Brown-Forman Corporation Marketing Research

Proposal - Marketing Problem

Background

Brown-Forman Corporation is one of the largest American companies in the wind and spirits industry, Fetzer Vineyards is their largest winemaker. Revenue and gross profit for the beverage segment of Brown-Forman were up 11% and 14%, respectively, in fiscal 2004. However, the growth was driven by the premium spirits brands, and the gross profit from the company's wine brands declined due to a drop in volume for both Fetzer and Bolla wines. There are many symptoms for why this decline has occurred. Health consciousness is a rising trend among Americans of all ages and the latest crazes are the low-carbohydrate diets. Recently, Fetzer has introduced into the market two new low-carbohydrate wines, a chardonnay and a merlot. Their premium spirits brands have not been affected by the new diets because bourbon, whiskey, rum, gin, and vodka all contain no carbohydrates. However, most mixers used to accompany these spirits usually contain a significant amount of carbohydrates. Introducing these new wines could offer a new choice, but not a substitute, for many dieters and at the same time give Brown-Forman the lead in this new market.

In 2003, Brown-Forman announced that they were going to begin using organically grown grapes to make their wine. Fetzer Vineyards plans to have nearly all the grapes used in its four major labels grown organically by the end of 2010. According to Marc Jonna, buyer for the Whole Foods Market, "demand for organic wine is small, but a move by a major player like Fetzer could change that." Women already perceive wine as a healthier alternative to other alcoholic beverages. This health conscious image will allow Brown-Forman to direct their marketing efforts in response to this cultural trend and penetrate the market by providing information through advertising about their new wine ingredients.

Another symptom of the decrease in wine sales is due to the lack of awareness among consumers about the types of wine available. In a restaurant setting consumers often shy away from ordering wine because they may feel uneducated about the types of wine offered or uncertain about which wine would best compliment their entrйe. Restaurants have attempted to address this problem by educating their servers and providing progressive wine lists, but if a person doesn't understand the difference between a blush wine and a full-bodied wine or if they feel it is a hassle to ask questions the end result is the same, no wine has been sold. A further symptom is distribution-the lack of presence in bars or at least the presence of quality wine. Even those people who drink wine on a regular basis do not order wine when they are at a pub or bar. The reasons behind this are very well founded. Bars usually only carry two types of wine, a chardonnay and a merlot and these two choices are usually only changed annually. Customers expect that there is not a great selection of wine in a bar and usually just opt for a beer or a mixed drink. With the amount that people spend drinking socially, Fetzer is missing a huge market segment. Some women will settle for an inexpensive wine at the bar, but if they had other alternatives of wine they would drink wine more often.

Defined

Fetzer is facing three significant problems. One problem is that Fetzer lacks adequate distribution. Fetzer is distributed enough to maintain sales, higher growth potential. Fetzer is not meeting the value expectations of their customers with their current wine pricing. This problem stems from consumers who are aware of the grape glut in California, and who are expecting high-quality wine at a historically lower price. As consumer continue to learn more about the grape glut their expectation are increasing. Finally, the most significant problem associated with Fetzer is that they are not allocating their resources effectively. Fetzer's problems with value and distribution may be affected by a lack of awareness. This leads to lack of awareness, which may be a result of the availability of funds.

Scope

The problems associated with Fetzer are not concentrated to a local or specific region. Problems stem almost everywhere Fetzer is sold, nationwide. There are two aspects of Fetzer's business that their current problems are impacting the most. The surplus of grapes in the state of California is one factor that is greatly affecting Fetzer's pricing strategy. California is producing too many grapes, which in turn is driving the price of wine down. Consequently, the lower the price of Fetzer, the less promotional capital will be available to the company.

Fetzer's problems have also interrupted the brand's product positioning. A reason behind the poor visibility of Fetzer is that wine is less profitable for the supplier, so it leaves less promotional dollars to utilize. As a result of poor visibility, wine selection for American proves to be difficult and would rather choose an alternative, such as a beer, to avoid the hassle and complication. Fetzer is losing

potential customers.

Implications

For every bar, pub, restaurant there needs to be inclusion of the Fetzer brand in wine selection. If the distribution strategy is shifted towards having more Fetzer wine available to the retail consumer, sales can grow at a higher rate. As long as there is demand, Fetzer needs to be available.

Customer value expectations are critical to any type of business. If Fetzer continues to neglect this problem, they will continue to be vulnerable every time there is a shift in customer value expectations. Fetzer cannot always use pricing strategies to deal with value shifts, this would cause revenue to be too volatile, and hence vulnerability is turned into a much bigger problem.

In respect to resource allocation, the implication of not addressing the problem would soon leave Fetzer lethargic in a dynamic marketplace. Fetzer would slowly lose to competing brands because of its inability to move and address consumer demand as fast as competition.

Motivation

While trying to discover a product that had a current marketing problem, our group wanted to research and study a product and company that was headquartered locally, but distributed nationally. We also wanted to be able to research a particular problem of the product that we would all be familiar with, as well as familiar to many of the students in our class. After researching various products under our group's specifications, we chose Fetzer, Brown-Forman Corporation largest winemaker, for our research. We