Download Research on Strategies for Rapid Development of Shaoxing Wine:

Research on Strategies for Rapid Development of Shaoxing Wine:
A Value Innovation Perspective
NAI Li2, SHENG WZ1, 2, PANG Fei1
1. School of business and management, Shaoxing Uni., Shaoxing, P.R.China, 312000
2. Research center for science, technology and education policy, Zhejiang Uni., Hangzhou, P.R.China, 310012
[email protected]
Abstract: Rice wine, port wine and beer are three ancient wine categories in the world. Shaoxing wine
is the typical representative of rice wine. At present, beer and port wine are the mainstream products in
liquor market while rice wine is only in the edge of the market. Further more, the leading position of
Shaoxing wine is under serious threat with the rise of Shanghai rice wine. Based on in-depth industry
survey and literature review of value innovation, this paper analyses and explores development
strategies of Shaoxing wine industry hope to provide some implication to the industry.
Keywords: value innovation, rapid development, rice wine, Shaoxing wine
1 Introduction and problem statement
Contrast to the mainstream products position of other two ancient wine categories, rice wine only
accounts for a limited market share: about 4.5% of the liquor market according to Food weekly in
Chinese. Shaoxing wine, as the typical representative of rice wine, its annual revenue is about 2 billion
RMB in these years according to Shaoxing Economic and Trade Commission. Although under the great
historic name and the certificate of origin protection, Shaoxing wine still doesn’t get cognition of young
national consumers (Aiming, 2007): Market constrained in the regional middle-aged consumers of east
China and Japan. In the same time, Shanghai rice wine shocks its traditional market a lot. Nowadays,
Shaoxing wine is the rice wine with highest gross margin, but the most profitable rice wine brand in
China is in Shanghai. Why young national consumers don’t cognize Shaoxing wine? Can Shaoxing wine
industry break out of its existing industry frames to get rid of the un-equalizing status quo?
Focusing on these questions, we first made a second data collection of rice wine industry and made a
literature review of rapid development and value innovation. Next, depth interviews with managers of
marketing, production and administrative staff of two famous Shaoxing wine Corp. and file analysis
were going on. We also did some contrast experiments to check the natural characteristics of Shaoxing
wine. At last, we analyzed the development history of Shaoxing wine and discussed its development
potential based on the characteristics of Shaoxing wine and value innovation theory.
2 Literature reviews of rapid development and value innovation
2.1 Concept of rapid development
The concept of rapid development derives from the concept of creative destruction (Schumpeter, 1942).
The traditional industry logic focuses on matching and beating their rivals, it results to taking on similar
strategic dimensions which leads to cut-throat competition and incremental improvement. Entrepreneur
converts a new idea or invention into a successful innovation through creation of new products and
business models. The creative destruction leads to the dynamism of industries. There are two aspects of
meaning to the concept of rapid development: One is the speed of development (rapid growth), the other
is the ways of development (leaping to a new stage). It can be understood in aspects of efficiency and
effectiveness in the process of development. To enterprises or industries, rapid development means to
launch new value concepts and continuously re-invent the way customer value is created and delivered
(Matthyssens & Vandenbempt & Berghman, 2006) through different competitive mindset and
Sponsored by National Social Science Fund 09BJY050 and Social Science Fund of Shaoxing City 115016
460
systematic way of opportunities seeking (Kim & Mauborgne, 2004). It means breaking free from
taken-for-granted assumptions about competition, industries and their intra- and inter-organizational
(Spender, 1989) in value innovation ways of doing business.
2.1 Literature review of value innovation
Value innovation relates to a re-conceptualization of matured industry models (Matthyssens &
Vandenbempt & Berghman, 2006). It involves a redefinition of a business by focusing on the powerful
commonalities in the features that customers value (Kim & Mauborgne, 2004). Through creating
enough economic surplus to support a price that makes business sense and thrills customers with the
benefits (Dillon & Lee & Matheson, 2005), value innovation creates new markets (new products or
services) and new ways of competing (new business models). In short, value innovation creates new
aggregate demand through a leap in value at an accessible price (Dillon & Lee & Matheson, 2005). Kim
& Mauborgne (2004) pointed out five basic dimensions of strategic logic difference between
conventional logic and the logic of value innovation (see fig. 1). These differences determine how
managers operate their enterprise: What opportunities they seek and pursue and how they understand
risk.
Fig. 1 Differences in five basic dimensions between conventional logic and the logic of value innovation
Basic dimensions
Conventional logic
Logic of value innovation
Industry assumptions
Strategic focus
Customers
Assets and
capabilities
Product and service
offerings
Industry conditions are given
Building competitive advantage to beat the
rivals
Competing at the margin for incremental
share
Retaining and expanding customer bases
through
further
segmentation
and
customization
Focusing on the differences in what
customers value
Viewing business opportunities through the
lens of their existing assets and capabilities
Offering traditional products and services
Max. the value of their offers
Looking for blockbuster ideas and
quantum leaps in value
Pursuing a quantum leap in value to
dominate the market
Freeing up resources to identify and
deliver completely new resources of value
Targeting the mass of buyers
Focusing on the key commonalities in
what customers value
Having more insight into where value for
buyer resides and how it is changing
Having much more likely to act on the
insight
Thinking in terms of the total solution
buyers seek
Overcoming the chief compromises their
industry force customers to make
Matthyssens, Vandenbempt and Berghman (2006) related key organizational practices of value
innovation to process of market sensing, sense making, transformation and application to commercial
ends. Dillon, Lee and Matheson (2005) further proposed that enterprise value was delivered through an
iterative business process, based on five stages: Business intelligence to generate value propositions and
identify new businesses models that create extraordinary value for customers, value modeling and
analysis to validate extraordinary value for customers, decisions and prioritization to embrace risk and
allocate resources for success, communications and implementation to maximize success by leveraging
resources, and value validation to confirm value. They proposed that there are four questions must be
asked in order to translate the thinking into a new value curve: Which of the factors that our industry
takes for granted should be eliminated? Which factors should be reduced well below the industry’s
standard? Which should be raised well above the industry’s standard? Which factors should be created
that the industry has never offered?
In general, value innovation offers a considerable increase in value. It can be realized by simultaneous
pursuit of radical superior value for buyer and lower cost for companies (Matthyssens & Vandenbempt
& Berghman, 2006). Value innovation will generate a lot of word-of-mouth praise. These advantages
will fundamentally change the competing conditions and drive innovators to rapid growth. However,
value innovation requires the re-conceptualization of business and new ways of doing business. Getting
support cross industry boundary becomes necessary.
461
3 Situation analysis of Shaoxing wine industry
3.1 Characteristics of Shaoxing wine
The main characteristics of Shaoxing wine identified as consumer perceived success factors are
reflected in its rich amino acid content, heat content, health claim and cooking.
The first characteristic of Shaoxing wine is its rich amino acid content. Paul Shuzo Co., Ltd of Japan
analyzed its contents in auto-analyzer of amino acid in 1974 (Zhu Baoyong, 1982). It showed 21 kinds
of amino acid and the total content of amino acid is 6770mg/L. As contrast, the total amino acid content
of dry red wine was 1581mg/L. Further more, there were 8 kinds of amino acid belong to the special
ones that human body cannot synthesize itself and has to be taken directly from outside. This result
ensured the industry's position of Shaoxing wine in Japan. Up to date, Japan is still the largest exporting
destination of Shaoxing wine. Although rice wines of other region also contain similar amino acids, their
contents of amino acids are much less than Shaoxing wine.
The second characteristic of Shaoxing wine is its rich heat content. The heat contents of Shaoxing wine,
red dry wine and beer are 5024, 3550, 1490 KJ/L (Zhu Baoyong, 1982). This characteristic helped
Shaoxing wine won the reputation of “liquid cake”. It is also in accordance with the traditional usage of
Shaoxing wine for keeping warm in winter.
The third characteristic of Shaoxing wine is its health claim. According to Compendium of Material
Medical (Li Shizhen, 1578), rice wine can be used in treatments of dredging blood vessels, thickening
stomach, nursing skin, supporting liver and eliminating foul qi, etc. In Chinese medicine prescriptions,
various herbs are soaked or stir-fried or boiled with rice wine to enhance their efficacy. A cooperating
research of Zhejiang Univ. and Guyuelongshan Corp. examined its health functions of lead excretion,
memory enhancement, immunity enhancement, senility deferring, capacity improvement of antioxidant
and hypoxia and regulation of intestinal flora (Xie Guangfa, 2008).
The fourth characteristic of Shaoxing wine is its flavoring function. It is widely known that Shaoxing
wine can make seafood and meals smell better and more delicious. Contrast experiments showed
obvious differences in smell, color and taste of seafood flavoring with Shaoxing wine than other kinds
of rice wine.
The main characteristic of Shaoxing wine as perceived barriers to its market expansion is its uncommon
taste. On the other hand, its rich nutrient and heat content also becomes its barriers to a certain extent in
modern life.
3.2 Development history of Shaoxing wine
The development of Shaoxing wine has passed through two phases. The first phase is the
industrialization period which focused on production capacity and stability of product quality. Starting
from the brewage and yeast research of Shaoxing wine supported by Ministry of Light Industry in 1964,
the production capacity and product stability of Shaoxing wine got improved rapidly. The second phase
is the value discovery period of vintage which focused on marketing. The wines with years of aging in
the market got revalued. It up-grated the Shaoxing wine industry. In these two phases, Shaoxing wine
was in the dominating position of rice wine industry. At present, the industry entered into the
post-second phase. Market expansion has not been effectively realized and the industry is competing at
the margin for incremental share. Further more, its most profitable traditional market are stolen by the
Shanghai rice wine. New value searching state of Shaoxing wine is still in process of market sensing and
sense making. The industry is calling for value innovation.
3.3 Development potential of Shaoxing wine
Activated by the development of Shanghai wine, Shaoxing wine industry is actively exploring its value
innovation paths. Imitating Shanghai wine, new style wines come out to be light in taste, be bottled in
similar package, be in fashionable names and even to be in new image with additional elements of
traditional Chinese herbs. As a result, the main characteristic difference between new Shaoxing wine
and Shanghai wine are gradually disappearing. The boundary between some new variety of Shaoxing
wine and Shanghai wine gets blurring. According to value innovation theory, quantum leaps insights in
462
value reside in the changing consumer needs which can be perceived by business intelligence of market
sensing. But the realization of the new value propositions has to be certain supported by product or
service researches. To Shaoxing wine, Brewing is the fundamental part of the industry. The former
development stages of the industry were all based on its core of brewing industry. Results from our
focus team which consisted of management experts, practitioners of marketing and brewing and
innovation professions are also in line with this propose. Although the new Shaoxing wines are
competing for market share to Shanghai wine nowadays, their values are still not validated scientifically.
First, the new wines don’t reveal the intrinsic characteristics of Shaoxing wine in rich amino acids and
juice thickness compared with Shanghai wine. Secondly, the benefits of new wines to human being are
just supported by traditional Chinese medical theory instead of somatic science. The result of
cooperating research of Guyuelongshan Corp. with Zhejiang University just examined the traditional
functions based on guinea pigs. Although value innovation needs further reason, most consumer even
don’t know this research. In contrast, the effects of veratryl alcohol in port wine which give consumer
the scientific reason to consume with seafood, Shaoxing wine should give consumer the clear reason for
consuming. The third one is that the foundation concepts of the new wines are not from direct customer
perception. In other words, the new wines are just from concept copy instead of value innovation to
elements consumers focused. Lesson from port wine and historian prospect of Shaoxing wine show that
value of wine is mainly from its interaction with culture and life. But it is misapprehended by most
people of the industry. They neglect to digest the culture sticky in history and integrate it with life.
Although the new wines present the progress of Shaoxing wine industry, it is not enough for leap
–forward development. Leap-forward development need to be supported by products with real valuation
innovation. To Shaoxing wine, it would be important to combine its intrinsic cultural and physical
characteristics, customer perception of modern life and scientific research. Unfortunately, the
conventional logic still drives the industry allocating their most resources to marketing.
4 Conclusion
Shaoxing wine industry has experienced the two phases of innovation: Production innovation and
market innovation. The next phase will be value innovation. The value innovation of wine industry
resides in its core process of brewing. It seems that the industry has entered into a myopia trap of
emphasis on marketing and overlooking the fundamental research of brewing. On the contrary, the
brewing research is just the place where the extraordinary value of Shaoxing wine hidden and the
industry can be relied on. Viewed from the development history of Shaoxing wine, the industry has been
accustomed to skimming markets without brewing research. It is perhaps the reason why Shaoxing wine
with highest gross margin in rice industry cannot develop rapidly.
References
[1]. J. Schumpeter. Capitalism, Socialism and Democracy, Harper, New York, 1942
[2]. P. Matthyssens, K. Vandenbempt and L. Berghman. Value innovation in business markets:
Breaking the industry recipe, Industrial Marketing Management, 35 (2006), pp.751 – 761
[3]. C. Kim and R. Mauborgne. Value innovation: The strategic logic of high growth, Harvard business
review, top-line growth, July-August, 2004
[4]. T. A. Dillon, R. K. Lee and D. Matheson. Value innovation: Passport to wealth creation,
Research-Technology Management, Mar.-April, 2005
[5]. Aiming. Wine industry in China (2), Chinese Wine, Mar. 2007 (In Chinese)
[6]. Zhu Baoyong. Brewing technology, Light press, 1982 (In Chinese)
[7]. Xie Guangfa. The health function research of Guyuelongshan brand Shaoxing wine, Newspaper of
Chinese Wines, 20/02/2008 (In Chinese)
463