new market segment that presented them with “ample opportunity for growth that was both profitable and rapid”. They did not have to fight with their competitors for demand.

Yet, one would doubt the longevity of Yellow Tail’s success. How long can the brand last? What happens when new entrants or copycats arise, as was the case with Bronco Wine’s Charles Shaw (nicknamed Two-buck Chuck)? Although the reading article wrote that a “blue ocean strategy creates considerable economic and cognitive barriers to imitation”, it will not hold them off forever. Casella Wines would need a new blue ocean, or a different strategy. Perhaps, it is time to start adding tannin, oak and acid into their Yellow Tail wines.


2.         The Art of Demystifying Wine

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