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Eprovenance & the Wine Market Essay

Custom Student Mr. Teacher ENG 1001-04 19 March 2017

Eprovenance & the Wine Market

The key sellers in this market are the growers, producers, as well as factors who aid in production by providing services and information, like Eric Vogt; Key buyers are the local merchants and retailers, importers and wholesalers and the end consumers (at home or in restaurants). The end user is by far the main buyer because he is the ultimate decision maker. Key sellers value recognition and profits. I think all sellers are in business to make money but in the case of the old tradition as wine making the producers and growers take pride in the product the put out.

Key buyers are incentivized by different things, while good value matters for some end consumers, others view wine as an investment and value its provenance, quality and name. I think that it depends on how you define a two sided market. In the sense that the price of inputs has an impact on the price and ultimately on the demand I think that yes, this is a two sided market. In Vogt’s words he was hoping to establish a (“creative Partnership” with each party focusing on what it did best).

I believe this is a two sided market in which the service provider creates revenue by adding value to the wine making business. Both benefit from working together. The producer benefits from added value in different forms because this is a market that supports use, process and collaboration value. Vogt as the service provider is currently benefiting from leveraging the established names of world famous Chateaux to expand his business.

Vogt started his business focusing on high end French wine because he had an affinity for Bordeaux wines, as well as a long term involvement and contacts in the area. From a business perspective Bordeaux wines are high quality, high price and exported in large quantities, which makes them the perfect candidate for the sensor market. I agree with the fact that focus should be on expensive high quality wines. I do however think that the French have been slow to welcome technology changes in this field and that there are many new world great quality wines that would be more receptive.

As Vogt himself described the French culture and mindset critical and negative, I believe the time and effort would be better used elsewhere. I think different segments of the market would provide different benefits. He should first market to the high end quality winemakers. Through association with famous producers he can leverage their name to attract additional business. These wines are already priced at a premium and those who consume them are probably less concerned with pricing and value quality assurance even if that means higher prices.

On a different dimension Vogt could offer the product to other players in the wine market. For example he could market the sensor to the best transportation services companies who in turn can promote the feature and sell themselves as the most dependable in the industry to carry your wine safely to the destination. The wine industry is similar to the movie and music platforms in the sense that they are unrestricted to the end user, which means that demand drives this market.

I think this could be generalized to encompass the wine market, which implies that Vogt should consider targeting the consumer. I personally think that marketing to the end consumer should mainly focus on education and training. His pitch should be somewhere along the lines of: “this product exists, it is a form of quality control and you as the consumer are responsible for demanding it. ” Although the end consumer drives the demand and ultimately pays for the price increase of each bottle of wine I don’t think he should be Vogt’s target customer.

His main target should be the producer. The winemaker is incentivized to create quality because in this industry that is the ultimate driver and the main aspect that keeps the business in existence. In addition, not all winemakers focus the same on quality, and not all winemakers who do focus on quality are receptive to the advances of technology in this field. For these reasons my recommendation is for Vogt to offer his product to high quality producers on the American West Coast, mainly in California and Oregon.

I recently visited California’s Napa Valley and it is hard to miss the impact technology has had on the business. Business Plan eProvenance is a great idea based company, with a great product but that is currently bleeding money. The Bordeaux wine region focus as well as support from industry watchers has been helpful for building confidence in the product, but this has not materialized into profits and growth. At this time I think Vogt should market his product on 3 different levels * Convince high quality wine producers in California to buy his product.

In 2011 90% of US wines were California exports accounting for 1. 4 Billion . They are highly incentivized to adopt the technology because their exports travel mainly to Europe and Asia so implicitly travel times and temperatures vary but the sensor and the information it provides is the final quality check control. * As a pricing strategy he should bundle the product reading with analysis and consulting on how to manage damaging temperatures to middle chain providers, like transporters or wholesalers and retailers.

Carriers would be incentivized to offer these services as a way to differentiate themselves and attract revenues by charging a premium on the additional service. * I think it is of high importance to educate the end consumers about this product because they drive the demand. I think Robert Parket made a great point in his commentary “ This [is] a huge step forward in the conservation and protection of wine needs to be adopted by all purveyors of fine wine at every level – from the winery to the broker, the importer to the wholesaler, and of course to the retailer.

Only with consumer outrage and demand can this be fully implemented…” Based on simple research I am going to assume that RFID chips run in a range of 25-60 per sensor. So to be conservative I am going to choose the high end of the spectrum and say each chip will cost eProvenance $45. This translates into an additional cost per bottle of $3. 75 before mark up. I will add $1 of operating costs and $1 of profit per bottle for a total cost increase of $5. 75, before it is sent to the retailer, who will mark it up as well. Part of the pricing analysis is figuring out what the consumer is willing to pay for.

To me, it only seems feasible to add a 5. 75 increase to bottles priced at least $75. I think that this kind of pricing is slightly aggressive and unreasonable, so I would suggest the other approach. eProvenance should form an exclusive partnership with an RFID technology chip producer that will allow him to get the chips in large quantities for at least half the price, in the range of 12 – 18. Instead of bundling the product with the information, eProvenance should take in a flat contract fee for information analysis and consulting.

In addition I am not sure why it is assumed in the article that every case will have a sensor, meaning we can have a sensor for each 10 cases traveling to the same region, although the logistics may be overly involved. Although it may appear as price discrimination to price these products differently, I think that in this case the quality of the wine is directly related to the added value of service, so each contract can be a little different based on how high the quality of the wine is and how large the production is.

So for a producer like Opus One with annual revenues of $52M (calculated as 25K cases * 12 * $175/bottle) you could charge a flat 250K Consulting fee a year which will translate into a price increase per bottle of $0. 83. This seems highly feasible. For 10 of these types of contracts for starters he could range anywhere from 1M to 2. 5M in the first year. One area of development is in insurance. As the article suggests this is already in the near future and Eric Vogt has researched affiliation with Lloyds of London.

I think this additional product would be a great bundling factor especially for those winemakers who care about their production but have not gone that route yet. Development of the actual sensor could entail innovation in the areas of containers that could prevent damage to the wine. I envision a more complex sensor that reads temperatures and once they fall outside the acceptable range it transmits information to a cooling/heating agent. I think this idea is forward thinking but might eliminate the need for a consulting feature.

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