Question

Mary Smith, a Level II CFA candidate, was recently hired for an analyst position at the Bank of Ireland. Her first assignment is to examine the competitive strategies employed by various French wineries.

           Smith’s report identifies four wineries that are the major players in the French wine industry. Key characteristics of each are cited in the table below. In the body of Smith’s report, she includes a discussion of the competitive structure of the French wine industry. She notes that over the past five years, the French wine industry has not responded to changing consumer tastes. Profit margins have declined steadily, and the number of firms representing the industry has decreased from 10 to 4. It appears that participants in the French wine industry must consolidate in order to survive.

	South Winery	North Winery	East Winery	West Winery
Founding date	1750	1903	1812	1947
Generic competitive strategy	?	Cost leadership	Cost leadership	Cost leadership
Major customer market (more   than 80% concentration)	France	France	England	U.S.
Production site	France	France	France	France

Characteristics of Four Major French Wineries

Smith’s report notes that French consumers have strong bargaining power over the industry. She supports this conclusion with five key points, which she labels “Bargaining Power of Buyers”:

•	Many consumers are drinking more beer than wine with meals and at social occasions.
•	Increasing sales over the Internet have allowed consumers to better research the wines, read opinions from other customers, and identify which producers have the best prices.
•	The French wine industry is consolidating and consists of only 4 wineries today compared to 10 wineries five years ago.
•	More than 65% of the business for the French wine industry consists of purchases from restaurants. Restaurants typically make purchases in bulk, buying four to five cases of wine at a time.
•	Land where the soil is fertile enough to grow grapes necessary for the wine production process is scarce in France.

After completing the first draft of her report, Smith takes it to her boss, RonVanDriesen, to review. VanDriesen tells her that he is a wine connoisseur himself and often makes purchases from the South Winery. Smith tells VanDriesen, “In my report I have classified the South Winery as a stuck-in-the-middle firm. It tries to be a cost leader by selling its wine at a price that is slightly below the other firms, but it also tries to differentiate itself from its competitors by producing wine in bottles with curved necks, which increases its cost structure. The end result is that the South Winery’s profit margin gets squeezed from both sides.” VanDriesen replies, “I have met members of the management team from the South Winery at a couple of the wine conventions I have attended. I believe that the South Winery could succeed at following both a cost leadership and a differentiation strategy if its operations were separated into distinct operating units, with each unit pursuing a different competitive strategy.” Smith makes a note to do more research on generic competitive strategies to verify VanDriesen’s assertions before publishing the final draft of her report.

Smith notes in her report that the West Winery might differentiate its wine product on attributes that buyers perceive to be important. Which of the following attributes would be the most likely area of focus for the West Winery to create a differentiated product?

The method of delivery for the product

A focus on customers aged 30 to 45

The price of the product

Answer 1

**Bartering power is the capacity of customers to impact the cost charged by the merchant. It implies it helps in lessening the buying cost of a specific item so the purchaser will be profited.

* *S'sreport uncovers that the nation 'F' customers have solid haggling power on the given business. This is a direct result of the accompanying reasons:

As it assists with developing deals by better exploration, articles and assessment of other wine buyers, and furthermore assisted with contrasting the costs of wines of various makers.

However, this point uncovers that purchasers are getting more data about the quality and costs. This doesn't firmly uphold S's view as there are just 4 wineries working today and doesn't give sufficient space to purchasers to deal as there is absence of rivalry in the business.