Creating Value on the Vine: A [yellow tail] Case Study
[yellow tail] in a Red Ocean
The U.S. wine industry is a highly-competitive $20 billion industry with over 1,600 wineries. Most companies create products by focusing on prestige. They also create wine with quality defined by price points.
[yellow tail] became a raging success in America by taking a completely unconventional pathway. Casella Wines in Australia, [yellow tail]’s vintner, defied industry standards, upended long-established methods and pursued an entirely different marketing channel.
"Over-delivering meant adding complexity to the wine based on taste profiles shared by wine makers and reinforced by the wine show judging system. Wine makers, show judges and knowledgeable drinkers concur that complexity—uniqueness of the soil, season, plus winemaker’s skill in tannins, oak and aging processes—equates quality." (Blue Ocean Strategy, p. 28)
Conventional strategic logic—benchmarking competitors, choosing either differentiation or low cost, offering more for less, offering better solutions than your rivals to the existing problems defined by the industry—dominated the industry. Wines, whether budget or premium, imported (i.e. France, Italy, Chile, etc.) or domestic (i.e. California), basic or sophisticated, all competed head-to-head with each other for market share.
Most wineries in the United States were trapped in a market where boundaries were defined and accepted and the competitive rules of the game were known. All were trying to outperform their rivals for a greater share of existing demand. In other words, everyone was going for a bigger slice of the exact same pie. They all accepted and reacted to the same problems defined by their industry. Hence, their Red Ocean became bloody.
Innovation and Identifying Blue Oceans
Casella Wines in Australia, however, set out to redefine the problems of the U.S. wine industry. The Casella brothers’ first attempt at entering the U.S. market was a failure.
But, instead of giving up, they sought to learn from experience. They rented a car and drove across America. They did not tour wine country in California, nor did they visit different wineries and vineyards, nor did they go to wine and cheese parties or attend wine-tasting and judging events.
Instead, they went the unconventional route—going to honky-tonks, beer halls, drive-through liquor stores, mom-and-pop liquor stores, as well as big-box outlets, nightclubs and drugstores. They actually observed beer drinkers.
They wanted to redefine the problem of the wine industry to a new one: How to make a fun and nontraditional wine that’s easy to drink for everyone. Why? They looked at the demand side vs. the supply side. This includes alternatives such as beer, spirits and ready-to-drink cocktails, which represented three times the market compared to wine.
Casella Wines found that the mass of American adults saw wine as a turnoff. It was intimidating and pretentious and required cultivating a discerning taste. With these insights, they were ready to explore how to redraw the strategic profile of the U.S. wine industry. This is what we call a Blue Ocean Framework.
So, initially they reached into the BOS Toolbox to utilize two tools: the Strategy Canvas and the Four Actions Framework. The Strategy Canvas is a visual, diagnostic, strategic tool showing the current state of play in an industry. It demonstrates where the competition is currently investing, the factors the industry currently competes on and what customers receive from the existing competitive offerings.
The Four Actions Framework has a horizontal axis that represents the range of factors the industry competes on and invests in; it aslo has a vertical axis that represents the offering level that buyers receive across all these key competing factors. When the budget and premium wines are plotted, both their strategic profiles converge along the exact same axis, looking just alike, which is precisely what is not desired in creating a winning strategy. This highlights another visual tool—the differentiated strategic profile called a Value Curve.
To accomplish this, they utilized the Four Actions.
Framework: Eliminate, Reduce, Raise, Create. Casella Wines eliminated three factors that the industry took for granted, reduced three more factors, raised one—their price, just slightly above budget wines and then created three new factors the industry had never seen.
This resulted in a new and different Value Curve, completely divergent from the convergent strategic profiles of both budget and premium wines. Hence, their new Value Curve was totally different from all the rest…which is precisely what is desired in creating a winning strategy for a brighter future.
To fundamentally shift the Strategy Canvas of an industry, one needs to reorient their strategic focus from competitors to alternatives and from customers to non-customers. This is exactly what Casella Wines did: They shifted away from the competitors, other wines, to beer, spirits and ready-to-drink cocktails, and from wine drinkers to beer drinkers and prepackaged drinkers. Again, the latter equals three times the market for wine drinkers.
[yellow tail] in a Blue Ocean
Casella Wine created a highly successful new Blue Ocean with [yellow tail] that took the $20 billion U.S. wine industry by storm. In the span of two years [yellow tail], a fun, social drink, emerged as the fastest growing brand in the histories of both the Australian and the U.S. wine industries; and it became the number one imported wine in the United States, surpassing both France and Italy.
Casella Wines used the Blue Ocean Strategy to explore and create new uncontested market space. By looking at the alternatives of beer and ready-to-drink cocktails and thinking in terms of non-customers, by redrawing the Strategy Canvas of the U.S. wine industry and by employing the Four Actions Framework, Casella Wines created a new, highly-successful Blue Ocean in a highly-competitive bloody Red Ocean industry.