Champagne Moments in Category Management

Posted 20/10/2015

Champagne . It is a word to play with. At its best, intriguing, biscuity flavours and depth, at its worst, a sad promise of a world just out of reach. However, it is a word describing a whole industry which has, at its heart, a series of cleverly placed and well managed images, messages and ideas. The portrayal of the drink as aspirational, primed for celebration and wholly worthy of higher occasions, together with careful placement against high value activity, has propelled it into a level of pricing which is both impressive and long lasting.

How, then, can Champagne inform our view of category management? There are, of course, champagne moments in Category management (such as reluctant stakeholders suddenly becoming avid supporters, or a dramatic and game changing insight from an unexpected quarter), but we’re really focussing on the lessons Champagne can give us in areas of market and pricing understanding.

Firstly, we can think of the fundamentals of a should cost model. If we break down champagne production and get to the core elements, allowing for a heavier gauge bottle and some additional labour for the turning process, then we’re not a significant distance away from the price of general wine. Even a wired on cork won’t make a massive difference. If we’re still not sure about our outcome, we can benchmark prices against something similar, such as sparking wines using the method champangnois, and check. As the best of those is about half the price of champagne, and we allow for generally accepted levels of markup, we can get to a production cost which is well under a quarter of the experienced price.

Clearly, something else is influencing price - although this isn't a startling insight! As we look at the effort put into product placement, it is clear that the aim of the champagne industry is to drive itself towards value pricing - where we as consumers are placing a value on the benefit of consuming champagne above and beyond the actual cost structures which sit underneath it. There must be a dramatic level of value being attributed, based on the price differential we’ve already found. If we look at the aspirational values being ascribed, then we can expect to participate in a world of Formula One, yacht racing, polo and other rarefied occasions.

We might add to that the rarity of the product; clearly, there must be a restriction on supply to help create that sense of added value. However, acute observation at a number of events, and indeed at our local superstore, suggests that the chances of there being a champagne shortage seem to remain low. So, supply/demand balance doesn't appear to be an issue, indeed, supply seems very comfortable, but still there is no price erosion.

Perhaps we could look to one of our other tools to help us understand. If we consider a modified version of Porters Five Forces, then we might ask if there is an opportunity for a substitute. Indeed, a number of these appear to exist, using similar grapes and the same production method to produce often excellent tasting and beautiful sparkling wine. We could look at new entrants into the Champagne marketplace, and here we might find a challenge; closely controlled use of the word Champagne, and a very constricted ability to become another champagne house.

This leads us to PESTLE, and we find a host of regulatory and market control mechanisms in place which drive the restrictions in champagne. So, we’re in a controlled market, experiencing high prices with close alternatives available.

Now we can get to a strategy. Perhaps hard negotiation with suppliers. Perhaps deep exploration of those substitutes, identifying a suitable alternative through deep study. Champagne may meet its match when we expose it to such rigour.

But our stakeholders - how will we take them along? We need to convince them of the opportunity and rightness of our cause, by helping them embrace the journey, understand the issues and alternatives and embark with us on the many tasting sessions needed to get to the right answer. Getting them started early on the journey will be key.

So, this is just like category management. It has a price challenge, and analytical exercise, deeply rooted stakeholder issues and an opportunity to explore a marketplace to find a satisfactory alternative.

Category Management has the opportunity to be full of champagne moments, but we need to embrace the process to help us find them. And when we’re successful, there’s a bottle of sparkling chardonnay awaiting!

Share your Champagne moment below.

Tagged by topic: Category Management , Procurement Transformation

  by Allison Ford-Langstaff

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