ASSIGNMENT QUESTIONS
“MARKETING CHATEAU MARGAUX”

1. How does the Bordeaux wine distribution system work? Who benefits and how?
Chateau Margaux, as nearly all other members of the Bordeaux region, focused its efforts on making great wines, not marketing and distributing them. As a result, an elaborate system was developed through the 400 merchants (negociants) called the en primeur system. These merchants taste the wines early on and render opinions to big buyers in the world which would influence purchase decisions. The wine could be sold in barrels, especially the first growths, and any excess would be bottled for sale and distribution. Pricing could vary widely from year to year, based upon the taste and assessment conducted each spring by the international trade and journalists. The 1st tranche provided strict allocation to selected merchants at a set price. The 2nd tranche offered at an adjusted higher price. The 3rd tranche would be offered if market was judged as receptive. Pricing could vary widely from year to year, however the down years still realized sales by purchasers who wanted the ability to purchase again the next year. The system benefits the wine makers because it allows them to focus on their core business of making great wines while allowing the merchants to market, price, and distribute the wine for them. In this arrangement, each wins and makes a profit because they recognize the value that each party brings to the table for the other party. This is something that may need to be re-evaluated in the future given the power of the internet and easier distribution of the end product. At this time, it appears the current system is most likely helping maintain and optimizing the value of their goods brought to market.

2. How is price set? Trace the process from the sale of the first tranche to the sale of a bottle in a wine store for $1,200. Why is the price so complicated?
The price is not a fixed price based upon the underlying expenses. Pricing is more of an art than a science because it is not quantified and created by the underlying expenses of running the vineyard. The process of pricing begins when the merchants or negociants get an early taste of the wine and begin sharing their opinion with the big buyers from all over the world who contact them in anticipation of the new barrels that will become available. This anticipation helps to build demand which becomes even greater because the merchants manage the market and widely distribute the wine in small amounts increasing the value through a compound effect on pricing. They begin to create multiple offerings in order to determine pricing and demand. The first tranche is offered to selected merchants at a set price and the reaction to this tranche helps them gauge and adjust the price higher for the next offering or second tranche. If the market continues to express interest a third tranche might be offered. Several layers, including the vineyard and merchants, contribute to the premium pricing but the true source for premium pricing is the management of the supply and demand reinforced by creating demand at the first tasting to gauging the success of each tranche and adjusting the price accordingly. Few businesses have the ability to control the process as the en primeur system does, but this would only work for premium wines in the luxury and connoisseur level, leaning more toward the connoisseur level which is more insulated from economic ups and downs. Another factor is brokers and merchants who made purchases in the previous year are given favor, so they are inclined to make purchases in years they would prefer not to buy, as a means to gain access to purchase the next year. This is well controlled process that has been perfected over time and optimized to get the most for any given years wine batches. This involved process is more than adding up the expenses which is easy to do. The process is made to create and manage the demand for a