1. (a) Because the Chilean wine industry, as a whole, has achieved a good reputation as being a “value for money” or a low cost alternative to more traditional, old-world wines (subsequently positioned at the low end of the fine-wine cost range), the country-of-origin effect has made it difficult for smaller, boutique wineries, such as MontGras, from being able to fully control its own market position and produce and sell higher-quality wines at premium prices.
However, although the country-of-origin effect has a large influence on shaping consumers’ general perceptions on wines from Chile, MontGras can use the effect to differentiate and reposition its brand in order to control its own market position. Moreover, as stated in the case, consumption of high-quality wine brands is steadily increasing, while the consumption of more traditional lower quality brands has significantly fallen (6). The perception of Chilean wine being a low-price alternative was developed by the increase in exports of bulk wines with competition based on price. This exports in bulk strategy, which led to the perception or country-of-origin effect does not align with MontGras’ goal to produce and export high quality wines and not compete against the larger Chilean wineries. Therefore, the country-of-origin effect also allows MontGras’ the opportunity to differentiate its brand identity based on exporting higher quality wines at premium prices. The implementation of a differentiation product strategy will instantly allow MontGras the ability to command higher prices for its higher quality wines, thereby controlling its own market position through product and price, distinguishing it from the majority of Chilean wine producers.

(b) Because the mission of MontGras, to produce high quality fine wines, contradicts its country-of-origin effect or consumer perceptions of Chilean wines, the implications for MontGras’ marketing strategy has to be focused on building a brand image that connects its brand identity of a high-end, high-quality product sold at premium prices to sophisticated consumers. Although, as stated before, Chile’s wine industry achieved a good reputation for being a quality, value for money product, it failed to develop an attractive image for its product beyond its price. MontGras should see this an opportunity to reposition Chile as one of the best wine-growing regions in the world (which it is), subsequently improving its own brand image. In addition to agreeing to join Interbrand’s proposal for a new positioning through a “Wines of Chile”, “Wines of Chile Week” marketing program, MontGras should continue to take advantage of its existing industry association, Chilevid, and aggressively market Chile and MontGras through international fairs such as wine-tastings and contests. MontGras must do everything it can to build not only its own brand image but the brand of Chilean wine as well.

2. MontGras experienced two failed attempts in previous distribution arrangements in the United States, not because the product itself underperformed but because first, MontGras’ product price was too competitive, forcing its first distributor to contract in fear of losing market share for its own products, and secondly, due to a lack of management by one of the largest distributors in the United States hired to improve MontGras’ sales. Because U.S. market for imports is heavily regulated by a three-tier distribution system reliant on wholesalers, who handle portfolios of approximately 2,00 brands, and state-licensed retailers, it’s difficult for a foreign company to establish a new product line in a timely manner with detailed management. World Wine Importers, although ranked among the fasted growing sources of premium imported wine and spirits, is not the right choice for MontGras because it sells over 200 different brands from seven different countries, including a Chilean winery in the variety al segment, which would make it unlikely for MontGras to receive the individual attention it needs to establish its differentiation strategy and capture market share. Moreover, World Wine Importers’ proposed “value for money” positioning strategy contradicts MontGras’ goal to sell its premium wine at prices higher than Californian wines, which MontGras has proven people will buy. Therefore, I recommend that MontGras select Cabo Imports as its new distribution partner in the United States. 70% of Cabo Import’s sales come from Italian wines, which would enable Cabo to develop a clear process to distinguish MontGras as an equal or counterpart to old world wines. Moreover, the idea proposed by Cabo Imports to have a U.S. based associate that would act as a company spokesperson would give MontGras the individual attention and expertise needed in navigating the highly regulated market for U.S. imports. This individual or spokesperson would therefore be able to focus time and energy on communicating MontGras’ brand identity to the individual retail outlets, and other off premise consumers. Cabo Imports would also provide MontGras with direct communication channels between with the producer and distributor, thus enhancing MontGras’ brand image and positioning.

The U.K is the major export destination for MontGras (11), built as much on the relationship with the distributor as much as the quality of MontGras’ wine. Although the research of exports to the U.K. based on a value for money model appears overwhelming in favor of bulk exports at competitive pricing, its important to note that larger Chilean wineries already have a strong market share in lower price ranges in the U.K., and MontGras’ strategic decision to offer only its reserva lines resulted in MontGras becoming one of the top Chilean wine exporters by value (11). The strategy for MontGras to export in bulk based on a low-price model to one of the U.K.’s leading supermarket chains in exchange for MontGras being included in a promotional program would provide MontGras with an initial spike in sells (helping the company move closer to reaching its objective of export sales of 350,000 cases by 2005), raise brand awareness through ads and in-store merchandising, but would contradict and undercut MontGras’ efforts to connect its brand identity to its brand image. Instead the strategy to ship directly to Tesubry based on low cost would sacrifice the firm’s long-term vision for a short-term gain, undermining MontGras’ positioning strategy. Therefore I do not recommend MontGras ship directly to Tesbury. However if MontGras is able to renegotiate a higher price for which Tesbury will list it in its stores, then it would align with the firm’s brand identity and be a good partnership. According to a price elasticity test conducted by Middleton in the U.K., there would be no impact on volume of sales if the price were raised incrementally by approximately two pounds (15). I also recommend renegotiating for a higher price because it would be a huge boost for MontGras to participate in Tesbury’s promotional programs in order to increase brand awareness. However, the primary focus of MontGras should be to maintain its strong relationship with its current distributor while cultivating new relationships with Tesbury and other supermarket chains by not sacrificing price and communicating its high quality product commands higher prices.