Vision: An Great Example of Spotting an Opening

While flying back from California, I read the story of Yellow Tail wine and John Soutter. For a strategist, it is a classical example of spotting an opening in the market and establishing a position in the opening. At first, John Soutter, the CEO of a small family winery in Australia entered the American market as people naturally do by following the crowd. When, he released his his "Carramar Estate" label wine, priced and branded like all other upscale wines on the US market, he thought is was a great success from his perspective. It sold 25,000 cases its first year, which he thought was terrific. He was shocked to discover that American distributors didn't consider it worth importing at that level of sales. The scale of the ground was very different from what he was used to in Australia, and, though profitable for distributors to sell, the wine just wasn't distinctive enough to command a following. For distributors, it was just another low, volume, me-too product. On his flight back from America, he thought about what he had learned about the American market, a market dominated by giant wineries. He realized that there was not one, but two openings in that market. The first hole was a price gap between the low-priced "jug" wines and the high-priced "bottle" wines. People in the American market didn't see that hole because cost of making bottle wines had crept up gradually over the years and the pricing had followed it, opening up the hole in the $6-7 per bottle range that everyone took for granted. As an outsider just coming into the market, however, Soutter could see that hole clearly because that was more typical of the price of bottles of wine in his own country. The second hold was a flavor hole. In a great example of Sun Tzu's "innovation by rearranging" principle, Soutter realized that he could make a good bottle wine by cutting down on the most expensive part of the process, aging in oak barrels. The result is called a "fruit-forward" wine in which you taste the fruit more immediately when drinking rather than as a part of the finish. In Australia, fruit-forward wines are popular with those moving from beer (Australia's national beverage) to wine. He suspected that there was a similar undiscovered segment in the US market where people were also moving from beer to win. Because eliminating the expensive aging in barrels cut his manufacturing costs, he could price the resulting wine in the empty $6-$7 space in the market. Since he was exploring a new segment, he also felt he needed a different look for his product. He abandoned the traditional "sophisticated" wine label look he had used in his "Carramar Estate" brand and instead used bright colors and modern fonts for his new "Yellow Tail" brand, creating a distinctive visual look that said that the wine itself was something different and new. When he released the wine in the US, he hoped that it would sell 25,000 cases, duplicate the volume of his Carramar Estates brand but reaching a market segment different enough that the distributors would want to carry it. Instead, he sold over two million cases his first year. That grew to four million cases in 2003. Today, despite the entry by the big US wineries into the "fruit-forward" segment, Yellow Tail maintains its dominant position in the segment it pioneered as predicted by Sun Tzu's strategy.