The Image of Cognac (1)

The image of Cognac is an asset for the whole industry, small manufacturers, distillers or the big houses who count their production in millions of bottles. Marketing is a science but it is also an art and the fundamental raw materials are price and image.

What is the image of a product?

Any consumer product has an image. Beyond its actual utility, beyond the rationality of its market price, its image somehow has a bearing on the forming of the public’s demand. In that sense, we could define image as the general perception that the public has about the product. Competitors don’t just fight it out on prices: conveying an adequate image is a priority, particularly in the times of instant, global communication; in fact, the only imaginable situation in which image doesn’t count much is a monopoly, in which the elasticity of demand alone would determine the behavior of the markets. However, even in the case of a monopolistic situation –say like in Sweden, with the state-owned System Bolaget controlling retail distribution- the matter is quite more complex.

In the case of Cognac, there is a composite image. On the one side we have the generic image of alcoholic beverages and then, on the other, the specific perception of Cognac, different of the image of other distilled spirits. In fact, it is necessary to keep in mind that competition occurs not only between brands but even between different spirits: Cognac competes with whiskey, tequila, brandy, vodka, etc.

We don't need to get into the negative image of alcoholic beverages in many countries. Terms like alcoholism or cirrosis are ever present in much of the debate around regulation of spirits. The specific perception of Cognac versus other distilled spirits has to do with the intrinsic characteristics of the product and also with the peculiar situation of the industry and what I call the implicit Cognac oligopoly.

Implicit Oligopoly

The actual logic og branding and pricing in Cognac is in more than one sense determined by the Big Cognac Houses.

The big Cognac Houses (Courvoisier, Hennessy, Martell, Rémy Martin) maintain a permanent competition in marketing, advertising and branding operating cost. I would like to stress here that it just isn’t true that they indulge in oligopolistic price-fixing practices, an off-industry tittle-tattle about them.

Oligopolistic practices, with a few competitors getting discretely together to renounce competition and fix prices, aren’t always at the source of an oligopoly-like situatytion. While the monopolist is a take-all-from-beginning-to-end actor, there is something that we could call an “implicit oligopoly,” a situation that can arise when a small number of not-necessarily interconnected actors dominate a mature industry. In a mature industry, and Cognac is a very mature industry, procedures and pricing structures tend to be very stable; in Cognac, the big houses (dominate over 90% of the market and they don’t need any collusion to generate, by the sheer logic of the market, a solid pricing mechanism for the whole industry.

The Big Houses buy the eaux-de-vie from small producers and distillers. Prices in that trade are set by the market, of course, but then also from the necessity of the Big Houses of keeping their suppliers in business. Rivalrous brands don’t get into a cut-throat competition because if they did they would lose access to vital inputs.

Their strategies for many years have been quite similar, trying to promote their brand name much more than the name of the product and that has been systematic until the strong keyword logic of Internet’s search engines forced them to change course somewhat: people would search “Cognac,” much more than a particular brand. And then it is true that they pride themselves in producing highly differentiated, idiosyncratic Cognacs. And they compete with each other quite chivalrously, at least if one compares them with other pans of the beverage industry.

The dark side of the beverage industry

That is far from being the case for the whole industry of spirits. Competitive beverages sometimes are mere marketing creations. Some Bourbon distilleries are selling their products to an array of firms, who then bottle the stuff and bring it to market, competing with each other. Advertising and marketing smarts are for them much more important than the actual contents of the bottle.

Low-end brands in some Asian markets just add flavors to ethyl alcohol to produce “brandy,” “vodka,” with occasional tragedies due to the use of methanol.  Consumers in the West are generally protected against the heath threat of fly-by-night falsifications and moonshiners, but the situation is quite worrying in some emerging countries. China is now increasingly acting against the beverage black marketers, but only after many scandals and huge profits made by a full-fledged clandestine industry, a far cry from the legendary lone-wolf moonshiners cooking their jug in the depth of a forest.  Of course, those illegal activities have merged with all sorts of racketeering mafias, particularly in Russia and Georgia.

In such a chaotic global market, how can the small Cognac houses survive? Some are maintaining a profitable activity using the Internet to sell their nonadvertised products.

To be continued