CHAPTER 3

Market Audits
Michael R. Hagerty

INTRODUCTION
Filling the needs of customers in order to make a profit is the crux of
marketing. It involves intensive analysis to determine the product attrib-
utes that consumers value and to guide product and marketing modifica-
tions to provide these attributes. It leads wineries to become as knowl-
edgeable about their customers as they are about their own wine. This
chapter presents an approach to analyzing channel members and final con-
sumers. Channel members include distributors, restaurants, retailers,
supermarkets, mail-order companies, and any other entities getting the
winery's product into the hands of final consumers. Consumers can be
divided into many different segments, including special-occasion buyers,
regular users, those who buy wine to impress others, and those who drink
wine occasionally but really prefer beer. Wineries can reach these different
segments by modifying the product, the promotional programs, and the
channels of distribution.

Michael R. Hagerty has been a professor of marketing at UC Berkeley and

MIT. He currently teaches at the Graduate School of Management at UC Davis,
specializing in how consumers and citizens perceive quality in their lives.

29
K. Moulton et al. (eds.), Successful Wine Marketing
© Springer Science+Business Media New York 2001
30 SuccESSFUL WINE MARKETING

THE BASIC QUESTIONS

A market audit is used in developing a business and marketing plan.
Following are the four most important questions in an audit:

1. What market segment is the winery targeting? Try to describe this

segment in terms of its size, the benefits that consumers desire from
wine, how frequently they consume it, and where they prefer to buy
it.
2. What are the winery's two closest competitors as identified by cus-
tomers? If they had a choice in their preferred retail outlet, what
brand would they choose if they did not or could not choose the
winery's brand?
3. What is the winery's unique selling proposition (USP)? What char-
acteristics make the winery and its product sufficiently unique that
customers choose it over competitors' products? The USP weaves
together elements of standard marketing strategies relating to prod-
uct, packaging, promotion, place, and price.
4. What system does the winery have in place for monitoring the
changes in the three areas outlined above? This is an essential task
because customers' preferences are dynamic, the list of perceived
competitors will change as strategies change, and the effectiveness
of the winery's USP will change as well.

A simple technique can be developed for asking questions that only

consumers can answer. This technique can be used in surveys, informal
groups, and focus groups. Basic to this technique is an assurance to the
customer that it is not a sales call but an attempt to learn how to make the
product better fit consumer needs. The suggested phrasing is "I want to
find out how to improve the product in a way to make your life more
enjoyable."
The first question seeks to identify perceived competitors. It is easily
phrased as "How do you meet your needs for this product currently?"
"What brands do you purchase, and where do you buy them?" "What
other beverages might you buy instead of wine?"
The second question seeks to evaluate the attributes or benefits that are
important to the consumer. These attributes may include taste, value, pres-
tige, suitability for special occasions, availability, and packaging. Some of
these benefits can be identified in a question such as "Why did you buy
 Market Audits 31

product X instead of product Y?" The response might be that product X is

dry, that it goes well with food, or that friends have recommended it. First
responses are often superficial. For example, questions about taste should
be interpreted carefully because many buyers often prefer sweeter wines
but believe that they should buy dry ones, like chardonnay, to impress
their friends. Experience like this should guide the interviewer to probe
for more complete answers. The ultimate objective is to determine how
competitors differ on various attributes that are important to consumers in
the targeted segment.
The third major question concerns unmet needs. The question might be
"How can we modify our wine to make it more consistent with your
needs?" This will help the winery find out what product attributes it might
change to make it more attractive in the market. The first answers to this
question are often vague, but after a little thinking consumers come up
with good suggestions, such as more single-serving wines, better labels,
or different types of bottles. Most customers do not know or care how
wines are made; they are concerned about the benefits that are important
to them. Typically these benefits are different from what the technology or
research and development people think.

A MATRIX FOR THE MARKET AUDIT

Exhibit 3-1 shows part of a marketing matrix form used to evaluate

products in a targeted market segment. It lists the various attributes against
which the consumer is asked to rate the wine. A score of 5 indicates that
the consumer perceives the attribute to be very satisfactory, and a score of
1, very unsatisfactory. Attributes that do not apply to the product should
be left unscored. The form in Exhibit 3-1 is for only a single product. In
practice it is used to rate several products viewed as substitutes and to
indicate the importance of each variable in the consumer's purchase deci-
sion. Substitutes may include other beverages such as beer. A comparison
of products will give the winery a better idea of what its product strengths
and weaknesses are relative to its competition.
Knowledge ofthe importance of an attribute is essential because a con-
sumer may give a very high rating to a particular attribute but may not
think that it is very important in influencing purchase choice. The segment
surveyed in Exhibit 3-1 is people aged 21 through 29 who do not drink
wine regularly but do drink beer. It is a large segment and therefore an
32 SUCCESSFUL WINE MARKETING

Exhibit 3-1 Perceived Product Positioning

Evaluated group: Consumers aged 21-29 who do not drink wine regularly
but drink beer

Score 1-5 Score 1-5

Product Attributes Product 1 Product 2
Quality
Nose
Taste
Finish
Reliability
Alcohol content
"Complements a meal"
"Adds to a special occasion"
"Good for a romantic occasion"
"Good to relax with"
Price
Unit price
Volume discount
Coupons
Financing
Bundling
Convenience
Available in small bottles
Available in supermarket
Don't need to decant
Flip-top cans
Unbreakable bottles
Signaling
Varietal
French appellation
"Napa Valley"
Fancy label
Fancy bottle
"Dry"
Price
 MarketAudits 33

important marketing target if products can provide the benefits important

to members of the segment. The exhibit includes four major attribute
classes: quality, price, convenience, and signaling. Signaling attributes are
perceived correlates or proxies for quality.
A more complete product positioning matrix would indicate how the
product is rated against the competition. Not only do customers differ in
their preferences; they differ in how they perceive one winery or product
as compared with its competition. The same holds true for distributors and
retailers in the channel of distribution. In practice, the matrix is expanded
to evaluate several products viewed as substitutes and to indicate the
importance of each attribute in the consumer's purchase decision.
The first thing that people think of among quality attributes is taste. A
few buyers will look beyond taste to nose and finish, but they are not likely
to account for much in the beer drinking segment illustrated here. In the
cola market, for example, an estimated 35 percent of consumers can dis-
tinguish between the tastes of the market leaders. This suggests that 65
percent are focusing on other attributes to make their product choice. This
seems to follow in the wine market, where studies show that the informa-
tion on the label has a relatively greater impact on price than does knowl-
edge of sensory characteristics. That is bad news for producers that just
want to emphasize the sensory characteristics of wine. It reinforces the
need to think about all consumer preferences, not just their sensory prefer-
ences. So far, consumers appear unwilling to pay for those sensory charac-
teristics but willing to pay for other things.
One attribute important to many American customers is reliability. They
expect that the brand will always taste the same. Such buyers tend to be
marginal consumers without much knowledge of wine. They want a brand
that they can depend on over time to satisfy the needs that are important to
them. Alcohol content may be important for some wines (for instance,
very robust zinfandels where a higher level is preferred or very light ries-
lings where a lower content is preferred). It is unlikely to be important to
the segment covered in Exhibit 3-1.
When choosing a wine, consumers may place a strong emphasis on
other attributes that are more psychological. One of these attributes is
"complements a meal." Consumers might rate a Mondavi wine quite high
on this attribute and a Budweiser beer much lower. A similar attribute is
"adds to a special occasion." This attribute has been targeted by sparkling
34 SuccESSFUL WINE MARKETING

wine producers but has not had much emphasis from table wine produc-
ers. Related to this is "good for a romantic occasion." Consumers are
beginning to place more value on this attribute as wine advertisers devote
more attention to it. Nevertheless, this attribute remains more strongly
connected to sparkling wine. It does not seem an important attribute for
beer and therefore provides one way that a wine can position itself against
beer. Beer is better positioned than wine against the attribute "good to
relax with." Beer producers have invested hundreds of millions of dollars
showing happy people enjoying themselves in all types of situations. Wine
contributes to relaxation also, but consumers, in general, have not picked
up on that fact.
Price attributes may apply differently to final customers than to distrib-
utors and retailers. The matrix includes unit price, volume discounts,
coupons, financing, and bundling. Volume discounts may be important
within the channel of distribution. Coupons are important to supermarkets
and provide a way to get point of purchase attention. They may be an
important attribute in influencing supermarket and ultimate buyer deci-
sions. Financing is not important for the final wine customer but is for dis-
tributors and retailers. The bundling attribute allows wine to be paired
with complementary items (for example, cheese or bread). The winery
or retailer can exploit this attribute by putting together complementary
packages.
Convenience attributes relate to packaging and availability. Packaging
in small bottles might be important for the intimate dinner. People often
complain that a regular bottle is too large for a quiet meal for two.
Availability in the supermarket tends to be very important for the segment
that does not drink wine regularly and is not inclined to search it out in
specialty stores. Decanting is a practice that Americans have gotten away
from, and flip-top cans are probably important only to confirmed beer
drinkers. Unbreakable bottles do not seem to be much of an issue.
Certainly the use of plastic bottles for wine is viewed as a negative quality
attribute.
Signaling attributes are often a source of confusion. They are not the
same as quality attributes, which are measurable in themselves. Rather,
they are attributes that are proxies for quality; they signal an expectation
about quality. For example, the use of a varietal designation may suggest
that a wine is of superior quality when in fact it is not. The key point is
what the consumer thinks when confronted with a label describing the
 MarketAudits 35

variety. A French appellation or a "Napa Valley" designation is often inter-

preted by buyers to denote a special quality of wine. In fact, such terms
may be used with wines of quite different qualities. The design oflabels or
bottles may also signal quality attributes that are not valid. The same can
be said for a wine characterized as "dry." This may be a correct description
of the wine, but it may not be related to the wine's quality as perceived by
the buyer. Price is a notorious signal of quality. High price may indicate a
wine of very high quality, but evidence about a lack of correlation
between price and quality abounds. The final test is how these signaling
attributes affect a consumer's purchase behavior.

TARGETING A MARKET SEGMENT

One of the first and most crucial elements of a marketing plan is decid-
ing on the market segment to be targeted. Suppose the winery decided to
target the segment that wants a wine that is memorable for a romantic
occasion. The winery must estimate the size of the segment and the vol-
ume it is likely to generate. The segment should provide a good match for
the winery's output. Most important, the winery must be able to provide
the benefits that the target segment desires. The suggested segment can
provide good positioning for many firms. It is small enough and has
unique requirements that small and moderate-size wineries can fulfill. It is
not smart for a small winery to try to convert beer drinkers into wine
drinkers. Beer drinkers are much too large a market.
The winery must determine how to modify its product and package to
position it in consumers' minds as memorable for a romantic occasion.
The winery should consider an elegant label, a thinner and smaller bottle,
and advertising that establishes the connection between the wine and
romance. Another option could be to provide a memento of the occasion,
perhaps a peel-off label or a decorative cork or capsule. Cross-merchan-
dising is another effective strategy. The winery might have mail-away
coupons for flowers or build a display in a supermarket next to the flowers
with a discount for buying both items.
Channel selection is another important element in the winery's posi-
tioning effort. A romantic occasion often involves going out for dinner.
Consequently, the winery should target upscale restaurants where people
go for important dates. Picnics can also be romantic occasions picked up
in cross-merchandising and advertising themes.
36 SuccESSFUL WINE MARKETING

If a winery chooses a different segment, it will need to develop a unique

selling proposition that will differentiate it from competitors. For exam-
ple, in targeting heavy users that are knowledgeable about wine and have a
high income, the firm will need to develop a marketing plan to show how
the wine fills the segment's needs better than any other wine. This might
involve establishing a bed-and-breakfast facility near the winery, sponsor-
ing musical concerts, or opening a high-class restaurant. These strategies
seem appropriate to the segment and are not used by many competitors.
Catering is a relatively unique activity. Not many competitors do it, and
the winery will be filling the segment's need to entertain people. With all
these strategies, the winery is addressing a larger set of customer needs
and making life more convenient for customers.

CONCLUSIONS
Marketing experts have long been aware that a multitude of factors
affect consumer purchase choices. For many products, these factors could
be represented by demographic features such as age, education, and
income. The story is different for products such as wine where consumers
consider numerous product attributes when choosing among products.
Marketers need to discover these attributes and the relative effect they
have on consumer choices.
The positioning matrix is a useful tool for obtaining customer views on
quality elements on these attributes. The matrix matches quality, price,
convenience, and signaling attributes against the winery brand and com-
peting brands and beverages. It may also indicate the importance that is
placed on these attributes.