Stairways to Heaven

Ladder branding in the wine business

Back in the mists of time when BMW launched the 3 Series, I can remember reading an article suggesting that this was a serious mistake. By making BMWs more widely available, the argument went, their image of exclusivity would be irrevocably damaged, an image that had taken years to establish.

This came to mind as I read of the launch of Margaux de Chateau Margaux, which represents the third of four rungs in the ladder; below Pavillon Rouge and Chateau Margaux itself and above Margaux AOC. I’ve heard criticism in the trade about this move: some implying they are cashing in on the value of the parent brand, others suggesting that it represents a devaluation of Chateau Margaux’s brand equity.

One thing is clear: neither BMW nor Chateau Margaux will have taken the decision lightly. In the end, the decision on whether to cash in on exclusivity depends on the company’s long-term goals and financial position. Some companies’ success criteria may be satisfied by selling broadly similar volumes every year at high prices; others may decide that their goals can only be achieved by broadening their customer base, even if this means that their premium image is put at risk.

The fact that existing consumers’ perception of a brand will certainly change for the worse if it moves off its lofty perch should certainly influence a producer’s  decision, but ultimately companies are not in business simply to please their existing consumers. Brands are a means to an end, not an end in themselves. If it is considered that the end is best served by making the brand more widely available then that is certainly the correct decision. This was surely the case for BMW as it was for its great rival Mercedes.

I would also argue that some consumer loyalty is transient, however clever a company’s marketing. Consumers who might be classed as “discoverers” tend to move on anyway, even if a brand remains exclusive, which can leave such brands high and dry and with a reduced ability to cash in. Timing therefore, as in so many areas of marketing, is everything.

Writing as a self-confessed “ladderphile”

Many car manufacturers have developed what are known as “ladder brands”, and they are pretty common in our own industry too. I became a convert to ladder branding in the 90s, influenced as I was by my experience with Penfolds, perhaps the ultimate wine brand of this type. The advantages of ladder branding are clear. It encourages consumers to stay within one brand whatever the occasion, whatever their budget – you become to some extent a one-stop shop.

With all brands of course it is vital to keep consumers engaged and with ladder brands this is less difficult as one has more flexibility. There is more room to add new lines, and more material therefore for interesting stories. My mantra at Penfolds was “the day our core consumer completely understands Penfolds is the day they move on to another brand”; on the premise that train spotters tend to find another hobby when they’ve spotted all the trains. And with Penfolds it wasn’t difficult to come up with new “trains”.

The problems with ladder branding

The major problem with a ladder brand comes if it gets out of balance: if what is happening with the lower rungs becomes too important and waters down the aspirational value to an unacceptable level.

This of course is the risk BMW took, and why most of their marketing subsequent to the launch of the 3 Series was focused on the tiers above that and the overall image of the brand. With Penfolds, the marketing of Grange and the upper rungs plays the same role.

Which is why ladder branding is easiest if you go “top down” as opposed to “bottom up”. Brands with an exclusive image create a halo effect which draws consumers in, but brands building from the bottom have no such advantage. They may have a strong franchise in their own way, but the values they own do not as a rule cross over in to premium sectors. Thus brands such as Kumala and Jacob’s Creek did not find premium sales easy to come by. Also the more successful you are in the mainstream sector, the more you are constrained by this sector: it may be quite possible to move horizontally, but more difficult to climb vertically.

Having said that, top down laddering only works if the brand is genuinely aspirational. People tend not to climb up ladders unless they want to get to the top. And creating effective halos takes either a substantial investment or a great deal of time … and often both.

The lessons from generic brands

Some of the best examples of ladder brands in our business lie in the generic field. On the positive side the presence of the leading Bordeaux chateaux clearly adds value to every single wine from Bordeaux; less so perhaps than in the past, but it is still very apparent.

On the negative side, however, as noted in an earlier post (Going regional: why the new world should bother) the Australian ladder became a disadvantage when all the discounting at the mainstream end sucked the premiums into the quicksand. The same happened to Germany with the over-promotion of Liebfraumilch in the 1980s. Meanwhile, the very strength of the lower rungs of the Chilean and South African ladders has ensured that not enough consumers have bought in to these countries as sources of premium wine.

The lesson is that strong ladder brands, by their very nature, need to be aspirational, but they also need to be appropriately balanced. And the further you stretch a ladder the more one risks it getting out of balance. With Penfolds we thought long and hard about launching a £4.99 range. Were we stretching credibility? Would Rawson’s Retreat (as it became known) unbalance the brand?

The difficulty in keeping all this together, for any length of time, is why many producers aspire to a portfolio of brands with very clearly focused roles and target consumers. Less “one-stop shop” and more “individual boutique”. This approach is in many ways more costly and less manageable, but it’s also less risky, particularly if some of your brands are exceptionally exclusive or have highly defined positioning.

I’d be very surprised if simply by adding another rung to their particular ladder Chateau Margaux has put its exclusivity in any way at risk. But, as many generic and individual brands have proved, premium images which take decades to build up can be jeopardised in far less time. Creating a stairway to heaven is a great idea in principle, but sticking to the marketing equivalent of the straight and narrow is a lot easier said than done.

Advertisements

9 thoughts on “Stairways to Heaven

  1. To take the other position (where is the fun in agreeing) I am of the position of Mini and BMW, not just BMW. I loath ladder marketing and my market reseach of myself tells me that I am utterly confused by Penfolds. There’s Penfolds Grange and Penfolds Cheap, WTF? But I am a hypocrite as you’ll see shortly.

    I think each market segment should have its own brand as per your conclusion at the end, “individual boutique”. I’d only add that every brand should be highly positioned to a market segment, it’s not optional. However …

    I’ve also just completed some market reseach of 61 Wine Regional Marketing Organizations (RMO). I was exchanging emails with someone who use too work at Finger Lakes Wine Country whether I should have included the Tourism (& Wine) website rather than the Wine RMO website. She explained that the money went into the tourism site not so much the wine website. I explained that if I included tourism sites then I’d be going outside the scope of the study and that the Tourism RMOs are much more competitive eg SeeAustralia.

    My point here is not about regionality but about resources. I think that is where you start. As Al Ries and Jack Trout said, 1) choose your position and 2) get there with the mostest, or words to that effect. You can’t do 1 without resources to do 2.

    If you only have enough funds for one brand then you should have only one brand. Need to get rid of surplus wine, then sell it to another winery, rather than create a B Brand.

    Have some exceptional single vineyards and your primary brand is premium? Then keep the one brand and add single vineyard desgination. Effectively a sub brand, just the BMW not the Mini strategy.

    Which makes me a hypocritical but pragmatic. I may loath ladder marketing but ladder marketing from a premium brand up is okay. Ladder marketing from a premium brand down to mainstream is a disaster. The two markets require segregation. At least I remain pure in some of my brand strategy, perhaps not a priest more a layman.

    • My problem is that I was spoilt with Penfolds. I was also spoilt working with Brand Australia which as a ladder worked very well in the 90’s. As my piece implies I have become rather disillusioned subsequently.

      Certainly, to take your point Bruce, I would not advocate to a producer creating a ladder brand from scratch for the reasons you note.There has to be real premium substancxe to start with and then there is the danger of imbalance. The lesson of the early years of this century from Australia is that producers that use ladders to get rid of surplus wine are making a huge mistake.

      I like the idea of niche ladders as you both advocate.This is my view for example of how English Wine should go. All elements of the brand are in effect poiting at the same consumer in approx the same way. Its a brand family perhaps as opposed to a ladder.

      But to return to Penfolds Bruce. When i Joined the company I wrote a note of my first impressions and was very critical of the complexity of the range. I was told very politely to give it six months.During that time I had the equivalent of a road to Damascus experience and realised how the complexity worked to set the brand apart.Without boring you ( or indeed anyone else ) with too much detail, it wasn’t just the laddder it was really the fact that it appeared to our core consumer that the brand had just evolved and had never been marketed. The role of the marketing dept therefore was to keep this impression going while of course working hard behind the scenes.It is astonishing to think that all the reds ( and there were well over 10 ) were just Shiraz and Cabernet in different proportions and occasionally from different regions.You wouldn’t dream of launching a brand like that but every single bottle we could have sold probably three times…and we sold 250k dozen of reds alone.

      What I would say is that to me the essence of Penfolds is red wine. If I was starting again and had complete control of the brand I would keep it 100% red. So in a roundabout way I am agreeing with both of you ( which is rather dull ). The Penfolds ladder worked because the core brand was so special and therefore it was difficult to unbalance, but in an ideal world if one wanted to maximise the return over a long period of time then I would strip out any element that might unbalance it or reduce its exclusivity,in the future..and the white range would go as probably would the entry point red.

  2. I’m with Bruce. I used to be a firm believer in ladder brands, until I saw what happened to Mondavi. Stated simply, I think the hi-fi principle applies: the system is as week as its poorest component. The cheap end of your range definitely jeopardizes the top end. The top end MAY help the the bottom.
    The ladders that seem to work have fewer than four rungs, none of which is too far from the others. Penfolds, and maybe Beringer are exceptions to the rule, but BMW sensibly has Mini and Rolls Royce at the extremities of its range and Torres now downplays its branding on its growing range of regional super-premium wines.

    • One of the problems with ladder brands is when you get lazy and they become a catch all for any new initiative. And because there is so much ‘space’ within them there is always the temptation to add another rung as opposed to create a completely different brand. Over time therefore the essence gets watered down and as you rightly say a system ( or a brand) is only as strong as its weakest component.

      The other issue is when perhaps short term financial considerations mean that the decision is made to risk your brand equity.This could imply the need to get rid of surplus stock or even establish a mainstream brand quickly. Much easier to do so by using a premium brand you aleady have, but very dangerous.

      The Torres approach is an interesting one. Such producers can of course decide to use their umbrella\family name across a range of wines in a way that subtly endorses each brand. The logo style etc would be the same but the strength of the name on any particular wine can vary significantly ( Antinori is perhaps an example here). Ive no idea of the decision process within such companies but would imagine this question gets a fair amount of attention.The key I would imagine is to have agreed the essence of the brand, which implies you have a framework with very clearly understood boundaries, and nothing beyond those boundaries should carry the brand name whatever the temptations!.

  3. one thing i have learnt is that wine purists will always hate ladders while the sales guys trying to grow the top line will love them.
    also, you can drop a ladder down (we can debate how many rungs….) but you can’t build a ladder up – BMW / Mercedes v Ford / Vauxhall / Opel anyone???
    Finally, who thinks that the Ferrari brand is damaged by millions of aspirational Ferrari owners who will NEVER get to buy one but who nonetheless buy expensive branded, logo’ed clothing / caps etc and wear it with great pride.
    I buy brands outside wine from many different rungs on the various ladders offered without agonising over whether the rung i am buying has been devalued. Why should wine consumers behave differently???

    • Well to take your last point first Peter, ladder brands do clearly get devalued by inappropriate marketing. Examples would be Beaujolais Nouveau bringing down the image of Beaujolais and the over promotion of Lieb bringing down Germany. And this has clearly affected sales and return ever since.

      To take your first though, there will always be a debate between marketing and sales and indeed marketing and finance on this issue. My main point in the post was that brands are not ends in themselves, they are means to an end and it may be that long term equity occasionally needs to be risked to serve broader goals. No doubt when you were running Rosemount you had some very interesting conversations about this very subject! Sales people also will, as a generalisation, concern themselves more about the short term and as you say are pro ladders, or brand extensions in general, because its an easier sell than launching a totally new brand.

      Marketing driven companies will weigh up the consequences of such action more thoroughly than their sales driven counterparts. Hence BMW were clearly happy to develop the 3 and then the 1 series but as has been noted kept Mini as a seperate brand. These clearly represented decisions based on how best to acheive the companys longer term financial goals linked with how best to develop the companys primary assets..ie its brands. As an outsider at least this combination of ladder branding and seperate branding seems to have worked very well.

      You may be right that marketing people agonise too much about these things and are over protective of brands but the penalties for not worrying at all are clearly substantial and if I had to err on one side or the other I know which side Id choose.

      And I definitely agree on your top down bottom up point while lll have to think about your Ferrari point! As to whether wine purists though hate ladders? Ive never really thought of it like that.I always saw Penfolds as rather a haven of wine purists…maybe we mean different things by the term?

      • I agree with Peter re purists and ladders (outside Burgundy and some classic French regions perhaps). I’d also question the Ferrari point. Ferrari doesn’t offer cheap cars; it sells jackets and caps to people who’d never be able to buy a Ferrari – and probably drive Fiats.

    • Bugger the trade and sales people ;), I think the more important question is do mainstream consumers like ladders? The car analogy is perhaps not the best one because a consumer goes up a ladder within the mainstream car category. When they can afford to move to the premium car category they probably change brands (supposition, I’ve never worked in the car industry).

      So how about other industries, do they have laddering from mainstream to premium categories:
      – clothes: no laddering
      – suitcases/bags: no laddering
      – spirits: nope
      – watches: no

      Can’t think of any good examples. Laddering is best kept to the mainstream category in small rungs/value increments. When it comes to premium brands create a new one (if you can afford it).

      I think it’s not just wine enthusiasts who don’t like laddering it’s natural consumer behaviour.

      As to Ferrari, I think they are supporting the sport as much as the brand. Imagine what the Porsche brand manager thinks when s/he sees the local plumber wearing a Porsche cap while covered in excrement…

      • I think Bruce and I are on the same page here. Segmentation works in most fields; ladders tend to confuse. One area where ladders ARE tried is in hotels and I for one find the multiple types of Hiltons and Marriotts confusing. I much prefer the Accor model with its multiple brands (Ibis, Novitel, Sofitel etc)

Make a comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s