Reputation Tapping: Examining Consumer Response to Wine Appellation Information

Transcription

1 Reputation Tapping: Examining Consumer Response to Wine Appellation Information Brad Rickard, Assistant Professor Charles H. Dyson School of Applied Economics and Management Cornell University Presented at the 2014 Virginia Vineyards Association s Winter Technical Meeting Charlottesville, VA February 1, 2014

2 Background USDA SCRI Grant Improved grape and wine quality in a challenging environment: An eastern U.S. model for sustainability and economic vitality The project has five objective areas: promote increased grape and wine quality, reducing canopy management labor and the use of herbicide inputs and nitrogen losses from the vineyard reduce the occurrence of environmental stresses through better cultivar and vineyard site matching tools reduce costs of grape production while improving grape and wine quality provide learning resources for producers, workforce development, and consumers establish a reputation for consistent, high quality grape and wine production in the East.

3 Reputation-based work at CU I have worked on two separate projects with two different graduate students studying the role of reputation in eastern wine markets 1.Using Zagat Survey data (that describes reputation) and restaurant specific menus to understand the type of restaurants that are more likely to serve NYS wine 2.Using a lab experiment with real consumers and real wines to see how different types of reputation-type information affects demand and WTP for wine

4 How to create a reputation? Firm reputation is influenced by terroir, wine expert scores, other good press, and past vintages Collective reputation describes the reputation of a group of firms in a region (and in addition to terroir, expert scores, and good press among neighbors) it is impacted by the AVA and these same factors across others in their AVA. We think that collective reputation might also be influenced by linkages to other (more famous or well-established) regions/appellations. We call this idea reputation tapping

5 Laws on Reputation Tapping In 2006 the United States signed an Agreement between the European Community and the United States of America on trade in wine that was amended in Article 7 states that certain names may be used as names of origin for wine only to designate wines of the origin indicated by such a name, those listed in Annex IV, Part A, names of quality wines produced in specified regions and names of table wines with geographical indications, and Part B, names of Member States. Annex IV lists hundreds of protected EU names

6 Some label information no longer used

7 But we see some non-label references

8 And we see regional references

9 Our Research Question We want to see how consumers respond to information about this reputation tapping, and to determine if this type of information influences their valuation of wine In addition, we are curious if this information affects all regions, all wines, and all consumers equally. We suspect that it may be more important for lesser-known regions

10 The Approach We set up a lab experiment at Cornell that asked 264 non-student subjects to bid on seven white wines from three U.S. regions Chardonnay from CA, OR, and VA; Pinot Gris from CA and OR; Viognier from CA and VA All wines had simple labels, were from 09, and all received expert scores in the 80s. Subjects randomly signed up to one of three information treatments (no info, AVA info, AVA info plus info on French regions)

11 A Picture from the Lab

12 U.S. Regions for our 7 wines

13 The three varietals included in today s auctions have historical roots in three regions in France Alsace with Pinot Gris Burgundy with Chardonnay Rhône Valley with Viognier Wine Regions in France

14 For example: A Wine in Treatment 1 ( Control) State: California Varietal: Viognier

15 Wines in Treatment 2 State: California Varietal: Viognier AVA: Santa Ynez Valley Warm weather Limited rainfall

16 Wines in Treatment 3 State: California Varietal: Viognier AVA: Santa Ynez Valley Similar Region in France: Lower Rhône Valley Warm weather Limited rainfall

17 Incentives All subjects received $25 to participate We also told subjects that, for each wine, one subject would be randomly selected and a market price would be randomly drawn from a bag of chips There was a distribution of prices on the chips that was centered on the retail prices for the wines Once a subject was drawn, they could not be selected a second time We then compare the subject s bid to the market price If bid>market price, they buy the wine for the market price If bid<market price, no sale

18 Summary of the data Variable Mean response (n=264) Average WTP ($ per bottle) 9.06 Wine knowledge (1=low, 5=high) Familiar with Chardonnay (1-5) 3.49 Demographics Familiar with Pinot Gris (1-5) 3.08 Age (years) Familiar with Viognier (1-5) 1.84 Female (%) 74 Familiar with California Wines (1-5) 3.21 Married (%) 67 Familiar with Oregon Wines (1-5) 2.20 Children in home (%) 32 Familiar with Virginia Wines (1-5) 1.71 Primary shopper (%) 82 Familiar with French Wines (1-5) 2.63 Primary wine shopper (%) 78 Average wine spending (per 750 ml) Vegetarian or vegan (%) 5 Less than $ % Restaurant meals (number per 4.02 $10-$ % week) Above $ %

19 Overview of the Results We found a premium of about $0.55 for Pinot Gris wines (relative to Chardonnay) Wines from Oregon and Virginia received bids that were approximately $0.88 less than wines from California. Overall, the information treatment effects (relative to no information) were not statistically significant. However, for wines from OR and VA, the treatment that introduced information about AVAs and French appellations (treatment 3) was positive and significant (bids increased by approximately $0.52 per bottle). Furthermore, among subjects that were relatively familiar with wine, this reputation tapping effect increased to $0.66 per bottle for wines from VA and OR

20 Implications for Wineries in Emerging Regions First, drawing attention to AVAs for wines from emerging regions does not seem to impact consumers valuation, even among consumers that are relatively familiar with wine varietals and regions. Second, our results suggest that information that ties AVAs to well-established regions in France did resonate with subjects in our experiment This indicates that making such links to more established regions in France may prove to be an effective marketing strategy for wines from emerging regions, notably among consumers with some wine knowledge.

21 So that brings us back to this slide

22 Research Funded by: USDA/NIFA/SCRI # Improved grape and wine quality in a challenging environment: An eastern US model for sustainability and economic vitality Thanks for Listening! Questions? Suggestions? b.rickard@cornell.edu

23 Variable A Summary of the Key Results Unrestricted Sample (all) n= 263 Restricted Sample I (subject bids >$3) n=220 Restricted Sample II (tasting experience) n=134 Constant *** *** *** T2: AVA information T3: AVA & link to France OR or VA *** *** *** OR_VA + T OR_VA + T * ** ** Wine knowledge index ** 0.155* * Wine expenditure index *** *** *** Age Pinot Gris ** ** *** Viognier

24 Winery Treatment 1 (T1): No appellation information Treatment 2 (T2): T1 information plus information about AVAs Treatment 3 (T3): T2 information plus information that ties AVAs to regions in France (French Region listed below) Summary of information presented to subjects Picket Fence California Chardonnay Russian River Valley AVA, Ideal cool and foggy climate, Sandstone-alluvial based soils Mâconnais, Burgundy Morgan California Pinot Gris Santa Lucia Highlands AVA, Welldrained soil, Warm during day, cool at night, Haut Rhin, Alsace Zaca Mesa California Viognier Santa Ynez AVA, Warm weather, Limited rainfall Lower Rhône Valley Del Rio Oregon Chardonnay Rogue Valley AVA, Surrounded by rivers and forests, Rocky well-drained soils Côte d Or, Burgundy Airlie Oregon Pinot Gris Willamette Valley AVA, Mild year-round temperatures, Limited rainfall during summer Bas Rhin, Alsace Veramar Virginia Chardonnay Shenandoah Valley AVA, Mountains on both sides, Warm and dry growing season Chalonnaise, Burgundy Barboursville Virginia Viognier Monticello AVA, Granite-based clay soils, Long growing season Upper Rhône Valley