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What can we learn about marketing wine from the Chinese?

2012 May 23

A few years ago, if I suggested that China would be a major player in the wine industry, you would have thought I was hitting my cellar a bit too often. But who would have imagined 20 years ago that nearly all our electronics and manufactured goods now come from a country that is the last bastion of Communism. Today, China is the fifth largest consumer of wine in the world and poised to be a major player both in its consumption and production. Just this week, Chinese wineries took home 18 medals from the 2012 Decanter Wine Awards including a gold for a 2010 Cabernet Franc from  Chateau Reifeng-Auzias in Shandong province, a joint French-Chinese venture.

Photo by Powell Yang

Given China’s enormous population, very few are actually wine savvy. The typical Chinese consumer buys cheap plonk made domestically that is either very sweet or highly-fortified wines that more closely resemble moonshine brandy. Those who can afford higher end wines have nearly cornered the market on first and second growth French Bordeaux and Burgundy. Seeing the photos from my Facebook friend, Powell Yang, conspicuously reminds me of this. However, it’s that huge potential middle-ground where many New World wineries are hoping to score big with Chinese consumers. But even if your distribution plans don’t include China or Hong Kong, you can still learn something from them.

With the Chinese, it’s all about status. You’ve heard the phrase, “to save face,” meaning to avoid humiliation and command respect.  In China, where the concept of “face,” (面子) originated, appearances are everything. Much effort and money is spent trying to impress family, friends and coworkers to enhance their own social value. We’re not talking about impressing people with your thrifty purchases at the local second-hand store. It’s all about conspicuous spending. Because of that, highly prestigious brand names make a killing in Asia. If you doubt that, check out the stores in the Ala Moana mall the next time you’re in Oahu, Hawaii, where 80% of the population is Asian. It’s a who’s who of high-end brands. Wine too becomes a status symbol. The typical upper middle-class wine buyer in China is more concerned with the impression a wine will make than with its taste, that is, is it well-known and is it expensive? Pulling a bottle of 1990 Romanée-Conti from your cellar would certainly impress me, but unless they know wine, most people wouldn’t recognize that name or perceive it as prestigious. And, like an obscure joke that goes unappreciated, if you have to explain it, it loses its humor and you lose face.

But it’s not the just the Chinese who buy wine for prestige. Many collectors buy only the most expensive wines based primarily on scores from wine reviews. Some buy it as an investment while others buy it for little more than bragging rights. Have you been to a gathering where you’ve been asked to bring a great bottle of wine? No? Well, let me tell you, it quickly becomes a vulgar display of oneupmanship and it’s those occasions that scream for cult wines…no pun intended. Screaming Eagle is a California cult wine that has achieved its status by producing opulent Cabernet Sauvignon that have received 100 point scores from noted wine critics. Is it really that much better than other Rutherford-grown Cabs? I don’t think so and many critics would agree. However, their critical acclaim allows them to sell futures at upwards of $800 per 750ml bottle that can immediately fetch 150% of its original price at auction. With that kind of escalation, who can afford to actually drink it. It becomes more of an investment than a beverage; one that the collector can show off to his wine friends.

Becoming well-known is a matter of exposure and reputation. In China, 62% of wine buyers frequently use online social media as the source of their information and less than 40% rely on word-of-mouth from friends and family. Those numbers are almost opposite how typical Western consumers get their wine recommendations. However, being well-known may not always be a good thing. Who hasn’t heard of Charles Shaw, more commonly known as Two-Buck Chuck, or Gallo’s Thunderbird? Reputation is equally important—you want to be known for the right reasons. If you want to be known as a value winery, then managing your reputation won’t be nearly as difficult, or as costly, as trying to establish yourself as a high-end producer. When the largest Washington producer, Chateau St. Michelle wanted to break into the high-end market, they established the Col Solare brand instead of trying to re-establish their existing brand. On the other hand, when premier Walla Walla winery L’Ecole No. 41, needed to re-establish themselves as a high-end brand, they dumped their recognizable child-like illustration on their label, often associated with value wines, and designed a new label with a more elegant sepia-toned illustration that reflects the high quality of their wine.

What makes a wine command a high price? Scarcity and uniqueness. Vintage wine is by its very nature a scarce product. Only so much of it can be made each year and each year is truly unique. Economics dictate that wherever there is a demand of something in limited supply, its perceived value increases. A wine made from grapes sourced from a specific vineyard is more scarce and unique than a wine made from grapes grown anywhere in a region. In addition, wines that receive awards, accolades, or favorable reviews often become more valuable since it becomes more prestigious and demand for it increases. Cayuse produces Washington wine made by winemaker, Christophe Baron, that can only be purchased as futures through their exclusive mailing list. Their mailing list is full and each year they sell out. Once they sell out, there’s not much point to offering tastings of something unavailable, so they close their tasting room for the year. How’s that for scarcity and uniqueness.

So, what have we learned?

1. For many, wine is a vanity purchase. Sure, if it’s expensive it should also taste pretty good, but it’s mainly brought out from the cellar to impress others. Nothing tells your snobby, wine-loving father-in-law you’re able to take care of his baby than pulling a bottle of Petrus or La Tâche from your cellar. Hey, you’re so vain…you probably think this blog is about you.

2. Gaining exposure will increasingly rely on social media. As the generation that grew up on technology start consuming more wine and grow out of the swill they got drunk on in college, they will be more like the Chinese and use online tools to get wine recommendations. What good stuff are their friends drinking? What are bloggers and critics recommending? But if the critics and media don’t know about your wine, how can they recommend it to others?

3. Wine competitions and traditional media can help you improve exposure and reputation. Were it not for several New Zealand wineries entering Barbara Drady’s Pinot Noir Shootout and Summit, I would have never known how good some inexpensive New Zealand wine could be. Sure, competitions and traditional media lends an air of respect and authority to any mention of your wine, but oftentimes, paid promotion is expensive for small or value producers and [shameless self-promotion:] if it weren’t bloggers like me telling you about that New Zealand wine, how would you have known?

4. Gaining a reputation can be difficult. Sometimes it easier to establish the reputation of a new brand than to change the perception of an existing brand. This doesn’t mean you can simply put the same old wine in a heavier bottle, although I know several wineries who do just that. You have to offer more and show people what more entails. That space on the back label of your bottle is a great place to tell the story about the wine that they hold.

5. It’s simple economics. Something scarce is worth more. In the diamond industry, a near flawless and colorless diamond commands a much greater price than those with inclusions or color because of its rarity…and a lot of marketing from DeBeers. You need to provide more and sometimes that’s just a matter of offering less. A wine produced from a single block of a vineyard and aged in Tronçais or Allier barrels is much more unique than the blend you’ve aged in French oak. And heck, it makes for an impressive label.

6. Exclusive = prestigious. Not everyone can live in a gated community. Not everyone can join the country club. That’s what gives these places prestige…that and the huge price tag. An exclusive customer list for your best wines is one way to market a prestigious wine. A waiting list for your customer list makes it sound even more desirable. However, if people have to wait years to actually get on the customer list, you might come across as supercilious.

At the risk of stereotyping my cultural cousins, many Chinese are preoccupied with social status. To those of us who buy wine based on how it tastes and the value it provides, buying wine for the sake of appearances seems very superficial. However, there is a significant number of wine collectors here in the U.S. and other Western countries who purchase wine for the very same reasons: prestige. This minor market segment still deserves to be recognized and understood. While the typical wine buyer may see all of this as just another example of wine snobbishness, I have to look back at a time when I didn’t understand wine at all and thought anyone who tasted and made notes about wine was a wine snob. It’s all a matter of perspective.

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3 Responses leave one →
  1. May 24, 2012

    Thanks for the insights. You mentioned that 62% of wine buyers use online social media to research wine. Which sites are Chinese people using for this?

  2. Eric Hwang permalink*
    May 25, 2012

    Many Chinese can read some English, but that’s not what prevents them from using the same search engines we use. Since the government limits their access to many Western sites, Chinese buyers are relying on their own internet search engines to research wines. Search sites such as Baidu, the largest search engine in China, limit the results to sites accessible to the Chinese public. Buyers also rely on wine information sites such as WineChina.cn.

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