IN VINO VERITAS: RELATIONSHIP MARKETING IN THE NEW ZEALAND WINE INDUSTRY Adam Lindgreen Cranfield University Roderick J. Brodie Auckland University Abstract This project investigates contemporary marketing practices, in particular relationship marketing, in the New Zealand wine industry. Three overall research questions are considered. First, is the approach to marketing pluralistic? Second, do simple dichotomous categorisations over-emphasise the context and neglect the role that buyers and sellers and their perceptions play in interpreting the environment? Third, how are programmes of relationship marketing designed, implemented, monitored and measured? Introduction It has been noted that the close buyer-seller relationships in the wine supply chain (from grape growers over wineries and distributors to retailers) to a great extent explain the phenomenal growth that the New Zealand wine industry has experienced in the 1980s and 1990s. The wine supply chain also allows different practices of marketing to co-exist (i.e., relational marketing for low quality wine and transactional marketing for high quality wine. The New Zealand Wine Institute and the Wine Guild are other important network players (Wilson and BensonRea 1997). The New Zealand wine industry is thus appropriate for a project investigating contemporary marketing practices, i.e. transaction marketing and relationship marketing (see later for a detailed explanation why that is so). The paper is structured as follows. First, an introduction to the New Zealand wine industry and the challenges that it faces is given. Next the concept of relationship marketing is briefly introduced, and areas where more empirical work needs to be done are identified. Then the research methodology is described at some length. Preliminary findings from earlier stages of the project are discussed (at the conference). The New Zealand Wine Industry Agricultural produce of NZ$ 9.7 billion makes up more than half of New Zealand’s merchandise exports, or some 60 per cent in 1996. The agricultural sector contributes about 15 per cent to New Zealand’s gross domestic product. Although pastoral farming is the major land use the export of horticultural products generates NZ$ 1.08 billion (Department of Statistics 1992; Market and Industry Services Branch 1997; Zwartz 1998). In 1998, the export of wines was worth NZ$ 97.6 million, or 9 per cent of the total horticultural export (Wine Institute of New Zealand 1998). The New Zealand wine industry is considered to be relatively young, though, but its growth in the 1980s and 1990s has been ‘unprecedented’ (Wilson and Benson-Rea 1997). Wine production grew from 39.192 millions of litres in 1988 to an

estimated 58.725 millions of litres in 1998, an increase of 50 per cent. Although international market conditions are more competitive than ever wine exports still soared from 2.897 millions of litres in 1988 to an estimated 15.153 millions of litres in 1998, an increase of almost 425 per cent (Wine Institute of New Zealand 1998). The UK is the single biggest export market. In the decade from 1988 to 1998, exports to the UK thus increased more than 650 per cent by volume so that this market now generates over 50 per cent of the total wine export revenues. Of the four different types of wines exported to the UK market, that is white, red, sparkling and fortified, white wines generate 75 per cent of the export volume (National Liquor Distributors Ltd 1998; Wine Institute of New Zealand 1998). The increase in exports to the UK market is somewhat remarkable. New Zealand has long been guaranteed unrestricted access to the UK export market for its agricultural commodities but when the UK joined the European Community in 1973 New Zealand exporters were forced to look for alternative markets. Moreover, from having been one of the most regulated economies in the Western World the New Zealand economy is now one of the least regulated economies (Ministry of Agriculture and Fishery 1993; Zwartz 1998) and New Zealand wineries compete with subsidised production from other producing countries. Australia, the US and Chile are among the strongest competitors (Wine Institute of New Zealand 1998). It has been noted that the close buyer-seller relationships in the wine supply chain (from grape growers over wineries and distributors to retailers) to a great extent explain the phenomenal growth that the New Zealand wine industry has experienced. Not only that, the wine supply chain also allows different practices of marketing to co-exist. Thus low quality wine only require commodity grapes (transactional marketing) whereas high quality wine necessitate a close relationship between the grape producer and wine maker (relational marketing). The New Zealand Wine Institute and the Wine Guild are other important network players (Wilson and Benson-Rea 1997). Close relationships have been found important in both contemporary marketing practices (e.g., Boone and Kurtz 1999; Brodie et al. 1997; Coviello et al. 1997) and relationship marketing (e.g., Christopher et al. 1991; Gordon 1998; Gummesson 1999). The New Zealand wine industry is thus an appropriate setting for a project investigating contemporary marketing practices, i.e. transaction marketing and relationship marketing. Relationship Marketing The concept of relationship marketing was coined by Berry more than fifteen years ago (Berry 1983). But even though the literature on relationship marketing is large and expanding there is still no consensus as to what relationship marketing really constitutes (e.g., Fournier et al. 1998; Gummesson 1994; Snehota and Söderlund 1998). Indeed, the question has been asked whether relationship marketing is nothing but ‘hot air’ (Möller and Halinen-Kaila 1998). Brodie et al. (1997) and Grönroos (1989) note that the commonly accepted view of marketing (transaction marketing) has been that offered by the American Association of Marketing (1985), with the 4Ps (Borden 1965; McCarthy 1960) or the marketing mix as the epitome of the list of what-to-dos. In the 1950s and 1960s, transaction marketing was successful in America but this has not been the case in overseas markets (Gummesson 1996). Because of that some researchers include other Ps (Baumgartner 1991; Booms and Bitner 1982; Judd 1987; Kotler 1986), the marketing mix plus perspective (Pels et al. 1999). Other researchers argue that despite the expanded 4Ps framework the foundations for transaction marketing remain weak and that it must give way to relationship marketing, which is the new

paradigm of marketing (Gummesson 1999; McKenna 1991; Parvatiyar and Sheth 1994), the paradigm shift perspective (Pels et al. 1999). Yet other researchers consider marketing exchanges as a continuum ranging from transaction marketing to relationship marketing (Dwyer et al. 1987; Grönroos 1991; Jackson 1985; Webster 1992), the categorisation perspective (Pels et al. 1999). It has recently been argued, however, that these perspectives are too simplistic and that transaction marketing is still relevant and practised concurrently with various types of relationship marketing (Barnes 1995; Brodie et al. 1997; Coviello et al. 1997; Liljander and Strandvik 1995; Pels 1998, 1999). For example, Brodie et al. (1997: 389) propose that transaction marketing and relationship marketing are part of the same paradigm but is it possible to provide empirical evidence of the proposition of a pluralistic approach to marketing? Most studies on international buyer-seller relationships have collected data from a single partner in the dyad although it has been deemed necessary to gather information from both partners in order to understand a relationship (e.g., Ahmed et al. 1998; Anderson 1994; Freytag and Nielsen 1990; Weitz and Jap 1995). Thus according to Anderson (1994) single partner data is often misleading. Moreover, it has been proposed that simple dichotomous categorisations such as the marketing mix plus, the paradigm shift and the categorisation perspectives over-emphasise the context and neglect the role that the actors (both buyers and sellers) and their perceptions play in the interpreting the environment (Pels et al. 1999). The conceptual model developed by Pels et al. allows for the theoretical development and empirical investigation of buyer-seller relationships (Figure 1). Seller’s context perception (Transaction exchange paradigm ↔ Relationship exchange paradigm) Seller’s offer proposition Buyer’s perception of the offer proposition

Mismatch Objective value offered

Subjective value offered

Transactional exchanges (with various marketing practices) Objective value sought

Relational exchanges (with various marketing practices) Mismatch

Subjective value sought

Buyer’s perception of his need structure Buyer’s context perception (Transaction exchange paradigm ↔ Relationship exchange paradigm)

Figure 1. The buyer-seller exchange situation model Source: Pels et al. (1999)

It integrates both buyer and seller perspectives, and it identifies and understands the seller’s offer proposition and the buyer’s perception of that offer proposition. Both the objective value offered and sought and the subjective value offered and sought are identified. Uniquely, with

the model the suitability and success of the transactional and relational exchange paradigms can be examined. The New Zealand-British wine supply where buyer-seller relationships are so important thus allows for the testing of the buyer-seller exchange situation model. But again, is it possible to provide empirical evidence of the proposition of a buyer-seller exchange situation model? Moving on, at some times relationship marketing is described as a set of objectives, for example customer satisfaction (Goderis 1998) and delight (Rust et al. 1996), share of customer (Peppers and Rogers 1995), customer retention (Dawkins and Reichheld 1990) and employee loyalty (Reichheld 1996). At other times, relationship marketing is characterised as one of several forms of marketing, for example database marketing (Copulsky and Wolf 1990), services marketing (Berry 1983), customer partnering (Magrath and Hardy 1984), market communications (Blomqvist et al. 1993), networks (Gummesson 1999) and ‘catch-all phrases’ (Morgan and Hunt 1994). But in spite of a number of written-upon programmes of relationship marketing (e.g., Baye 1995; Cram 1994; DeSouza 1992; Rosenberg and Czepiel 1984; Stone and Woodcock 1995) more research into relationship marketing is needed. Generally speaking, there are gaps in our knowledge with regard to how programmes of relationship marketing are designed, implemented, monitored and measured (e.g., Grande 1996; Lindgreen and Crawford 1999; Pinto 1997). For example, when the term relationship marketing is used in so many different ways that “confusion sets in” (Palmer 1998: 106) is it then not possible to identify activities that, if practised, can be presented as substantive evidence of the practice of relationship marketing itself? Also, how are programmes of relationship marketing implemented and subsequently monitored (Cravens 1998; Gummesson 1998)? Finally, Gummesson (1997) notes that the measuring of returns on relationship marketing is still in its infancy so in what way(s), if at all, are returns on relationship marketing measured? Research Methodology Relationship marketing is contemporary, pre-paradigmatic and an on-going phenomenon (Mattsson 1997; Möller and Halinen-Kaila 1998). Because of that relational marketing programmes should be investigated in their real-life context although there is then little prospect of simplifying matters by excluding some variables whilst controlling and manipulating others. But by taking a holistic perspective on real-life events with all of their potentially rich and meaningful characteristics intact, the case research method facilitates the exploration of complex matters. In particular, the case research method avoids the need to pre-select the context type variables to be included in the investigation and instead important contextual variables impinging on the behaviour of interest is observed, over time (Crawford 1997; Yin 1994). First, to avoid loss of research focus and to help shape the initial process of theory building, the research questions were specified: (1) Is it possible to provide empirical evidence of the proposition of a pluralistic approach to marketing? (2) Is it possible to provide empirical evidence of the proposition of a buyer-seller exchange situation model? (3) How, if at all, are programmes of relationship marketing designed, implemented, monitored and measured? Then cases were chosen for theoretical reasons. The Wine Institute of New Zealand was contacted; that meeting resulted in an overview of the industry and a map of the major organisations in that industry, including a list of marketing directors and senior managers in those organisations. In order to sell wine, New Zealand winemakers must belong to the New

Zealand Wine Institute, a self-regulatory body for the wine industry (Wilson and Benson-Rea 1997). Wineries are categorised according to size by annual grape wine sales. There are 272 Category 1 members (not exceeding 200,000 litres), 17 Category 2 members (between 200,000 litres and 2,000,000 litres) and 7 Category 3 members (exceeding 2,000,000 litres). It was decided to include De Redcliffe Estates (Category 1), Morton Estate (Category 2) and Corbans Wines (Category 3) in the research. These wineries have been successful exporters to the UK market using a variety of marketing practices. In order to understand business relationships and to allow for triangulation both sides of buyer-seller dyads will be contacted. This is arranged by networking from New Zealand exporters toward British importers – the exporters will be asked to name some of their important customers. Doing so will allow the researchers to test the buyer-seller exchange situation model. The main instrument to obtain data (such as basic characteristics of the food exporters and a thorough portrait of their relational marketing activities) is in-depth, face-toface interviews and an interview protocol has been developed for that purpose. Respondents are first contacted by telephone, second by a covering letter – and then they are interviewed in multiple-hour sessions. In order to secure reliability, interviews are tape-recorded and later transcribed. All interview data are analysed in two stages: within-case analysis (Miles et al. 1994) involving write-ups for each case and cross-case analysis involving searches for cross-case patterns. Interpretations are backed up through triangulation such as the comparing of interview notes with a transcription of the interview and the inclusion of more than one respondent in case organisations. By measuring constructs and verifying relationships, hypotheses are shaped, definitions of constructs are refined and evidence that measures those constructs is built up. At the same time, in order to note consistencies with and departures from other findings emergent concepts, theories or hypotheses are compared with the extant literature. This process also enhances the internal validity, generalisability and theoretical level of theory building. Preliminary Findings It is important to understand that this case study on the New Zealand wine industry is one in a series of case studies, and that each case study builds upon the findings from the earlier case studies. At the conference, findings and the research questions will be addressed. References Ahmed, F., C. Styles and P. Patterson (1998), “Trust and commitment in international buyerseller relationships: a dyadic study in Australia and Thailand”, in Proceedings of the 27th Annual Conference of the European Marketing Academy, P. Andersson, ed. Stockholm: Elanders Gotab. American Marketing Association (1985), “AMA board approves new marketing definition”, Marketing News, 1 March, 1. Anderson, W. T. (1994), “Deciphering dyads: concepts, methods, and controversies in relational research”, Psychology and Marketing, 11 (5), 447-466.

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