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To: Mike Roberts

From: Brad Lau
Date: 13, May 2008
Subject: A recommendation for Château Margaux

Dear Mr Roberts,

Château Margaux is a well-known French wine-making company that

has established for more than 150 years. It mainly produces two

types of wines, one is Château Margaux and the other is Pavillon

Rouge. Though these two types of wines had been generating profit

for the company, it is facing some challenges and improvements are

needed. In this report, the problems faced by the company will be

first discussed followed by some recommendations.

Among all the problems, competition from New World producers is

the first one. New world producers mean the countries from

Australia, South Africa and California. With better marketing, lower

costs, modern production techniques and increasingly good quality,

New World wines become great competitors of the company and it

led to France’s share of the U.S. imported wine market fell 12 % in

ten-year time.

The second problem is the change in tastes of wines. Lately, there is

a trend that people prefer tannic taste and they like the wine with

heavier and darker colour. This contradicts with the company as

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their wine is more balanced and elegant. By following the trend,

more people will consume New World wines as their wines are more

tannic.

Last but not least, the company did not have its own distribution

system. As it had little knowledge on its customer base, they did not

really know who their customers were. Consequently, they could not

make appropriate marketing strategies as they do not know their

target customers exactly.

Thanks to these problems, the market share of imported French

wine in other countries has dropped dramatically. Plus, there was an

anti-French movement in the United States and people are opposed

to French products, including wine. As a result, this anti-French trend

make situation of French wine even worse. To tackle the

aforementioned problems and gain back market share, the company

should expand in new markets and grab more loyal consumers for

the wine. China market is one of them and the following analysis will

show why China is suitable.

From political aspect, after China’s entry into the WTO in the year

2001, the tariff has been reduced to around 10-14% and in the year

2007, it is even eliminated. With the cancellation of tariff, the retail

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price of the wine can be adjusted. A reasonable price combined with

the established brand in customer’s mind, it will favour the

company’s entry into China.

From the economical view, the economic environment in China has

been booming in the past decades. GDP per capita of the Chinese

people is increasing and they have higher purchasing power. As a

result, they will be demanding for more luxury goods like wine.

Therefore, high-income group in China is the target of the company.

Furthermore, social and cultural environment has to be considered

as well. After the adoption of the Open Door Policy, Chinese people

have increased the contact with foreigners through different social

activities. Serving customers with expensive brand of wine can be

treated as a mean to represent their high social status. Therefore,

they will demand high-end wine, like Château Margaux.

In conclusion, entering China market is one of the best ways for the

company to gain back market share in the world. To implement this

plan, the company can rely exclusively on merchants in China that

are experienced in selling wines. They have established distribution

channel and people can only purchase the wine in selective places.

This will give the impression to consumers that the wine is high-end

and cannot be easily bought. It is hoped that by this measure, the

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company can gain back its market share in the long term without

tarnishing its image.

Yours sincerely,

Brad Lau

(598 words)