isabelleleeIsabelle Lee is a Junior transfer pursuing a degree in Business Administration at UC Berkeley. In Berkeley, Isabelle is actively involved in Haas Student Business Association, serving on the Presidential Committee as well as conducting research with the Undergraduate Research Apprentice Program on “Open Innovation” for Dr. Sohyeong Kim. She intends to pursue a career in management consulting as it fits her personality of going beyond herself to help others and always questioning the status quo.

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*The Undergraduate Research Apprentice Program (URAP) is designed to involve Berkeley undergraduates more deeply in the research life of the University. The Program provides opportunities for you to work with faculty on various research topics.*

This article was contributed by current students, Isabelle Lee (’16) and Brandon Pearl (’17). Information about China’s Counterfeiting Wine Industry was contributed by exchange student, Kang Liu.

 

Last semester, I had the opportunity to research the wine industry with a fellow student, Brandon Pearl. Together, we conducted research for areas in need of improvement, namely, open innovation. Open
wine1943-620x354innovation is a term coined and popularized by resident UC Berkeley professor, Henry Chesbrough, and encourages seemingly unrelated businesses to share technologies which could lead to overall industry growth. With the guidance of Dr. Sohyeong Kim, our research project consisted of answering these, among other, fundamental questions: what is the business model of the wine industry and what are some ways open innovation can disrupt the wine industry? We broke our research into three parts: the consumer base, industry outlook, and a case study featuring China’s counterfeiting wine predicaments.

The Consumer Base

The wine industry’s lividity hinges on the loyalty of its consumer base. Unlike products such as baby formula and elderly-care, wine currently finds its way to consumers who hold onto the tradition of wine-drinking/tasting. However, as more wineries are opening up, each offering quality wine at a fraction of the vintage price, the opportunity to involve a greater variety of consumers in the wine market beckons the innovators.

A big problem on the consumer side lies in the branding of wine as a product. The current product design, all class and greater than a single serving, targets adults in their late-20’s to late-50’s. A large portion, however, of potential and active adults of drinking age lie in the 21-27 year old range. The current product design, however, loses to that of canned beer or other homemade beverages. Union Wine Co. (http://unionwinecompany.com/) and Barokes Wine (http://wineinacan.com/) each take their own approach to the “wine-in-a-can” idea to reach a broader demographic. The first provides a personal, 2 serving can while the second keeps the traditional wine bottle’s shape but reduces it to a single serving. Each has the potential to draw in new customers, but the choice to shift packaging lies on the production side.

Industry: Production and Distribution

The wine industry has been growing over the years (especially with the jump in 1994 from the Boomers), but is starting to suffer with the now rapid rate of Boomers leaving the age where wine is a relevant commodity. Now, because there isn’t the same type of jump to carry the wine industry from the declining Boomers to the rising Busters and Millennials, one of the most critical questions to be answered by wine companies/makers, as we learned through our research, is how to arrange external ties with other companies and research organizations – potentially leading to a successful innovation system – without compromising unique and highly specific assets. Based upon the consumer revenue model, a given producer should be able to tailor marketing efforts to target largely affluent customers. While there are middle and lower class consumers, the producers generally focus on selling wholesale to larger distributors, therefore needing the targeted marketing effort towards these larger figures in the wine industry. Overall, the wine industry needs means for cheaper/more effective marketing, making harvests more consistent with one another, reducing production costs (water/labeling) and bringing wine to consumers at a more reasonable cost with lower turn-around time.

China’s Counterfeit Wine Predicament

Moving abroad, we encountered the problem of counterfeit wine production in China. This counterfeit wine can be broken into three distinct categories: wine with a fake brand, genuine wine with fake label information, and overall production counterfeiting. To clarify, production counterfeiting can be anything from fake corks to bottling *non-wine* liquids.

In 2009, Oak Ridge Winery noticed that Guangzhou Red Blue Trading Co. labeled their products with fraudulent information and stated that these products were produced by Oak Ridge Winery. According to a wine dealer, this type of counterfeiting is not rare in the Chinese wine market (see: http://info.tjkx.com/detail/774243.htm).

Unlike Europe or the US, China has a very limited culture of drinking wine. It’s fairly common for a European family to have their own wine grape vineyard, but generally rare for Chinese families. Most Chinese people cannot tell the difference between genuine and fake wines, let alone that manufacturers go to great lengths to spot the counterfeits. This explains why a non-technical Chinese counterfeiter can easily sell millions of bottles of fake wine, which is unheard of in Europe or the US.

Buyers and sellers are facing information asymmetry in the Chinese wine market. No matter how much effort European or American wine sellers put into their bottles, the Chinese market will remain relatively unaffected. If wine producers want to change this trend, they need to make this information accessible to consumers and also, cultivate China’s wine culture.

As our research concluded at the end of December, we were blessed to have the opportunity to meet some of the most dedicated people in the industry. Having encountered a breadth of information through this research project, one could say our critical analysis and organizational skills have improved tremendously. We now know how to conduct scholarly research, as well as how to sift through the myriad of data that is available. This research project was definitely one of the most valuable experiences a student could receive at a world class institution like UC Berkeley-Haas. Anyone that has a desire for independent research, please visit, http://research.berkeley.edu/urap/, to find out more about the URAP program and how you can get involved next semester.