TERROIR CO-BRAND INFLUENCE ON THE MARKETING VALUE OF

OAKVILLE LUXURY WINES: A MIXED METHODS STUDY

BY

MICHAEL CARRILLO

A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF BUSINESS AT THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF BUSINESS ADMINISTRATION

UNIVERSITY OF FLORIDA

2020

© 2020 Michael Carrillo

1

DEDICATION

I wish to dedicate this research study to my family and friends who supported me during this doctoral program and thesis research investigation, to my professors who helped guide me during the journey, and future practitioners, students, and researchers who can use this study as a reference.

2

ACKNOWLEDGMENTS

I would like to express my sincere gratitude to the University of Florida’s Warrington

College of Business for enabling me to fulfill my dream of pursuing my doctorate in business and staffing our courses with our country’s top-tier professors. Although a doctoral thesis is an individual work, I could never have reached such heights and explored such depths without the help of many people. First, I would like to express my most profound appreciation to my committee chair, Professor Philip Podsakoff, for exemplifying the qualities of an excellent social scientist. His Socratic approach to teaching, commitment to excellence, and scientific rigor were a significant inspiration for me to complete this program. Second, I would like to thank my committee member, Professor Steven Shugan, for his laser-focused insights, suggestions, and assistance throughout my project. I particularly enjoyed Dr. Shugan’s infectious and great sense of humor on the project and in the classroom. Humor brings enthusiasm, positive energy, engagement, and optimism. Third, I wish to acknowledge the support and great love of my family, my wife and third advisor, Janice; my daughter, Juliana; my son, Victor; my brother,

Chris; my sister, Lisa; my mother, Liz; and my mother-in-law, Joan. They believed in me and encouraged me to complete this work. I wish to acknowledge the many discussions about my project with academic friends from the UF schools of business and computer science for their insights and stimulating ideas while enjoying craft beers. I also want to recognize the Napa

Valley participants of my study for their flexibility, insights, and thoughtful responses, and I look forward to future research with Napa Valley vintners and growers. Finally, I want to acknowledge the members of my program cohort. As a group, we had an unforgettable, shared experience! Special thanks to Anand Paul, Nanci Knight, Judith Hansen, Jeff Abbott, Gerard

Frey, and Rick Butgereit for their assistance and inspiration.

3

ABSTRACT

This study of ingredient branded wines enhances our understanding of the value of site- specific terroir brands. The two-part study employs an explanatory sequential mixed-methods research design, relying on both quantitative and qualitative data. The first part of the investigation is a quantitative study that synthesizes the consumer psychology of scarcity, the strategic theory of the resource-based view of the firm, and the marketing strategy of ingredient branding to test the difference in the price and quality of co-branded versus non-branded wines.

Using online data from Wine Spectator, the research finds that the marketing value (i.e., suggested retail price and quality ratings) significantly differed for each outcome variable. More specifically, terroir co-branded (i.e., single-vineyard designate from an appellation) wines received a 56% premium in terms of their average price and a 2% premium in terms of their average quality ratings relative to appellation wine populations. The second part of the investigation uses a qualitative interview study approach to understand the underlying themes and mechanisms to explain the findings from the first quantitative study. More specifically, this study uses data gathered via semi-structured interviews with subject-matter experts such as vintners and growers in Napa Valley, California. This latter study identifies several explanatory themes for price and quality differences in Napa Valley from the interviews, namely, vintner demographics, historical background, terroir, labels, price, quality, customers, and appellation.

Keywords: ingredient brands, co-brands, the resource-based view of the firm, scarcity, terroir, luxury goods, mixed-methods research

4

TERROIR CO-BRAND INFLUENCE ON THE MARKETING VALUE OF OAKVILLE LUXURY WINES: A MIXED METHODS STUDY Product branding and its supporting marketing activities are the top contributors to generating a firm’s revenue and ensuring success in the market (Keller, 2013). Suppliers of ingredients used in final products recognize the importance of a firm’s product branding activities. A business strategy used by a firm’s marketers in concert with their suppliers is ingredient branding, whereby a firm promotes ingredients (i.e., parts, components) of upstream partners (i.e., suppliers) from their value chain (Norris, 1992). Aligned with this strategy, a firm

(i.e., a host brand) references ingredient brands in their product’s marketing and promotional materials (e.g., labels, product data sheets, web content, infographics, white papers, etc.). The promotion of the ingredient co-brands helps build awareness, signals information, and influences a customer's preference for the host’s product (Kotler and Pforetsch, 2010).

This ingredient branding marketing strategy started in the early ‘60s with several supplier firms such as DOW Chemical with the ingredient Styron (i.e., a resin), DuPont with the non- stick Teflon, and BASF with Luran, an exterior plastic used in the automotive industry. Since the introduction of this marketing strategy, numerous researchers have elaborated on the approach through logical argument and qualitative studies of ingredient branding (Norris, 1992; Desai and

Keller, 2002; Kotler and Pforetsch, 2010; Linder and Seidenstricker 2010). Previous research also highlights the limited number of empirical research studies with supporting evidence for an ingredient branding strategy.

Vintners (i.e., wine producers) use an ingredient branding strategy on their wine labels and marketing collateral to signal points-of-differentiation of their products to customers.

Common points-of-differentiation includes the varietal ingredient, vintage information (i.e., the harvest year of the grapes), appellation (i.e., legal identify of the source of the grapes), and

5 terroir (i.e., a branded single-vineyard). Understanding the value of terroir co-branding is the focus of this research. The most common agricultural definitions of terroir depict it as a complex interrelationship among a place, a product (i.e., an ingredient), the physical environment (i.e., soil, climate, etc.), and human-environment interactions such as farming practices (Sequin, 1986;

Haynes, 1996; Wilson, 1998). Terroir imbues products (e.g., wine, cheese, coffee, tea, fish, etc.) with typicity, a unique flavor profile that reflects the ingredient’s provenance (Barham, 2003;

Bassett et al., 2007; Jacobsen, 2010; DeMossier, 2011; Charters et al., 2017), an expression of terroir. Wilson (1998) emphasizes the single-vineyard as the closest demonstration of terroir, even though many terroirs may weave through a vineyard. A terroir brand in this wine-focused study is a single-vineyard designated brand (e.g., Beckstoffer To Kalon) and signals to customers an expression of its terroir or a site expression. To impart support for ingredient branding, I ask the following research questions, (1) does a terroir co-brand (i.e., an ingredient co-brand), a type of ingredient brand, add marketing value to a host brand (i.e., the vintner’s brand)? (2) Second, how does the terroir co-brand influence a host brand? (3) Finally, why would a terroir co-brand affect the marketing value of a host brand?

The first part of my study is an empirical analysis of identical products, either co-branded with a terroir brand or not co-branded (i.e., appellation wine). Marketing value realized through suggested retail price and quality ratings denote comparative outcome measures between two populations (i.e., terroir versus appellation). Thus, study 1 draws attention to the influence of a terroir brand on average price and average quality ratings. However, study 1 does not include a breadth of plausible explanations for such differences that occur over time. Yin (2018) recommends an explanatory case study approach to specify sets of causal sequences about “how” or “why” observations have occurred.

6

Similarly, Creswell and Creswell (2017) advocate a qualitative study to sequentially follow a quantitative analysis to build on the results and explain the quantitative findings in more detail. Therefore, I opt to use a sequential mixed-methods approach, starting with a quantitative study 1, followed by qualitative study 2. Study 2 uses a case study approach via semi-structured interviews with Napa Valley industry experts to understand their interpretations of “how” and

“why” such differences occur in study 1.

The Napa Valley wine region, established as California’s first American Viticultural Area

(AVA) in 1981, is an ideal data-rich environment to investigate consumer branding strategies with greater than 475 vintners producing more than 1000 brands contributing $53 billion to the

US economy (Napa Valley Vintners Association, 2019). Within study 1, I compare the marketing value of single varietal terroir branded wines with single varietal appellation wines within a shared appellation, Oakville AVA. Cabernet Sauvignon is the single varietal of wine within the study and represents the top planted variety (51%) in the Napa Valley AVA.

An appellation (e.g., Oakville) branded wine must have by US federal law 85% of its grapes sourced from the branded appellation. An appellation wine typically includes grapes sourced from multiple vineyards, usually two or more vineyards. A single-vineyard, terroir branded wine must source 95% of their grapes from the designated vineyard. A terroir brand signals the uniqueness and rarity, a natural scarcity, of the ingredient grapes within the finished product. This study argues that ingredients sourced from terroir, as identified by site-specific terroir brands (e.g., single-vineyard brands), are scarce strategic resources that contribute to the firm’s sustainable market success, and have high marketing value. In contrast, appellation (e.g.,

Oakville), county (e.g., Napa Co.), and state brands (e.g., California) progressively dilute the marketing value relative to a site-specific terroir brand.

7

This mixed-methods study makes several significant contributions. First, this study lends empirical support to marketers in the food and beverage industries selling premium products to leverage an ingredient branding strategy. This study demonstrates the importance of an ingredient co-branding strategy, such as an appellation and terroir co-brand, for a firm to command a premium price. A more site-specific brand sends quality and scarcity signals to customers and enables marketers to suggest premium prices over more diluted brands such as appellation. Second, I integrate three research streams to explain the marketing value of terroir brands, a scarce resource. These three streams of research are the foundation for the hypotheses of study 1; scarcity signaling (i.e., ingredient branding), supply-side scarcity (i.e., resource-based view of the firm), and consumer demand (i.e., the psychology of scarcity). Third, the study employs a sequential mixed-methods explanatory study approach to identify additional plausible themes of how and why price and quality may differ between terroir and appellation brands. The semi-structured interview approach and analysis identify themes such as vintner demographics, historical background, terroir, labels, price, quality, customers, and appellation. Together this empirical and interview study work represents an important step in providing a broader view of how and why site-specific terroir brands command premium suggested retail prices and higher quality ratings.

STUDY 1: A QUANTITATIVE ANALYSIS OF TERROIR BRANDS IN OAKVILLE

The primary purpose of study 1 is to identify the marketing value of a more site-specific brand (i.e., terroir brand) over a more abstract and dilute place-based (i.e., appellation) brand.

This study includes a brief overview of ingredient branding literature in marketing, ingredient branding’s relation to the resource-based view (RBV) of the firm, and the psychology of scarcity.

Scarcity is a common theme across each of the respective overviews. Next, I elaborate on the

8 theoretical development of RBV and the theory’s implications for ingredient branding, and goods sourced from site-specific terroirs. I integrate the three theoretical perspectives and develop hypotheses associated with Study 1’s outcome variable, marketing value. The methods, analytical procedures, results, and a brief discussion followed.

THEORETICAL BACKGROUND AND HYPOTHESES

Ingredient branding

Competition in the marketplace drives firms to adopt points-of-difference and points-of- parity for their products. Marketers will often use associations of their brands to other objects

(e.g., people, places, things, etc.) to accomplish this product differentiation. Keller (2003) explored and characterized the concept of consumer brand knowledge as a means to explain the underlying cognitive process of secondary brand associations (e.g., celebrities, ingredients, places, corporations, etc.). Marketers can leverage different kinds of information associated with a secondary brand to improve their firm’s host brand and increase their overall brand equity.

Keller (2003) emphasized that secondary brand information (e.g., awareness, features, benefits, images, thoughts, feelings, attitudes, and experiences) can transfer, via brand knowledge transfer, from a secondary brand to the host brand.

Co-branding represents a brand alliance or brand bundling among two or more existing brands (e.g., American Express and Delta Airlines co-branded credit card). Marketers will execute joint marketing plans as part of the co-branding relationship. Ingredient branding is a particular case of a co-branding relationship. Ingredient branding occurs when one brand (e.g., a host brand) combines another brand as an ingredient (or component) in the host’s end-product

(Kotler and Pfoertsch, 2006). Ingredient branding is a strategy between a supplier (i.e., the ingredient provider) and the consumer of the ingredient, a producer (i.e., finished goods maker).

9

An ingredient branding strategy occurs when a producer co-markets the supplier's ingredient(s) via marketing and promotions with the finished good to the customer (e.g., Intel Inside a Lenovo laptop).

Co-marketing ingredients benefit the producer through brand knowledge transfer and stimulate a demand-pull through the value chain (Pfoertch and Mueller, 2006; Kotler and

Pfoertsch 2010). By contrast, a traditional marketing campaign pushes producer specific information to customers; a pull strategy is a direct appeal to the customer to prefer a final product with the branded component (e.g., North Face jacket with Gore-Tex waterproof layer).

For an ingredient branding strategy, firms reinforce both a push strategy (i.e., marketing and promotions) from the producer and pull strategy (i.e., preference for a brand) from a firm’s target customers.

An ingredient branding strategy initially developed in the ‘60s and formalized into a marketing strategy in the past couple of decades (Norris, 1992; McCarthy and Norris, 1999;

Desai and Kotler, 2002; Kotler and Pfoersch, 2010). Today, this strategy is increasing in consumer goods markets. For example, tire companies (e.g., Good Year, Firestone, Michelin, and Continental) use their brand as an attribute of a new category, sports shoes (e.g., Adidas and

Under Armour), and they will co-brand sports shoe soles with their tire brands. Linder and

Seidenstricker (2010) argue that ingredient branding and the ingredient brand are strategic resources of the firm. Ingredient brands are scarce vital resources of the firm meeting the four resource-based view criteria; valuable, rare, imperfectly unique, and not substitutable.

Resource-Based View

Resource-based theory, a strategic model used by firms to identify and leverage scarce tangible and intangible resources for competitive advantage, can trace its development to the

10 foundations of modern economics from the late 18th century and early 19th century. David

Ricardo (1817) introduced such foundational principles to the resource view that included a theory of value, such that only beneficial goods in limited supply are valuable, and a theory of rents, based upon grower’s surplus (i.e., profits) found in agriculture production. Ricardo’s seminal theory of rents differentiates the rents charged for a resource (e.g., land) based upon different levels of production (e.g., the fertility of the soil). Ricardo’s theory of rents became an established perspective in modern economics and a foundational theory for the resource-based view of the firm. The most productive resources (e.g., land next to a river being the most fertile) are scarce, and owners of such limited resources can generate abnormal profits.

In 1959, Edith Penrose pioneered a theory about the influence of resources on a firm’s growth rate. According to this theory, firms accrue value based on their proficiency to manage tangible resources versus simply possessing resources, and managers were the catalyst that converted a firm’s resources into products and services with economic value. As a result, the quality of a firm's managerial talent influenced the firm’s direction, growth rate, and success.

Lippman and Rumelt (1982) further advanced resource-based theory through a focus on the core concepts of imperfect inimitability (i.e., uniqueness) and causal ambiguity. Causal ambiguity occurred when managers within a firm do not understand the relationships between causes (i.e., actions initiated) and effects (i.e., outcomes observed). A firm may have a myriad of conscious and unconscious factors (e.g., processes, practices, culture, organizational climate, norms, etc.) influencing successful outcomes. The ambiguity of the ‘secret recipe of a firm’s success’ made an imitation of successful outcomes by competing firms difficult, if not impossible, to emulate. In this manner, causal ambiguity enabled the inimitability of a firm,

11 which provided a barrier to the competition and facilitated a firm’s sustainable competitive advantage. Thus, firms cannot merely duplicate a competitor’s success.

In 1984, Wernerfelt published a seminal article, “The resource-based view of the firm,” with a focus on the influence of tangible and intangible resources to drive a firm’s competitive advantage. Up until this point, various models of higher prices relative to the competition explained a firm’s performance. First, the neoclassical economic pricing theories (e.g., supply, demand, profit, etc.) from the 18th and 19th centuries developed by Adam Smith and David

Ricardo explained firm performance. Later, Demsetz (1973) attributed the firm’s performance to its ability to identify and address customers’ needs. In the ’80s, Porter (1980) introduced the influence of a firm’s industry structure (i.e., the number and size of the competitors) as characterized in his five forces model and his concept of market power (i.e., the ability for a firm to raise prices over their marginal costs) as the key drivers of competitive advantage.

Dierickx and Cool (1989) advanced the nascent resource-based theory through the inclusion of the concepts of inimitability and the non-substitutability of resources. If the imitation of successful outcomes (i.e., products and services) was not a threat to a firm, then a firm might still be vulnerable to substitute products and services in the market. Finally, Barney

(1991) synthesized the state of the resource-based view of the firm into the four critical criteria tangible and intangible resources needed to enable a competitive advantage. For a firm to gain and sustain performance in the market, a firm’s tangible and intangible resources must meet the four assumptions; (1) valuable, (2) rare, (3) imperfectly inimitable (i.e., unique) and (4) non- substitutable.

The first RBT assumption requires the use of ‘valuable’ resources to create products and services. Wernerfelt (1984) argued that firms seek to maintain or gain profitable market

12 positions, and a firm’s ability to achieve or defend their market positions depends upon their utilization of resources for production and distribution. Production outputs, the distribution of goods, and the reinvestment of earnings facilitate this value creation (Mazzucato, 2018). The efficient and effective utilization of valuable resources enables firms to increase economic value.

Firms increase economic value by either increasing consumers’ demand to pay more for the goods and services, decreasing costs to produce such goods and services or simultaneously achieving both (i.e., increasing-price while reducing cost).

The second RBT assumption states that firms must possess or have access to valuable and

‘rare’ resources that cannot be retained by other firms. Such scarce resources must be rare for the firm to achieve a competitive advantage. However, it is unclear to strategy researchers how scarce and limited a resource needs to be to offer a distinct competitive advantage. To this point,

Barney and Clark (2007) argue that a small set of firms may be able to commonly share ‘rare’ or scarce resources and still achieve a competitive advantage.

The third RBT assumption for the competitive advantage of the firm assumes that such

‘rare’ and ‘valuable’ resources are imperfectly unique (i.e., not categorically unique, distinctive), and other firms cannot perfectly replicate or copy the products. Valuable and scarce resources should not be substitutable or reproducible by other firms. This imperfect imitability of the

‘valuable’ and ‘rare’ resources provides a cost advantage to those small set of firms with access to such resources. Barney and Clark (2007) emphasize three reasons why such imperfectly imitable resources are advantageous. First, dependency on unique historical conditions is beneficial. Second, the ‘causally ambiguous’ relationship between resources retained by a firm and a firm’s sustained competitive advantage. Finally, the ‘socially complex’ nature of the resource (Dierickx and Cool, 1989).

13

First, in terms of historical conditions, resource-based theorists argue that a firm’s place in time and space (i.e., the right place at the right time) influences the firm’s ability to use value- creating strategies to profit from valuable and scarce resources. If a firm has a presence in the right market in the right place, then the firm might recognize an opportunity to profit from valuable and scarce resources through a first-mover advantage. A first-mover advantage goes to firms that secure and use rare and valuable resources in competition with other firms.

Second, a causally ambiguous relationship between a firm’s resources and its competitive advantage implies that competing firms cannot directly identify which resources to imitate, and therefore, may not be able to exploit opportunities to substitute or mimic such capabilities.

Barney and Clark (2007) underscore that these types of resources may be intangible assets such as characteristics of an organization (e.g., teamwork, culture, customer, and supplier relationships) or related to the complexity of the firm’s value chain (i.e., relations between people, suppliers, and technologies). Finally, the unambiguous social complexity (e.g., culture, reputation with customers and suppliers, etc.) of the firm is hard, if not impossible, for a competing firm to imitate.

Scarcity

A set of strategies used by marketers to signal quality to uninformed customers is to underscore a product’s scarcity (Stock and Balanchander, 2005). Lynn (1991) highlighted several standard marketing strategies to stimulate customer perceptions of scarcity, which include releasing limited editions, product distribution through select channels, prestige pricing, restricting order sizes, and promotional offerings. Verhallen and Robben (1994) find that customers make inferences about product quality from such strategies. Scarcity marketing strategies encourage customers to want what is difficult to obtain.

14

Traditionally, scarcity represents an essential concern for economics (i.e., limited resources to fulfill unlimited wants and needs) and serves as a foundational topic regarding theories of value and rent (Smith, 1776; Malthus, 1815; Ricardo 1817). Ricardo highlighted that products derive their value from scarcity and the quantity of labor (i.e., cost-of-goods) necessary to obtain them. In contrast, some other products (e.g., art, wines from a particular region, rare earth minerals, etc.) derived all their value from scarcity alone. Economic theories of decision- making through the early 20th century assumed (a) consumers had unchanging perceptions of a product’s value (Von Neumann and Morgenstern, 1944; Friedman and Savage, 1948), and (b) all resources (per Ricardo) are limited. The resource-based view of the firm’s foundational assumptions in the previous section adopts the early economists' explanations of resource scarcity.

Furthermore, scarcity triggers response mechanisms in people's psychology. Lynn (1991) demonstrated that scarce products are valuable independent of their economic utility.

Researchers also illustrated that a scarcity mindset develops when a product’s supply is low relative to consumer demands (Mani et al., 2013; Mullainathan and Shafir, 2013; Shah et al.,

2012). Cialdini (1987) illustrated through his “Principle of Scarcity” that people perceive scarce products as more valuable for two reasons. First, scarcity increases the product’s attractiveness, and second, as products become less available, the desire to have the product increases.

In terms of Cialdini’s first point of product attractiveness, Brock (1968) used scarcity as the central concept of commodity theory. He hypothesized, “any commodity will be valued to the extent that it is unavailable.” Brock (1968) and Fromkin (1970) suggested the underlying psychological process of possessing scarce items contributed to a person’s feelings of uniqueness. Worchel, Lee, and Adewole (1975) using a cookie experiment extended commodity

15 theory, through the identification of three conditions of scarcity on a product’s value and attractiveness. First, under scarce supply conditions, cookies were more desirable than abundant cookies. Second, cookies were more valuable if their supply changed from ample to scarce (vs. consistently scarce). Finally, cookies that were scarce because of high demand (i.e., social demand) have more perceived value.

Cialdini’s second point highlights a person’s action toward scarcity. Brehm’s reactance theory (1981) explains scarcity in terms of a person’s reaction to reductions and limits on their choices and alternatives. A scarce object (e.g., a product) will cause a person to desire and try

(i.e., react) to possess the item. Cialdini (1987) finally expressed the scarcity heuristic within his principle as “one should want to try to secure those opportunities that are scarce.”

Hypotheses

The American Marketing Association, AMA, defines a brand as “a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers.” Keller’s (2013) definition of a brand includes further attributes. Keller asserts, “a brand is a product, but one that adds other dimensions that differentiate it in some way from other products designed to satisfy the same need. These differences may be rational and tangible

- related to product performance of the brand - or more symbolic, emotional, or intangible - related to what the brand represents. Brands themselves are valuable intangible assets that need to be managed carefully. Brands offer a number of benefits to customers and their firms. The key to branding is that consumers perceive differences among brands in a product category.” A brand represents the tangible and intangible aspects (i.e., awareness, features, benefits, images, thoughts, feelings, attitudes, and experiences) of the underlying entity.

16

Terroir is a complex interrelationship among a place, a product (i.e., an ingredient), the physical environment, and human-environment interactions such as agricultural techniques and practices (Sequin, 1986; Haynes, 1996; Wilson, 1998). For wine, a single vineyard is the closest designation of a site-specific terroir (Wilson, 1998). A terroir brand signals the underlying information of its terroir, and a terroir product represents a site-specific expression of terroir.

Such scarce resources as terroir brands signal scarcity, per an ingredient branding strategy, and are interpreted by consumers per Cialdini’s principle of scarcity (1987) as attractive and desirable.

An American Viticultural Area (AVA) represents a US winegrowing appellation. An

AVA has geographical boundaries and evidence of agricultural distinctiveness (i.e., climate, soil, topography, etc.) under the authority and protection of the US Alcohol and Tobacco Tax and

Trade Bureau (TTB). A protected region such as an AVA creates the conditions of scarcity per the resource-based view of the firm. Within any TTB protected area, wineries and growers produce a limited supply of rare, valuable, non-substitutable (under penalty of law) and unique resources. An AVA, as a brand, signals the uniqueness of the contained resources.

Terroirs, operationalized as single-vineyards, are nested within the broader protected

AVA appellations. The sum of the boundary contained vineyards and terroirs comprise a protected region, an AVA. For instance, the Oakville AVA (one of 16 sub-appellation AVAs nested within the Napa Valley AVA) has approximately 70 wineries and growers managing

5,000 acres (i.e., 7.8 square miles) of planted vineyards grown in three broadly categorized soil types; residual, alluvial and fluvial (Oakville Growers Association, 2019).

Vintners have the option to source their primary ingredients (i.e., grapes) for wine production of a given SKU (i.e., a wine) from multiple suppliers (i.e., growers, their estates, the

17 estates of other wineries or any combination). Given a vintner’s product portfolio strategy, a vintner may opt to release a single-vineyard wine with grapes sourced from a single vineyard

(i.e., 95% of grapes sourced from the single-vineyard per TTB) and co-brand the wine as a single-vineyard designate. A single-vineyard brand represents a terroir brand and signals that the wine is a site-specific expression or an expression of terroir.

The resource-based view of the firm identifies four criteria for scarce resources to fulfill such an advantage (Barney, 1991). A Napa Valley AVA, and any nested sub-appellations, terroir brand represents a scarce resource, a single-vineyard. First, a single-vineyard resource is valuable to a winery and a grower as reflected in the high price per ton of grapes (USDA, Grape

Crush Report 2019, District 4). Second, the grape assets (e.g., Cabernet Sauvignon) are rare and not readily available to competitors as a result of the fixed acreage under vine. Third, the single vineyards within the Napa Valley AVA imperfectly unique and not easily emulated by competitors due to the legal nature of the 16 additional sub-appellations within Napa Valley

AVA. Finally, the grapes of a particular variety from single-vineyards within unique sub- appellation are non-substitutable and not replaceable by a similar grape variety.

Furthermore, customers will interpret a terroir branded wine, a site expression, as more scarce than an appellation wine. Per the psychology of scarcity, customers will perceive such an offering as more attractive and desirable, thereby driving up the price points. Additionally, per the psychology studies mentioned above, customers will infer a higher perception of quality in the scarce terroir branded wine over the appellation wine.

Therefore, the average values of terroir co-branded ingredients with the value operationalized as suggested retail price and quality rating, 푃̅푡 and 푄̅̅̅푡, will be higher than the

18 average values of ingredients blended (i.e., site-specific diluted and commoditized) from multiple suppliers, 푃̅̅퐵̅ and 푄̅̅̅퐵̅,. Therefore, the following hypotheses;

H1: The average suggested retail price of terroir co-branded ingredients, 푃̅̅푇̅, will be

greater than the average suggested retail price of blended ingredients (i.e., appellation),

푃̅̅퐵̅, from the same protected region (i.e., appellation); such that 푃̅̅푇̅ > 푃̅̅퐵̅.

H2: The average quality ratings of terroir co-branded ingredients, 푄̅̅̅푇̅, will be greater than

the average quality ratings of blended ingredients (i.e., appellation), 푄̅̅̅퐵̅, from the same

protected region(i.e., appellation); such that 푄̅̅̅푇̅ > 푄̅̅̅퐵̅.

Terroir branded single-vineyard wines are more limited than appellation (i.e., grapes sourced from two or more vineyards) wines from a shared appellation. Given a higher suggested retail price and quality ratings for terroir co-branded wines, the average production rates for such scarce wines should be smaller. Thus, the following hypothesis:

̅̅̅̅̅̅̅ H3: The average production of terroir co-branded wines, 푃푟푑푇, will be smaller than the

̅̅̅̅̅̅̅ average production of blended ingredients (i.e., appellation), 푃푟푑퐵, from the same

̅̅̅̅̅̅̅ ̅̅̅̅̅̅̅ protection region (i.e., appellation); such that 푃푟푑푇 > 푃푟푑퐵.

METHODS

Sample

Study 1 compares the marketing value of two populations of single varietal (i.e., Cabernet

Sauvignon) finished wines (i.e., terroir co-brand versus appellation) from the Oakville AVA. The

Oakville AVA represents a nested sub-appellation (1 of 16 sub-appellations) within the Napa

Valley AVA. For study 1, I use the online Wine Spectator database for the source of data. Wine

Spectator maintains a database with close to 400,000 global observations of a brand, price, quality, and other descriptive characteristics of an observed wine SKU. Wine Spectator includes

19 information about the host brand, ingredient co-brand (e.g., variety and terroir brand), and an appellation (e.g., Oakville AVA).

I used the following steps to collect and segment items for each target population. First, I selected the rating search and entered the single varietal (i.e., cabernet sauvignon) and the region

(i.e., Oakville) within Wine Spectator’s search field. The search returned seven hundred and twenty plus wines from the common appellation. Second, the wines were copied and organized for analysis. Each record includes the producer, wine name, vintage (i.e., grape harvest year), suggested retail price, wine rating, and production (cases). Third, each wine name was analyzed to determine if it either represented a single-vineyard co-brand or an appellation wine (see Figure

1). I operationalize a unique terroir brand as a branded single-vineyard (Wilson, 1998). A terroir brand cue on the TTB front label references a single-vineyard sourced grape ingredient in the final product. After gathering the original data, I constructed two data sets: (1) terroir co-branded wines and (2) appellation wines (i.e., no single-vineyard terroir reference). I included estate branded wines if the label referenced a single vineyard source versus multiple vineyards1. The final analysis of wines identified four hundred and fifty-eight single vineyard wines and three hundred and sixty appellation wines.

As a source of potential error, some vintners may elect not to highlight a branded vineyard or grapes sourced from a single-vineyard. A couple of reasons vintners might choose not to brand as single-vineyard include the cost of TTB re-label and purchase restrictions. In terms of a purchase restriction, a vintner may have sourced grapes from a secondary market (e.g., another

1 TTB rules authorize vintners to designate their wines as “Estate” if vintners source ninety-five percent of the grapes from estate vineyards. However, vintners can source estate branded wines from one or more of their contiguous vineyards. Therefore, a vintner’s estate wine may qualify as single-vineyard, appellation or multi-appellation blended wine depending upon sourcing.

20 vintner). As a result of a lack of branding, non-single-vineyard branded wines will increase the appellation population.

Figure 1 Sample wine labels representative of the single varietal population studied for terroir-branded (top panel) versus appellation (bottom panel) wines from Oakville AVA.

21

Cabernet Sauvignon is the single varietal in this study. Cabernet Sauvignon represents the top planted variety at 51% in the Napa Valley AVA (Napa Valley Vintners, 2019). Cabernet

Sauvignon has the highest average price per ton at $7,940 in Napa Valley (i.e., District 4), and the state of California (USDA Grape Crush Report, 2019). Study 1 comparatively tests the marketing value between two populations. Kotler (2016) defines marketing value as price, quality, and service. Within study 1, I identified marketing value as vintner’s suggested retail price and Wine Spectator’s quality ratings.

The Napa Valley Vintners Associations (2020) highlights numerous vital facts about the

Napa Valley American Viticultural Area, AVA (recognized by the US government in 1981). An

AVA is a “legally designated grape growing area possessing distinguishable characteristics such as climate, terrain, soils, and cultural and historical significance.” There are 16 additional AVAs nested within the Napa Valley AVA (139 total in CA; 246 total in the US). The 30-mile long valley is headquarters to approximately 700 grape growers and 475 wineries with 1,000 plus brands. The industry is mostly composed of family-owned small and mid-sized businesses. With

46,000 acres under cultivation, roughly eighty percent of the vintners produce fewer than 10,000 cases of wine annually. The total contribution of Napa Valley vintners to the US economy is $53 billion and represents .4% of the world’s wine production. Grape growers and vintners attribute success in the Napa Valley to the soil diversity and variation, such that the Napa Valley AVA contains six of the world’s 12 recognized soil orders, and the ideal dry Mediterranean climate, which covers a meager 2% of the earth’s surface.

Measures

Price. A dependent variable and indicator of marketing value, price is a continuous variable based on the vintners' suggested retail price (SRP) in dollars ($) for a 750 ml bottle.

22

Each of the two populations within study 1 (i.e., either terroir co-brand or appellation samples) includes the vintner’s SRP for single varietal Cabernet Sauvignon bottles of wine from a narrow range of vintages (i.e., 2010–2016). Study 1 uses a small range of vintages to increase the overall sample size of the independent observations (i.e., wine SKUs). The sample range reflects a close to flat average price inflation for wine at -.31 with a standard deviation of .62 (US Bureau of

Labor Statistics - Price inflation of Wine, 2020).

It is difficult within the wine trade to find agreement on price-based market segmentation for wine. Wine Folly (2016) uses nine price-based market segments to highlight consumer preferences. Wine Folly identifies three levels of “luxury” wines (i.e., luxury, super-luxury, and iconic) above $50 per 750 ml bottle. Oakville AVA vintners release single varietal Cabernet

Sauvignon, terroir, and appellation wines on average at $173 and $110 per 750 ml bottle (see

Table 2), respectively. Thus, vintners of Cabernet Sauvignon wines in Napa Valley serve the top- tiers in the luxury wine market.

Quality. The second indicator of marketing value, quality, uses Wine Spectator (WS) quality ratings, which range continuously from 50 to 100 points. WS’s laboratory-like conditions for tasting and assessing the sensorial quality of a wine (e.g., the aroma; the varietal’s balance among acidity, sugar, and alcohol; tannins and finish) made their quality rating review an ideal measure for quality. WS uses a single-blind taste-testing process to reduce the risk of rater bias.

Blind taste testing has been an established evaluation practice within the food industry (Maison et al., 2004). WS single-blind taste-testing method provides raters with the vintage, appellation, and grape variety. Note, the sensorial qualities and expected characters differ among different grape varieties (e.g., chardonnay, pinot noir, cabernet sauvignon, zinfandel, etc.). The region reviewed represents the Napa Valley appellation with an additional 16 nested sub-appellations

23

(e.g., Oakville AVA) with 43,000+ acres of grapes planted. Thus, WS provides only high-level contextual information to their raters.

Since 1984, WS editors have blind taste-tested greater than 300,000 global wines. The editors' tastings are all conducted in environmentally controlled private rooms. WS organizes the flights into groups of 20 to 30 wines by grape variety, appellation, or region (e.g., North Coast,

Napa Valley, Cabernet Sauvignon, 2014). The wine taster(s) then proceeds through a flight, associates a code number on the bag with a code number in the system, and submits their ratings and notes for an observed wine. Upon revealing a wine, tasters can append additional notes to the record; however, they cannot change their scores. Reviewers do not consider the vintner’s suggested release price, SRP, before or during a rating; however, post-evaluation, wine tasters can append comments regarding the SRP and value of a wine. Table 1 represents the Wine

Spectator sextile scoring scale with a range from 50 to 100.

Table 1 Wine Spectator quality ratings with descriptions for each sextile

Rating Description 95-100 Classic: a great wine 90-94 Outstanding: a wine of superior character and style 85-89 Very good: a wine with special qualities 80-84 Good: a solid, well-made wine 75-79 Mediocre: a drinkable wine that may have minor flaws 50-74 Not recommended Data Source: Wine Spectator (https://www.winespectator.com)

Production. This variable represents a measure of wine case production for a given SKU by vintners. Case production signifies supply-side resource scarcity. Vineyards can produce one to ten tons of fruit per acre. A high-quality vineyard in the Napa Valley produces two to four tons of grapes per acre, an average of three tons per acre (Wine Spectator). One ton of grapes produces approximately 58 cases of wine (assuming no production shrinkage). Therefore, wine

24 production can signal the number of acres sourced for a wine SKU and serve as a proxy for supply-side scarcity.

Analytical Procedures

The procedures first involve testing in SPSS v26 whether the samples come from different distribution functions, a relaxed normality assumption Mann Whitney U test, followed by a test for differences in the means, a MANOVA. The Wine Spectator database served as the source for the two datasets meeting the criteria (variety = Cabernet Sauvignon, vintage range =

2010 – 2016, and a dummy variable for terroir co-brand = 1). Next, I calculated the univariate identification of outliers with the standard score (i.e., the fractional number of standard deviations from each group’s sample mean) for each observation in both groups.2

Upon inspection via Q-Q plots, histograms, and Z-scores, the normality of the population distributions was questionable because the sample sets represent super-premium luxury wines from a small sub-appellation in Napa Valley. I administered a distribution-free Mann-Whitney U test to compare the differences between the outcome measures (i.e., price, quality, and production) for the two independent groups (1) terroir branded wines and (2) appellation wines.

The Mann-Whitney test will determine whether the samples come from different distribution functions (i.e., the research hypothesis) or the same distribution (i.e., the null hypothesis).

A Mann-Whitney U test requires that the data for each population meet three criteria.

First, the dependent variable should be either an ordinal or continuous level variable. Both price

(dollars) and quality ratings (range from 50 -100) are continuous level variables. Second, the

2 For the terroir branded population (N = 211), eight observations had quality rating outliers, seven observations had price outliers, and ten observations had case production outliers (Z > | + 1.96|). For the appellation wine population (N = 146), ten observations had quality outliers, four observations had price outliers, and nine observations had case production outliers (Z > | + 1.96|). I include all outliers in the analysis. Note, removing outliers has no substantive effect.

25 independent variable should consist of two categorical, independent groups. The independent variable represents either group (1) terroir co-branded or (2) appellation wines. Third, the observations in each group should be independent. For each data set, price (vintner’s suggested release price), quality (subject matter expert blind taste testing), and case production represent independent observations. Consistent with this requirement, the data reported in Table 2 indicate that there are no significant correlations between sample groups (i.e., no relationship between terroir and appellation brand samples). Therefore, the Mann-Whitney U test is a robust procedure to test differences between the two sample populations distribution functions.

Table 2 Means, Standard Deviations, and Correlations among Study Variables Variables Mean S.D. 1 2 3 4 5 6

Quality rating appellation (Q1) 90.1 2.9 1 Suggested retail price appellation (P1) 110.5 48.1 .459** 1 Case production appellation (PRD1) 2,689 5459 -.251** -.428** 1 Quality rating single-vineyard (Q2) 91.8 2.8 -.034 -.018 -.096 1 Suggested retail price single-vineyard (P2) 173.2 65.4 .034 .048 -.052 .316** 1 Case production single-vineyard (PRD2) 931 1758 -.092 -.054 -.057 -.023 .042 1

푛푎푝푝푒푙푙푎푡푖표푛 = 146, 푛푠푖푛푔푙푒−푣푖푛푒푦푎푟푑 = 211; ** Spearman’s rho rank correlations are significant at p < .01; Data Source: Wine Spectator database (https://www.winespectator.com); appellation = Oakville, CA; varietal = Cabernet Sauvignon; vintage = 2010-2016.

Next, I conducted a multivariate analysis of variance (MANOVA) procedure to compare the marketing value (i.e., price and quality) sample means of the two independent variable groups (i.e., terroir and appellation branded wines). A MANOVA helps determine whether changes in the independent variables have a significant effect on the two continuous dependent variables, price, and quality ratings. Holloway and Dunn (1967) and Hakstian, Roed, and Linn

(1979) recommend using equal group sizes for two groups to ensure robust statistics of a

MANOVA procedure under questionable conditions of normality.

26

To obtain equal group sizes, first, I used all of the appellation samples (N = 146). Second,

I used a random number generator and assigned the values to each record in the larger sample population (i.e., terroir branded wines, N = 211). Next, I sorted on the random numbers in ascending order, and I selected the first one hundred and forty-six samples.

Hair and colleagues (2010) recommend checking several assumptions to ensure a valid result. First, the model must contain two or more continuous dependent variables. Second, the independent variable should include two or more categorical groups. Study 1 uses one independent variable (i.e., terroir brand), which contains two categorical variable groups. Third, I satisfy the assumption of independence of observations as there is no relationship between the observations of the groups (i.e., no correlation between terroir and appellation brands). Fourth,

Hair et al. (2010) recommend as a practical guide, a sample size of 20 observations per group.

Within this model of a single factor (i.e., terroir co-brand or no co-brand) and two dependent variables (i.e., price and quality rating), the sample size should contain at least 40 observations

(condition satisfied). Next, the multivariate result was significant for a terroir co-brand, Pillai’s

Trace = .258, F = 50.192, df = (289), p < .001. This finding highlights the significant effect of a terroir co-brand on price and quality. Levene’s test was found to be insignificant (p > .05), supporting homogeneity assumption of variance, and lends support for the statistical robustness of the MANOVA procedure.

Results

I used SPSS v26 to perform the non-parametric Mann-Whitney U test to compare the two independent samples of two factors representing a single vineyard and appellation wines from the Oakville AVA. The vintner’s suggested retail price differed significantly between the terroir co-branded wine (Median = $175) and the appellation wine (Median = $100); U = 25,156, z =

27

10.205, p < .001, r (effect size3) = .54. This result highlights terroir co-branded wines in Oakville

AVA are significantly distinguishable from appellation wines and command a higher average price difference of 56%.

The quality ratings differed significantly between terroir branded (Median = 92) and appellation wines (Median = 90); U = 20,980, z = 5.860, p < .001, r = .31. The blind taste-tested quality ratings from subject matter experts differed significantly for terroir branded wines by an average of a 2 percent difference. Finally, the case production significantly differed between terroir branded (Median = 364) and appellation wines (Median = 656); U = 11,335, z = -4.242, p

< .001, r = -.22. The effect sizes, r, are large (> .5) for the price, medium for the quality and small for the case differences. The findings support a substantive (versus simply statistically significant) difference in populations (Cohen, 1988; Cohen, 1992). The results from the non- parametric Mann-Whitney U test lend support for hypotheses H1, H2, and H3.

After the non-parametric Mann-Whitney U test, a MANOVA procedure of equal group sizes to relax multivariate normality (Hakstian, Roed, Lind, 1979) provides additional statistical power and an ability to test mean differences in the population. The MANOVA test can rely on the robustness checks with Hotelling’s and Pillai’s statistics. Using Hotelling’s trace statistic, there was a significant effect of terroir co-brands and appellation brands on the price and quality ratings, T = .347, F(2, 289) = 50.192, p < .001. The separate tests on the outcome variables revealed significant effects on vintner’s suggested retail price, F(1, 290) = 94.37, p < .001, and quality ratings, F(1, 290) = 29.87, p < .001. In the same manner as the Mann-Whitney U test, the

MANOVA procedure supports the finding that a terroir co-brand can significantly influence wine price with a fifty-six percent price premium over appellation wines in the Oakville AVA.

3 푧 푟 = ⁄ , converts the SPSS z-score into the effect size estimate (Rosenthal, 1991). √푁

28

To a lesser degree, an Oakville AVA terroir co-branded wine significantly differs in the average quality rating of wine over an appellation wine by two percent. Thus, the MANOVA procedure provides additional support for hypotheses H1 and H2.

Discussion

The analyses identified a significant mean difference in the suggested retail price of 56%, a price premium for single-varietal terroir co-brands over appellation wines from a common appellation (i.e., Oakville AVA). The mean difference in quality ratings for terroir brands exceeded appellation wines by 2% percent. Finally, single-vineyard branded wines represented a

44% smaller median production than appellation wines. These findings have value for wine consumers and marketers.

From a wine consumer’s perspective, the purchase of terroir branded wines may be a diminishing marginal utility for such scarce goods. As a consumer pays more for a single- vineyard wine, they may not realize a distinguishable increase in quality over an appellation wine from this region. The Oakville region has a reputation for producing the highest quality single-varietal Cabernet Sauvignon wines, and single-vineyard wines may represent a marginal improvement over appellation. The price-difference effect is indicative of luxury products with elevated price-points that appeal to a small market segment (Kapferer and Bastien, 2012; Yeung and Thach, 2019). However, there may be other factors that explain the price-point differences and a consumer's decision to pay a premium. Study 2 explores additional detailed explanations for the findings in study 1.

As hypothesized, the single-vineyard wines represent a more scarce resource than the appellation, as reflected in their production sizes. Appellation wine production negatively correlated with price and quality. In other words, the larger the appellation wine production, the

29 lower the quality and the price. Appellation wines use sourced fruit from multiple vineyards within the appellation. Interestingly, the most granular place-based wine (i.e., single-vineyard designates) production did not correlate with price and quality. This single-vineyard result may reflect a focus by vintners on small lot sizes.

Marketers will find evidence and support for ingredient co-branding. Vintners have an option to identify a single-vineyard grape source explicitly and plan for a higher price-point relative to an appellation wine. Most vintners sell their single-vineyard terroir branded wines direct-to-consumer (DTC) and rely on tasting room staff to sell a wine’s story. The inclusion, if applicable, of a terroir brand can signal greater scarcity and higher value to a knowledgeable wine buyer without the reliance of a tasting room advisor.

There are current limitations in study 1 that study 2 can provide further insights. First, study 1 lacks a list of possible explanations for the price and quality outcomes. Study 1 hypothesized an integration of ingredient branding (i.e., scarcity signaling), the resource-based view of the firm (i.e., supply-side scarcity), and the psychology of scarcity (i.e., consumer demand) as the mechanisms for explanations of the outcomes. Second, study 1 lacks external validity tests such as robustness checks with other appellations and varietals to further generalize findings.

STUDY 2: A QUALITATIVE ANALYSIS OF TERROIR BRANDS IN NAPA VALLEY

The primary purpose of study 2 is to enhance our understanding of the price premiums and quality rating differences observed in study 1. I posed three research questions to understand the market value of terroir brands. First, what is the influence of a terroir co-brand on the marketing value (i.e., price and quality) of wine in Oakville? Second, how do terroir co-brands influence marketing value? Finally, why should terroir co-brands influence marketing value?

30

In study 1, I observed evidence of a terroir brand effect on the marketing value of

Oakville wines. The marketing value outcome variables of study 1 showed that terroir branded wines from Oakville have a fifty-six percent suggested retail price premium and a two percent quality rating advantage over appellation wines. Study 2 investigates the second and third research questions, the “how” and “why” questions, in greater detail through subject matter experts in Napa Valley.

METHODS

The research method to build on the explanations for the findings in study 1 and to further explore in greater detail the second and third research questions was qualitative. Creswell and Creswell (2017) recommend an explanatory sequential mixed-methods approach to identify additional explanations following a quantitative study. The mixed-methods approach is

“sequential” because the qualitative follows the quantitative phase.

Sample and Procedure

The selection of semi-structured interviews represented the most effective approach for gathering data and addressing the research questions due to; (a) the ability to collect data quickly,

(b) the flexibility to follow-up, and seek clarification and (c) the need to rely on a single primary data gathering method (Marshall and Rossman, 1999). The semi-structured interview guide (see

Table 3), addressed the research questions, and helped ensure uniformity across the interviews.

I developed the interview guide over a couple of months through the help of several industry experts to validate that my questions strengthened rapport and trust and probed into how and why results in Study 1 may occur. I organized the interview questions by themes; participant demographics, terroir, labels, price, quality, consumers, and appellations.

31

Table 3 Sample interview guide for participants Themes Questions

1. General 1.1 Your role(s) at the winery?

Demographics 1.2 How long have you been in the wine industry? 1.3 How many brands does your winery manage? 1.4 What is your estimated annual production (cases)? 1.5 Does your winery grow fruit? 1.6 How many acres of fruit does your winery own? 1.7 What percentage of your production goes direct-to-consumer?

2. Terroir 2.1 What is terroir? 2.2 Can you describe some of the terroir influences?

3. Labels 3.1 Who determines what information to include on your wine labels? 3.2 What does the appellation brand communicate to your customers? 3.3 What does a single vineyard brand communicate to your customers? 3.4 What does an estate-grown designation communicate to your customers?

4. Price 4.1 Who is involved in setting the prices for your wines? 4.2 What factors do you consider when setting a price point for wine? 4.3 Do other wineries prices influence the prices of your wines? 4.4 Does a single-vineyard wine have a different price-point from an appellation wine?

5. Quality 5.1 What influences the quality of your wines? 5.2 Are quality ratings relevant to your winery? 5.3 Which raters are the most relevant today? 5.4 What is the value of 3rd party ratings? 5.5 Would you expect single vineyard wines to have higher quality ratings versus appellation wines?

6. Consumers 6.1 Who are the consumers of your high price point wines? 6.2 What are the generational trends in your consumer base? 6.3 How do your consumers buy your high price point wines?

7. Appellations 7.1 What is the value of appellations? 7.2 Do the appellations differentiate themselves? (How?)

I opted to interview the participants in-person to capture verbal and non-verbal cues, maintain focus, and capture emotions and behaviors. Eighty-five percent of the interviews were face-to-face in Napa Valley at the location of the participants choosing. The in-person interviews, ranging in duration from 45 minutes to 1-1/2 hours, were audio-recorded (i.e., Philips

32

VoiceTracer). For the face-to-face meetings, I dressed in a fashion similar to Napa Valley winemakers in the winter (i.e., long sleeve plaid shirt, denim jeans, boots, and a quilted vest). I transcribed all of the interviews via Sonix AI (i.e., an artificial intelligence transcription service).

Artificial intelligence software converted approximately eighty percent of the audio recording. I reviewed and corrected transcription errors manually. Transcriptions simplified the systematic and comprehensive analysis of the interviews. This process involved classification, reduction, and interpretation of participant responses. The University of Florida’s (UF) institutional review board (IRB) approved study 2 (IRB20192220).

I used the following process to identify industry experts for study 2. First, I asked an ex- work colleague that has lived in Napa Valley with her husband for 20 plus years to help me identify wine executives with the right profile (i.e., subject matter expertise in the Napa Wine industry). Second, I purchased a list of wineries in Napa Valley from Wine & Vine Analytics that included 1100 plus wineries with contact information (e.g., winery, names, titles, and contact emails). With this information, I sent 30 plus short emails to candidate participants (i.e., owners, senior management, winemakers, etc.) soliciting their participation in study 2. Each email contained a brief introduction, the research topic, interview logistics for an in-person meeting, and two attachments. The first attachment was a detailed invitation to participate in the study on UF letterhead, and the second attachment included the required UF IRB research participant informed consent form. Fifteen industry experts, most of whom have been in the wine industry for more than 25 years, opted into the research study.

I include the demographics for study 2’s participants in Table 4. Participants held various roles, such as; senior executive, vice president of marketing and sales, winemakers, and owners.

The average wine industry experience exceeded 25 years, and half the participants

33

-

to

-

N/A

10% 10% 25% 80% 80% 30% 80% 40% 90%

100% 100% 100% 100%

<10%

Direct

Consumer

(% of sales)

0

80 60 40 24 30

100 200

200+ 600+ 500+ 200+

3,600

1000+ Parent

Owned

Grower

Acreage

0

5,000 1,000 1,000 1,000

Total

40,000 35,000 35,000 25,000 13,000 10,000

(cases)

200,000 100,000

1,000,000

Production

20,000,000+

No No

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Grower

No

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Winery

8 1 2 3 1 1 4 2 2 2 1 1 1 1

50+

Brands Brands

Managed

40+ 20+ 20+ 20+ 30+ 20+ 30+ 15+ 20+ 30+ 30+ 30+ 30+ 20+ 40+

(years)

Experience

Interviewee

Role

Executive Sales SVP Marketing VP Winemaking VP & Vineyards Owner Owner & Winemaker Director DTC Marketing VP Owner Owner & Winemaker Owner & Winemaker Owner Owner & Winemaker Owner & Winemaker Grower Executive

Participant

Winery 1 Winery 2 Winery 3 Winery 4 Winery 5 Winery 6 Winery 7 Winery 8 Winery 9 Winery 10 Winery 11 Winery 12 Winery 13 Winery 14 Winery 15

Table 4 Table demographics winery and participants interview ofList

34 manage more than one host brand (i.e., the winery brand). Eighty-five percent of the participants from vintners were also growers. Study 2 also included representation from large businesses with an executive from the third-largest US firm in the wine industry and an executive from one of the most well-known growers in Napa Valley. To a varying degree, all of the vintners sold wines direct-to-consumer (DTC).

Results and Discussion

In the sections that follow, I use the classifications of explanations (i.e., themes) from participant responses to address outcome variables. Within the body of the results and discussions, I have opted to incorporate numerous quotations within each category to lend further credibility, substance, and human subjectivity to participant explanations. The first sections (i.e.,

Phylloxera and Cult Wines) provide historical background and context for the following sections. The Phylloxera pest caused massive vineyard replantings in Napa Valley in the 80s and led to an overall improvement in vineyard quality. Cult wineries were early movers to take advantage of the higher quality vineyards, Napa Valley terroir, single vineyards, a modern winemaking style, and the direct-to-consumer channel. The remaining sections align with the interview guide themes in Table 3.

Historical Background

Phylloxera. The Phylloxera parasite attacked the rootstock, crippled the vines, and devastated the vineyards. Before the Phylloxera pest, as a grower explains, “the vineyards were gorgeous. I mean, they were red and orange because that was the fanleaf disease expression… the grapes didn't mature very fast. What would happen? We would be picking grapes in

November, and the grapes on the vine had all that opportunity for flavor development, but they

35 didn't accumulate sugar, which translated to alcohol.” Disease pressure in the Napa Valley hit an inflection point with Phylloxera in the early 80s.

Growers spent a decade (i.e., the 80s) in the Napa Valley replanting vines to address the infestation. “With the whole replant after Phylloxera, we had a much better plant, a much more efficient, clean plant. To get that flavor, you've got to wait, wait longer (into the growing season), and the sugar accumulates. So then you get high sugar grapes, and you get high alcohol grapes.” The replant improved the quality of the grapes through the adoption of the latest vineyard practices (e.g., high-density planting), technologies (e.g., trellis), rootstocks, and varietal clones. With the evolution in grape quality, the early 90s ushered in a vineyard-designate era for Napa vintners. “We were all in, in terms of this move to vineyard-designate. Then you get the acclaim primarily from the wine writers, the quality begins to show through, and all of a sudden, the vineyard becomes a brand.”

Cult Wines. Post the Phylloxera replant in the 90s, a small group of “cult wine” producers changed the Napa Valley landscape and marshaled in the modern winemaking approach. Swinchatt and Howell (2004) highlight eight influential cult wine producers (also mentioned by three interviewees) of the early 90s; Harlan Estate, Screaming Eagle, Eisele

Vineyard, Grace Family, Bryant Estate, Shafer Hillside, Dalla Valle Maya, and Colgin Cellars.

In the early 90s, these eight cult wineries took the first-mover advantage to exploit the market disruption. A winemaker explains the influence of the original cult wineries, “the modernist perspective (winemaking style) started around 1990. And the paradigm shift began to happen with winemakers and viticulturists beginning to say, wait a minute. The French keep talking about this concept of terroir and the environmental influence of a place on a wine. Maybe we

36 should pay attention to that. And if our terroir is different, then perhaps our practices should change, and the modernist movement was born out of that.”

All of the interviewees were familiar with the term “cult wines,” and most emphasized their influence. A vintner explains, “a lot of people will use the definition of a cult wine of scarcity. Small small quantities, generally single vineyard, high price points, usually direct-to- consumer only. Still, they don't put the essential fifth sort of piece of that, which to me is the winemaking style.”

Scarcity was a common theme among the cult wines. Cult producers created small productions of very high-quality and highly rated wines. A winery owner emphasized, “a wine that was being delivered ten years ago at $150 now is $1,000, and he only makes a thousand cases. So there you get your scarcity.” The “cult wine” model of releasing small productions of direct-to-consumer only, highly rated single-vineyard wines at exorbitant prices (e.g., Screaming

Eagle, 2014 Cabernet Sauvignon sells for ~$2,500) is an aspiration among vintners. As a vintner explains, “everyone would love to be a cult wine. You don't go to the store, or you don't get a license. You can't buy a cult wine. You have to be designated (by your consumers), and that’s very hard in today’s competitive space.”

Terroir

All of the interviewees were familiar with the concept of terroir and regarded single- vineyard designated wines as “an expression of a site’s terroir” or “site expressions.” The

Oakville region’s terroir is a possible explanation for the overall luxury prices and high-quality ratings of single-vineyard and appellation wines.

Q2.1 What is terroir? Although modern winemakers can influence flavor profiles through various means, single-vineyard wines in Napa Valley reflect characteristics and typicity

37 of a site within an appellation. Goode (2014), recommended by a participant, sums up terroir as the influence of the environment of the vineyard on the final product, wine. It’s a quality of

“somewhereness” in a single-vineyard wine. The grapes in the wine express characteristics of the physical environment where they were grown, a “site expression.” One interviewee characterized their single vineyard wine as the “purest expression of that grape from the place that it comes from.” (See Table 5.)

Table 5 What is terroir and descriptions of terroir influence Participant Questions Select Quotes Feedback

What is terroir? All “Site expression.” participants “Purest expression of that grape from the place that it comes from” were familiar “Terroir is the environmental influence on grapes and what that does to the personality of the resulting wine.” “Everything is influenced by your circumstance of terroir, and the personality of the wine is also a result of the terroir of that vineyard.” “The basic idea is that wines made from grapes grown in different places are going to taste different.”

Can you describe All “So it’s part soils, it’s part exposure, it’s part elevation, it’s part flora and some of the participants fauna that are around the vineyards themselves. It is all kinds of different terroir influences? were familiar varying weather conditions. Do you have fog pockets in there? Do you have full sun exposure in certain parts of the day? All of these elements form from the standpoint of weather, all of these elements from the perspective of soil profiles, drainage, water delivery, all of these things will conspire to influence a particular personality or a series of personalities from a specific vineyard site.” “Try to align the decisions that you make about the rootstock that you use, the clone, the varietals that you plant, the clonal selections of those varietals that you use, the farming practices that you have, picking decisions.” “…everything that particular site gives you and includes the human’s selections, if you choose a different rootstock then it might be a little different, if you select a different variety, that’s going to be a little different. There are certain things that you will find across grape varieties such as altitude changes, and soil type will have a similar effect on every grape, rootstock, and planting densities will have some effect.”

38

Q2.2 Can you describe some of the terroir influences? The concept of terroir, in the

New World (versus Old World definitions), identifies variables influencing the grapevine and the final product, a single vineyard wine. A grower explains, “terroir is the environmental influence on grapes and what that does to the personality of the resulting wine. So it's part soils, it's part exposure, it's part elevation, it's part flora and fauna that are around the vineyards themselves. It is all kinds of different varying weather conditions. Do you have fog pockets in there? Do you have full sun exposure in certain parts of the day? All of these elements form from the standpoint of weather, all of these elements from the perspective of soil profiles, drainage, water delivery, all of these things will conspire to influence a particular personality or a series of personalities from a specific vineyard site.”

Another critical element in any portrayal of terroir is human influence. One interviewee illustrates, “terroir, in my mind, is the human interpretation of everything that particular site gives you and includes the human’s selections, if you choose a different rootstock then it might be a little different. If you select a different variety, that's going to be a little different. There are certain things that you will find across grape varieties such as altitude changes, and soil type will have a similar effect on every grape, rootstock, and planting densities will have the same effect.”

The interviewees explicitly highlight several terroir influences. The primary ingredient, the grapevine, includes the variety (e.g., Cabernet Sauvignon, Merlot, Sauvignon Blanc, etc.), the clone (e.g., 15+ clones of Cabernet Sauvignon available from UC Davis Foundation Plant

Services) and the rootstock (aligned to a site’s conditions and designed with a resistance to panels of disease pressures). The soil diversity of Napa Valley is unique among US agricultural regions and contains half of the known twelve soil orders (i.e., types). A grower explains, “We have the most significant diversity of terroir on the planet. No one can even come close to having

39 the types of variety of terroir in such a close area.” Interviewees also highlight the dry

Mediterranean climate and ideal weather. A vintner explains, “it's really hard to make bad wine in Napa Valley. The weather is so ideal you have to go out of your way to screw it up.” Finally, all interviewees emphasized the human influence in their conception of terroir on the grapevine

(e.g., canopy management, irrigation, fertilization, etc.) and the finished product, wine (i.e., expression of terroir).

Labels

Oakville wine labels can signal information to customers about product quality, scarcity, and uniqueness. A single-vineyard branded wine on a label generally communicates a smaller production than an appellation brand.

Vintners submit wine labels and label changes to the US Tobacco Tax and Trade Bureau

(TTB) for their wine SKUs. In terms of place-based branding in Napa Valley, wineries can opt to identify four levels of branded geographies of origin. Brands cascade from the state (e.g., CA), the county (e.g., Napa County), the appellation (e.g., Oakville), and the vineyard (e.g.,

Beckstoffer To Kalon). Each level requires different fruit sourcing requirements per the TTB for the finished wine. For example, the state of California requires 100%, the county (e.g., Napa

County) requires 85%, an appellation (e.g., Oakville) requires 85%, and a vineyard (e.g.,

Beckstoffer To Kalon) requires 95%.

Q3.1 Who determines what information to include on your wine labels? As indicated in Table 6, participant responses depend upon the size of the vintner. Small vintners’ (< 10,000 cases) owners managed all of the wine label decisions. Midsize vintners (> 10,000 cases) had specialists (e.g., marketing and sales) handle the details of the labels and artwork, though

40 executives provide additional oversight and approval. For the largest vintners (> 1,000,000 cases), marketing teams, including senior management, managed the wine labels and brands.

Table 6 Managing and interpreting labels Questions Participant Feedback Comments or Select Quotes • Large vintners (>1,000,000 cases) had marketing teams Who determines what Varied by vintner size • Midsize vintners (>10,000 cases) had a mix of specialists information to and owner engagement include on your • Small vintners (< 10,000 cases) managed by the owner labels? • TTB approves all labels What does the All participants “It gives confidence to the buyer even though they may not appellation brand supported know the winery.” communicate to your “There's an imagery of quality with that, and there's a very customers? distinct flavor profile.” “sub-appellation implies more distinctiveness, more expression of that distinctiveness.”

What does a single All participants “This is intended to be the best of what this particular vineyard brand supported vineyard can show. So certainly, the expectation is always communicate to your that the single vineyard wines are ultra-high quality. Now customers? they're going to be different than one another. And that's part of the allure of the single-vineyard wines.” “Rare and scarce.” “Small production.” “Cachet and premium.”

What does an estate- 4 of 15 participants had “An expression of the vineyards here at the estate and the grown designation estate-grown designated uniqueness.” communicate to your wines “it's a point of pride and prominence where you can say we customers? grow this here, we produce it here, and it's in this bottle, and it has never left this property until it gets to the consumer.”

Q3.2 What does the appellation name communicate to your customers? A winemaker explains that an appellation brand is about “creating scarcity.” A grower affirms this statement by stating, “this is Oakville. They're not making more of it; it's a million years old with built-in scarcity.” The terroir diversity distinguishes the appellations (i.e., seventeen appellations in Napa Valley). A wine owner highlights, “there are pockets that because of the terroir change, the difference between a St. Helena appellation to Rutherford to Oakville, Yountville, and Oak

41

Knoll. They are all so wildly different; that's why they are designations. That's why Napa Valley has more AVA designations than any other county in the United States. And again, it's one of the smallest areas of designation (Napa Valley is 30 miles long and 5 miles across at widest point).”

An appellation brand “gives confidence to the buyer even though they may not know the winery.” The appellation also implies the uniqueness of the flavor profiles. A vintner asserts,

“customers know that they're dealing with areas of quality… in each one of those, there is a very distinct taste profile driven by your terroir.” Wines from different appellations imply “more distinctiveness, more expression of that distinctiveness.”

Q3.3 What does a single vineyard name communicate to your customers? Single vineyard branded wines signal very high quality to customers. As a vintner emphasized, “this is the best of the best, and this is what we think this vineyard reflects in what it does best.” Another vintner affirmed, “consumers' perception of a single vineyard is… small production, and if you were bottling that by itself, there's a reason for it… this wine is unique in a way that I can't get down the street… this wine has a high quality… and there's not very much of it, and it is rare, and it's proprietary to this winery.” Another vintner expressed the single-vineyard designation signals, “this wine is the best of what this particular vineyard can show… the expectation is always that the single-vineyard wines are ultra-high quality. Now they're going to be different than one another. And that's part of the allure of the single-vineyard wines.”

The single-vineyard brands have meaning for high-end luxury wines. “We branded the vineyards… We're talking way the hell up here in terms of premium quality in the band of wines

(physical gestures to highlight the stratification of wine pricing). You couldn't sell a twenty- dollar bottle of wine with any of this stuff (i.e., single-vineyard brands). But up here (i.e., highest

42 segments), you've got this discriminating customer who begins to know that and has this educated palate.”

Finally, most single-vineyard wines represent scarcity. An executive states single vineyard wines are “rare and scarce.” A vintner accentuates, “scarcity… single vineyard wines we tend to make less of, and I think that's common throughout the industry. We may make a

5000 case appellation blend, but our single vineyard, the unique character of this vineyard, and what it expresses best, we might make a hundred or two hundred cases.”

Q3.4 What does an estate-grown designation communicate to your customers? Four of the participants in Study 2 offered estate wines. Estate designated wines reflect flagship (i.e., high price point wines) products. An executive highlights, an “estate-grown is the thing you do in the wine industry. It's a point of pride and prominence where you can say we grow this here, we produce it here, and it's in this bottle. It has never left this property until it gets to the consumer.” Another manager explains that their estate Cabernet Sauvignon “is meant to be an expression of the vineyards here at the estate and the uniqueness.”

Price

Wine pricing was a meaningful discussion among all the participants, and the breadth of topics vary by the size of the vintner and the number of brands managed. Pricing areas include pricing strategies, price forecasting, price changing (e.g., increases), price adjustments (e.g., slow-moving product), competition, cost of goods, margins, portfolio price structures, scale, and channel pricing (e.g., wholesale versus direct-to-consumer). Possible explanations for higher single-vineyard over appellation wines include anchoring the high-end of a product line’s (e.g., single varietal Cabernet Sauvignon) price structure, more limited availability, higher costs (e.g., vineyard and production), luxury goods pricing (e.g., art), and competitive parity pricing.

43

Q4.1 Who is involved in setting the prices for your wines? As indicated in Table 7, price setting teams include profiles of groups similar to bottle label decisions. Large vintners engaged their senior executive teams from sales and marketing. As a senior manager highlights

Table 7 Pricing and price setting of wines Questions Participant Feedback Comments or Select Quotes • Midsized and large vintners use senior management and Who is involved in Varied by vintner size executive teams setting the prices for • Small vintners (< 10,000 cases), led by owners your wines?

What factors do you All participants “Price your wine such that you’re selling more wine than consider when setting supported you’ve produced in a vintage.” a price point for “Forecasting what my revenue is going to be four years from wine? now because that’s how long it takes to make a bottle of wine.” “What does a customer want to pay? How does it fit into our brand? What is the competition doing?” “We are not farming as cheaply as we can.” “Rethink your price point depending upon what your scale is.” “You want your price levels to be consistent… no gaps” “Artisanal wine is driven by the terroir and driven by an artistic winemaker mindset… How do you price a Van Gogh or a master art piece?... Demand is ultimately the thing that drives price points.”

Do other wineries All participants “We looked at a competitive set… in a class with a similar prices influence the supported wine style.” price of your wines? “We will look… competitive set from a price point, from a production size, from stylistic similarities to us.”

Does a single Most participants “Single vineyard wines tend to be more expensive than an vineyard wine have a believed single-vineyard appellation blend.” different price-point wines were higher priced “Market the single-vineyard as the highest priced wine in its from an appellation portfolio.” wine? that an executive team “set prices, and we will set them out for typically about five years. Then, someone from finance will use those for planning, recognizing what the revenue is going to be coming in for those wines.” Midsize vintners mentioned a similar process engaging sales and

44 marketing managers. The sales and marketing managers “bring in our CEO… and our CFO… and our winemaker. So we all sit there and discuss where we think we can be on the price points.” For small vintners, owners led price decision-making and may include others (e.g., winemaker or consulting winemaker).

Q4.2 What factors do you consider when setting a price point for wine? General considerations for price-setting wine SKUs shared among all vintners, as expressed by a vintner, included, “what does the customer want to pay? And that can vary quite a bit from our expectations to what reality is… how does it fit with our brand? What is the competition doing?

And then lastly, what are our costs, and what are our margin requirements off that?”

All vintners shared a pricing strategy of managing the balance between setting a bottle price too low and selling the inventory too quickly versus pricing too high and simultaneously managing the complexity of selling two vintages. A vintner mentioned a price-setting rule-of- thumb, “price your wine such that you’re always selling more wine than you’ve produced in a vintage.”

All vintners shared a common perspective on forecasting future revenues. The long lead time in winemaking (e.g., harvest, production, barrel aging, and bottling) requires vintners to set suggested retail prices (i.e., direct-to-consumer) and FOB (Free On Board) sellers’ prices (i.e., wholesale price) for a given vintage four years in advance. A vintner states, “I'm forecasting what my revenue is going to be four years from now because that's how long it takes to make a bottle of wine.”

All vintners considered the cost of goods for the premium appellation and single-vineyard wines. Costs start in the vineyard, as highlighted by a vintner. “Napa grapes are a valued commodity, and we are not just farming as cheaply as we can. We're farming to make the best

45 product that we can, and that's a lot different than a lot of other agricultural products.” Other considerations a vintner underscores “how much fruit we leave, how we hedge it… how many passes do we go through in the vineyard, which adds labor to the cost… and dropping more fruit in the vineyard that increases the quality of the fruit that's left.” Another vintner stresses, “when you're trying to make the best wine out of a single vineyard, your everyday operational costs will be higher because there's so much TLC (tender loving care) going into them. You're going to spend more time on the leaf, and you're going to spend more time on the shoot positioning

(trellis management).”

Scarce products have a higher price point. A vintner highlights the impact of scale (i.e., scarcity). “We sell a wine SKU at $250 bottle. So it's one of our most expensive bottlings, and it is scalability where I should say the availability of that is part of the pricing mechanism. But let's say you made 5000 cases of that wine, we couldn't because we don't have enough. You might not be able to sell 5000 cases right at that price point. And so you might have to rethink your price point depending upon what your scale is.” In other words, to address the strategy of selling a vintage before the release of the next vintage, the vintner would need to adjust the price downward with a greater supply (i.e., reduced scarcity).

Midsize through large vintner respondents underscored the importance of pricing structures for their product lines to ensure they could fulfill a customer demand at a price point.

An executive highlighted, “you want your price levels to be consistent, for example, you have an

$80 wine, and you have a $90 wine and a $100 wine. You don't want to leave any holes in there where you have a gap. You don’t want a situation where you have a $45 wine, a $70 wine, and another at $180. There are too many price pockets in there.” Another midsized vintner demonstrates, “the idea was to make a $75 cabernet, and we have a $300 bottle of Cab too, our

46 customers, both the distribution channel and the direct customers, were interested in a wine in the middle… $175 per bottle. And so it filled the gap within the product line that we had and is also high quality.”

Vintners can segment their wines to fill price gaps. For example, a vintner may offer a reserve designated or a specially branded lot to achieve different price-points by releasing a quality segmented offering (e.g., a subset of barrels or a vineyard block) of any wine appellation or a single vineyard. Single varietal single-vineyard and appellation wines anchor the high-end price-points in a vintner price structure.

The premium single varietal single-vineyard and appellation wines have an added level of complexity in terms of luxury goods pricing. These artisan developed wines emphasize the varietals uniqueness and the influence of the appellation (i.e., AVA) or vineyard. As a vintner highlights, “artisanal wine is driven by the terroir and driven by an artistic winemaker mindset…

So how do you price a Van Gogh or a master art piece? It's not the sum of its cost of goods. It's driven a lot by demand. Demand is ultimately the thing that drives price points.” Another vintner stressed, “what makes a Louis Vuitton purse worth more than something that doesn't have that stamp on it made with the same materials? It is marketing. We have found that if we price wines too cheap, we are not taken seriously. And there's just repulsion if it's too high. So we're trying to find that sweet spot.”

Q4.3 Do other wineries wine prices influence the prices of your wines? Competitive benchmarking and parity pricing was a consistent practice among vintners. Vintners identified a competitive set based upon varietal, appellation, production, and wine style. As a vintner stressed, “we looked at the competitive set. We tried the wines qualitatively to see if there were marked differences between the wines in terms of a qualitative benefit. Narrowed it down to a set

47 of wines that we felt that we were in a class with a similar wine style. Once we had identified the competitive set, then we went about looking at what their established price points were.” Another vintner characterized their price-setting process for different segments of their portfolio, “we will go out and look who we believe is our competitive set from a price point, from a production size, from stylistic similarities to us. And we will blind taste it, and we will see where their price points are and then determine where we think we are. And if we are matching it to that level or surpassing that level where we can be, we look at market conditions; we look at production size the year before, then the projected current year to see if we're going to have too much wine and whether we think we can move it.”

Q4.4 Does a single-vineyard wine have a different price-point from an appellation wine? Most participants leaned toward single varietal single-vineyard wines on average, having a higher suggested retail price than single varietal appellation wines. One vintner conjectured that a winery might opt “to market the single-vineyard as the highest priced wine in its portfolio.” Another vintner stated, “single-vineyard wines tend to be more expensive than an appellation blend.”

A vintner emphasized, “you don't have a Parker (Wine Advocate) rating or a Wine

Spectator rating of ninety-seven... they'll (vintners) use that price to denote quality to the consumers.” “People will typically pay more if it has a sub-appellation or a single-vineyard (i.e., label), and that has a strong connotation of quality for the customer.”

Quality

“World-class” was a standard characterization by all participants of their quality control practices. Participants highlight three areas where they can manage quality, the vineyard (i.e., grape growing), harvest and the crush pad (i.e., sorting and crushing), and process manufacturing

48

(i.e., fermentation, barrel aging, blending, and bottling). Most vintners perceive third party quality ratings to have a place in the three-tier distribution network. However, I received mixed feedback on the influence of quality ratings for wines in their direct-to-consumer channel. Wine ratings have evolved from twenty years ago and may reflect a generational change in the consumer base.

Q5.1 What influences the quality of your wines?

Table 8 summarizes some of the comments participants provided in response to questions about the quality of wines and 3rd party ratings of quality. An enthusiastically held perspective by growers and winemakers alike, “the very best wines are all made in the vineyard.” A vintner emphasizes, “ the first level of quality is just that the vineyard is in Napa Valley.” A grower suggests the importance of balancing the vine crop level and canopy management, “If you open up that canopy a little bit and let a bit more air and sunlight in there, it's going to help the fruit.”

Growers balance fruit levels by dropping excess fruit to improve the flavor profiles of the remaining grape clusters.

Vintner winemakers actively engage with growers during the growing season to track grape progress. A winemaker provides insights into their connection with the vineyard, “usually you'll know as you're going through the harvest, you'll know that things are shaping up nicely… consistent ripening. The sugars and the acids are in alignment. The color looks good. The vines are still healthy towards the end, which gives you an indication that they're continuing to produce more flavors, and not just ripened by dehydration, which can happen. So you're seeing all those things affecting the grapes… usually, you have a pretty good idea of the quality when you're picking those grapes.”

49

Table 8 Quality and third party ratings Questions Participant Feedback Comments or Select Quotes

What influences the All participants support “The very best wines are all made in the vineyard.” quality of your the views “Nobody machine harvests in Napa Valley because that's not wines? a quality approach. Everybody harvests by hand.” “Three different sections within that vineyard yield different characteristics to the wine.” “The other thing about spectacular quality is you can't make too much.” “We optically sort the grapes.” “use top of the line highest quality French oak barrels.”

Are quality ratings Mixed perspectives for “We think it's important if we get a high score, and if we get relevant to your DTC; Shared view about a low rating, it's not very important.” winery? the wholesale channel “third party advocacy is essential in everything in life. Right?” “ratings are important because when you go into a retail store, you're going to see all those tags out there.” “The consumer needs to understand the approach and the angle of the reviewer.”

Which raters are the Mixed perspectives “Two, Wine Spectator, and Wine Advocate.” most relevant today? “it's getting more Democratic, and people (a reference to word-of-mouth) and social media are here. So, now you're seeing the influences are greatly from your peers and social media.”

What is the value of Value in the wholesale “It's a two-edged sword, right, when you get a good rating. 3rd party ratings? channel and advertising Your wine flies off the shelf, and everything's great, and you can double your price, and then the next year, you get another score, and it's half as good. And then nobody buys your wine anymore.” “Most wineries are too small to have marketing budgets really of any kind.

Would you expect Mostly shared “The vineyard designation is a perception of quality, at least single vineyard wines perspective at this point, because those people that are going out and to have higher quality putting their vineyard designation on there are generally ratings versus quality focused. They're not blending from all over the appellation wines? place.”

50

During harvest in the fall, growers will enlist crews of workers to pick clusters from the vines, “nobody machine harvests in Napa Valley because that's not a quality approach.

Everybody harvests by hand. So already that's more expensive.” Work crews may make multiple passes through a vineyard to optimally pick; a work “crew comes in twice to go through the vineyard to pick the grapes at absolutely the right point. That's another example of where we're worried about the quality. We're not concerned about low-cost production. Nor do we worry about whether we've got to get all the grapes off this vineyard because we've got ten other vineyards to harvest today.” Picking at different times is a necessity as a grower asserts, “a tiny vineyard… three very distinctly different ripening zones make different wines. It's all the same rootstock, it's all the same clonal material, but three different sections within that vineyard yield different characteristics to the wine.” Even within a small vineyard, quality controls will require different pick times and small production lots, which increases costs and complexity. Supporting this practice, another vintner states, “by picking at different times, it adds to the cost. It adds to the complexity in the winemaking at the winery where you have smaller lots, thus more labor to deal with it.”

During the crush operation, a vintner highlights another consideration regarding inbound capacity. “The other thing about spectacular quality is you can't make too much. Or you have to push so many grapes through the facility in the same short two month period of time that you may cut corners that affect quality.” Midsize and large vintners use optical sorters to ensure grape quality. Optical sorters can detect chlorophyll levels and reject stems, unripe berries, leaves, grass, and other foreign objects. “When the grapes come into our crush pad here, we optically sort the grapes. We have a machine that looks at grapes in parallel as they come off the

51 end of an alignment table with a camera. The camera looks at every angle and knocks the bad grapes into the reject pile while the good grapes go into the good pile.”

Finally, the winemaker manages production operations. Given the focus on quality, winemakers will use the best barrels they can purchase for the aging (sometimes fermenting as well) wine. A winemaker asserts, “I use top of the line highest quality French oak barrels, 22 months in barrel.” The final step before bottling to manage quality if the final blend, which lots and varieties to include. Participants varied in terms of who influenced a final blend. An executive at a large vintner emphasizes, “you only trust in the winemaker to say she's going to do the absolute best she can. She's bringing us for potential final products, and we're all voting on that. It's also hard. It takes some practice to get through the fact that, yeah, these wines are young. They're not going to be in the market till a year or two from now. What will it taste like then? And what will it taste like ten years from now?” For the small vintners, the owners and winemakers led any decision for final blends.

Q5.2 Are quality ratings relevant to your winery? Vintners have mixed perspectives regarding the relevance of third-party ratings. A vintner asserts with a sense of humor, “we think it's important if we get a high score, and if we get a low rating, it's not very important.”

Participants distinguished between wine ratings by channel. For the direct-to-consumer channel

(i.e., tasting rooms, website sales, mailing lists, and club membership), most vintners state an indifference for wine ratings. However, some felt third-party ratings and advocacy help their consumers navigate the complex wine SKU landscape and enable small-midsize vintners to minimize their advertising expenses. In contrast, all vintners consider ratings more relevant for wines in the three-tier network (e.g., wholesale channel to grocery stores).

52

Supporting third party ratings, a vintner explains, “third party advocacy is essential in everything in life. Right? You know, movies, cars, whatever it is. If you are trying to acquire something and you want to understand whether you're making a wise decision or not, you usually turn to a third party and get some endorsement advocacy and so forth.” Vintners mainly support this perspective selling wine through the wholesale channel. A vintner asserts, “ratings are important because when you go into a retail store, you're going to see all those tags out there.” Another vintner affirms, “if you're a winery, that is producing a million cases, and you're in every grocery store that you're selling, everything from a $10 bottle to a $150 bottle of wine… the majority of the people who've read that (reviews) are beginners… we all were at some point where they have shelf talkers with scores… will drive sales.”

A vintner discusses rater bias, “the consumer needs to understand the approach and the angle of the reviewer. Why are they reviewing wines, and what is their palate, what is their style?

What do they like? What do they dislike? So you can assess, is that a good match for me? And did they enjoy wines in a similar way that I like to enjoy wines? And when you get an alignment there that works, it's, I think, fantastic thing for the consumers.” Another vintner supports, “we all have different palates. Quite frankly, the other thing that makes the review process very challenging is that wine is incredibly sensitive to its environment. Once it's bottled, if the temperature is not right or the barometric pressure is not correct, or the wine has traveled… what the reviewer had for breakfast that day, the state of mind of the reviewer did the reviewer get into an argument with their spouse, or all of these things played a role in some way, shape, or form.”

Q5.3 Which raters are the most relevant today? One interviewee emphasized, “Two,

Wine Spectator, and Wine Advocate. But Bob's (Robert Parker) gone. Laube (James Laube) is gone.” Several interviewees supported this perception of these being the two most relevant

53 raters. However, their impact has changed. A vintner asserts, in the early 2000s, “Wine Spectator and Robert Parker (i.e., Wine Advocate) were at their peak. What they would write, people would follow, kind of like the Pied Piper. And that doesn’t exist anymore.” As a follow-up question, a participant responded, “it's getting more Democratic, and people (a reference to word-of-mouth) and social media are here. So, now you're seeing the influences are greatly from your peers and social media. So it's become much more democratic. So who knows where all this is going, but word of mouth is making a big difference. But the scores are still there. But I think it's not just Parker and Laube. Now it's a much broader scale, although they (i.e., Wine Spectator and Wine Advocate) are still relevant.” Vintners agreed that traditional wine quality reviews and ratings are necessary for particular business scenarios but are no longer sufficient to drive demand.

Q5.4 What is the value of third party ratings? For those vintners distributing within the wholesale three-tier channel (e.g., grocery, supermarket, restaurant, etc.) feel that third-party raters helped educate consumers. Vintners assume risks with reviews, “It's a two-edged sword, right, when you get a good rating. Your wine flies off the shelf, and everything's great, and you can double your price, and then the next year, you get another score, and it's half as good. And then nobody buys your wine anymore.” Other vintners were indifferent to scores as characterized by the following interviewee, “it's always a great compliment to get a fantastic score. We don't carry a wine along the lines with the intent of a rating in mind. It's great if you get one, and it's not going to kill us if we don't. We recognize that some folks highly prioritize the rating, other people don't.”

Small vintners can rely on third-party raters and influencers to market their wines. A vintner emphasizes, “most wineries are too small to have marketing budgets really of any kind.

54

And so traditional marketing of advertising your wares is not something that the wine industry at our price point is accustomed to doing.”

Q5.5 Would you expect single vineyard wines to have higher quality ratings versus appellation wines? A vintner explains, “the vineyard designation is a perception of quality, at least at this point, because those people that are going out and putting their vineyard designation on there are generally quality focused. They're not blending from all over the place.” Most vintners perceived single-vineyard products to be the best of the best.

Customers

All vintners expressed an interest in their current customer base and concern about the future customer base in terms of understanding and adapting to the needs of the younger generations' (i.e., Millenial and GenZ) preferences. Table 9 includes a summary of comments received from participants regarding direct-to-consumer marketing.

Q6.1 Who are the customers of your high price point wines? Very few respondents venture to discuss their current understanding of their customer base for their high price point luxury wines. A few executives venture to characterize such buyers, “it's like the guys who buy the Bentleys. They're the guys who appreciate wine, love wine, not only for its intrinsic value but its status. I mean, you put a bottle of that on the table. All of a sudden, you've got status here. But they have money, and they appreciate wine. And I think they must have some quality of pallette.

And they are collectors to a certain extent.” Another executive described, “the world is obsessed with scarcity, and that's why there are collectors: electric cars, corporate artwork, collector of anything. There's only one, or there are very few, and they're willing to pay for it.”

55

Table 9 Consumers and direct-to-consumer channel Questions Participant Feedback Comments or Select Quotes

Who are the Few responses “you put a bottle of that on the table. All of a sudden, you've consumers of your got status here.” Not well understood high price point “the world is obsessed with scarcity, and that's why there are wines? collectors, and they're willing to pay for it.”

What are the All vintners are trying to “It was the baby boomers that started the California wine generational trends understand business.” with your consumer “Millennials are the next buyers and baby boomers while base? they're still the number one buyers; they are fading.” “Millennials are almost the opposite. They want to find that unique one-off, hard to find experiences, something that's different than the mainstay.”

How do your All participants “multilayered distribution, I believe, creates a strong, consumers buy your supported powerful brand long-term.” high price point “If you make less than twenty thousand cases, you can build wines? a business around directly selling your wines to your end customers, direct-to-consumer.” “People generally don't buy wine from wineries unless they've visited.”

Q6.2 What are the generational trends in your consumer base? Understanding generational segment trends and marketing are a high priority among vintners and growers. “It was 15-20 years ago; it was the baby boomers that started the California wine business to where it is right now. They're getting older, and there's some evidence showing they're starting to spend slightly less as their incomes have stopped or have moved toward fixed incomes.” Baby boomers still represent a significant consumer demographic among the Napa wineries.

However, “Millennials are the next buyers and baby boomers while they're still the number one buyers; they are fading.” An interviewee highlighted the difference; “baby boomers are an exciting crowd of wine buyers in that they tend to buy wines from the wines that they hear about from their friends (word-of-mouth). Meaning if somebody gets an excellent rating at

56

Parker, people buy it. Suddenly all the baby boomers come, and they want to go to these wineries because it's a herd mentality, and they're willing to pay more money because they have more income.” By contrast, “Millennials are almost the opposite. They want to find that unique one- off, hard to find experiences, something that's different than the mainstay, and so we as marketers in the Napa Valley have to change our approach to marketing. It's no longer the referral business of the baby boomers. It's now creating these unique experiences that include lower-priced wines that can drive higher volume.”

Q6.3 How do your consumers buy your high price point wines? Vintners mostly sell their high priced single-vineyard and appellation wines direct-to-consumer, DTC (e.g., online, mail lists, wine clubs, and tasting room sales). Vintners can command higher margins for products sold at suggested retail price in contrast to the price reduction, FOB sellers price (e.g.,

50% of suggested retail price), in the three-tier network (i.e., wholesale channel). The three-tier wholesale channel includes restaurants and retail markets (e.g., supermarkets, grocery stores, wine shops, etc.). The costs to produce wines in either channel are the same, but the revenue from DTC can be twice the wholesale channel.

Although the DTC channel is more profitable, small-midsize vintners had different perspectives on the wholesale side. Vintners typically create specific SKUs as well as brands for the wholesale channel. A vintner explains that he wholesale distributes, “consumer-grade wines, grocery store wines that are high volume. They're more of a standardized beverage.” In general, vintners do not distribute their luxury wines through the wholesale trade. However, one vintner expresses the long-term benefits for his brand, “multilayered distribution, I believe, creates a strong, powerful brand long-term because the gatekeepers are in the restaurants and the retail shops, the owners, who are making recommendations.” The wholesale channel exposed vintners’

57 and growers’ brands to consumers, which helped repopulate their DTC business and helps recruit vintner and grower brand advocates (e.g., sommeliers, waiters, and shop owners).

As the Napa Vintners Association (2020) stresses, 80% of wineries produce 10,000 cases or less annually. A winery owner asserts, “If you make less than twenty thousand cases, you can build a business around directly selling your wines to your end customers, direct-to-consumer

(DTC). If you make over 500 hundred thousand cases, you have enough marketing power in the distribution channel to make sure that distributors around the United States do their job and sell your wine to restaurants and retail stores in various states. And there's a valley of death between twenty thousand and let's say five hundred thousand cases.” To push volume in the wholesale channel requires vintners to distribute wines that do not require sophisticated enablement for the salespeople or a sales enablement program. Sellers (e.g., sommeliers and bottle shop representatives) “should be able to have an intelligent conversation with the consumer about them (single-vineyard and appellation wines) rather than have them sit on the shelf because none of them are inexpensive, especially if you're in a restaurant.”

Across the interviewee sample, understanding their consumers' preferences for single vineyard and appellation wines were vital to their current and future direct-to-consumer channel success. However, vintners recognize the need to have a physical presence (e.g., a tasting room) for customers to sample luxury wines. As a vintner expressed, “people generally don't buy wine from wineries unless they've visited… It's usually the experience imbued in the wine that they value.” Vintners continue to invest heavily in beautifully architected tasting facilities. An owner characterized his tasting environment to attract high-end buyers as creating a wine “cave-effect.”

The wine “cave-effect” included barrels organized in wine caves next to vineyards to connect consumers with their vision of a winery. Hebert (2019) explains that modern tasting rooms “are

58 an opportunity for guests to immerse themselves in the world of winemaking, for a little while at least, and become part of a community.”

Vintners staff their tasting rooms with a small number of tasting room associates and advisors to sell their higher-priced wines and wine club memberships. The tasting room staff are brand ambassadors positioning artisanal wines and require extensive product training.

Additionally, the tasting room staff have to intelligently engage with a range of amateur through advanced wine buyers. Hiring, managing, enabling, and compensating tasting room staff that represent vintners' most profitable channel was a critical concern across interviewees.

Appellations

The final set of questions relate to appellations. Table 10 summarizes the responses to these questions. Appellations represent US boundaries that define label requirements for grapes sourced from the designation. The borders of the appellation create scarcity, which implies higher fruit prices, higher wine prices, and higher vineyard prices. The areas differ in terroir (i.e., soil, climate, etc.), terroir’s expression in wine (i.e., flavor profiles and typicity), and naming convention. Vintners and growers leverage the collective marketing capabilities of their winegrowing associations.

The Alcohol and Tobacco Tax and Trade Bureau (TTB) established the Napa Valley

American Viticultural Area (AVA) in 1981. The Napa Valley is further sub-divided into sixteen appellations (i.e., nested). The AVAs by law are distinguished from one another by several criteria. Mendelson (2016) highlights natural identifying characteristics such as terroir (soil, climate, site, etc.). Unrelated to the nature-related aspects of an AVA includes the name of the

AVA (e.g., ancestral, mountain, founder, etc.) and the historical boundaries (e.g., government

59 boundary, roads, mountain range, etc.). Finally, the AVA boundaries must be available on topographic maps published by the U.S. Geologic Survey.

Table 10 The value of appellations Questions Participant Feedback Comments or Select Quotes

What is the value of “We can charge more, and the consumer typically expects to appellations? pay more for those wines.” “The appellations systems here in the US and Europe are all about creating scarcity.” “You build the name and the recognition then, and all of a sudden, Oakville is a thing, and you can command a high price.” “My grapes are worth 20 percent less than the guy that's inside the AVA.”

Do the appellations “Some of these areas (AVAs) are stronger at it. The reality differentiate of it is that some are strong at selling their appellation.” themselves? How?

Q7.1 What is the value of appellations? The critical point illustrated by a winemaker regarding AVAs is that “we can charge more, and the consumer typically expects to pay more for those wines.” Another winemaker highlights the price premium over non-appellations, “the appellations systems here in the US and Europe are all about creating scarcity. It's artificial, that sounds harsh, but I don't think this is manufactured.” When I asked another grower about the premium prices in the Oakville AVA, he stated, “you build the name and the recognition then, and all of a sudden, Oakville is a thing, and you can command a high price.”

A vintner expressed concerns about the fixed boundaries of an AVA, “My grapes are worth 20 percent less than the guy that's inside the AVA. So if you're not going to redraw the lines, I might take you to court. So that's one of the significant flaws in our AVA system and the governing body, the TTB has avoided. They've slowed down the AVA process now for that reason as well as IP (intellectual property).” As a result of higher fruit prices for growers,

60 vineyard prices with appellations are higher. A winery owner explained that a local firm helps value vineyard properties through a regression model. “When you buy a vineyard, which is often a fixed cost, amortize the costs associated with it being in that particular appellation, and the average bottle price determines that. And it's a very complex formulation, and there are only a few people who do this. And Oakville is number one, followed by Howell Mountain, and Stag's

Leap has risen… Rutherford used to be number two. And those bounce around a little bit, and that can also be because a few big players move in and skew the average bottle price down.”

Q7.2 Are any appellations in Napa better than others? Each sub-appellation has a winegrowers association (e.g., Oakville Winegrowers Association) that collectively market wines within the AVA to differentiate their products. A grower asserts, “I think there's an interest in always trying to differentiate yourself. And there are points of differentiation. Some of these areas (AVAs) are stronger at it. The reality of it is that some are strong at selling their appellation.” The winegrower associations offer an online presence, consumer enablement (e.g., history, wineries, growers, and terroir), customer events (e.g., wine tasting), and trade events

(e.g., trade tasting, auctions, etc.).

GENERAL DISCUSSION

Terroir brands, as demonstrated through single-vineyard designated wines in the Napa

Valley signal scarcity and vintners’ quality focus in the vineyard and production. As a result, wineries can offer premium prices and anticipate, on average, a slightly higher rating in comparison to their appellation offerings. In study 1, I use three research streams to develop arguments to support the difference in value and quality ratings between a granular site-specific terroir brand (i.e., a single-vineyard branded wine) and a higher level of resource abstraction, an appellation branded wine.

61

Ingredient branding, a marketing strategy, contends that an ingredient, a terroir (i.e., variety, clone, soil, site, climate, etc.), emphasized in marketing and promotional material signal scarcity. Ingredient brands also highlight marketing value and other points-of-differentiation to a customer (Kotler and Pforertsch; 2010). The more extensively developed resource-based view of the firm underscores the importance for producers to leverage scarce resources (i.e., single vineyards and appellations) to obtain a competitive advantage and command higher value

(Barney, 1991). The greater the site-specific granularity, as depicted by a terroir brand, implies a greater degree of resource scarcity in comparison with an abstracted resource, an appellation

(i.e., a blend of vineyard resources). Finally, the psychology of scarcity explains consumer behavioral responses to luxury wines. In the principles of scarcity, Cialdini (1987) illustrated two behavioral responses by people for scarce resources. Scarce products are more attractive, and the desire to possess the product increases.

Study 2 explored possible explanations of why and how differences occurred in marketing value. Interview participants had numerous illustrations of how and why price and quality differences exist, and these provide additional insights and support for the theoretical arguments in study 1. The participant interview question categories included: general demographics, historical background (Phylloxera and cult wines), terroir, labels, price, quality, customers, and appellation.

Participants asserted that the market’s perception of the Napa Valley brand changed after the Phylloxera vineyard replants from the 80s. Vineyard quality improved (e.g., more consistent full-ripening of grape clusters); consequently, writers and reviewers of Napa Valley wines promoted and advanced the preeminence of the region. By the late 90s, the TTB approved twelve

62 sub-appellations, differentiated by terroir, within the Napa Valley AVA, a further segmentation for marketers to highlight points-of-differentiation.

A small number of wineries with a first-mover advantage, being at the right place and time, ushered in a modern winemaking era, taking advantage of the unique dry Mediterranean climate, long growing season, and diversity of soils. The cult wineries (exemplified by eight wineries) introduced a focus on single-vineyard designated wines, expressions of terroir. The cult wineries introduced a scarcity model through small production, exorbitant prices, high-quality attention to vineyards and process, high ratings, and exclusive direct-to-consumer mail lists.

Given that 80% of the wineries in Napa Valley produce 10,000 cases or less, many wineries aspired to emulate the successes of the cult wineries.

Consequently, vintners develop a product line price structure and price the SKUs to sell all SKUs before the next vintage. Vintners do not want to sell SKUs from a prior vintage.

Pricing is further complicated because vintners forecast suggested retail prices (or FOB sellers price) four years in advance due to the long lead time (i.e., growth, harvest, produce, and aging).

Vintners also competitively benchmark the wines in their portfolios with comparable wines (i.e., production, variety, style, etc.) to reexamine their pricing. The single-vineyard artisanal wines tend to be the flagships offering(s) that reflect the winemaking team's artistic expressions of the terroir and like any luxury good, difficult to price. Single-vineyard wines anchor the high-end of wineries.

Single-vineyard wine quality starts in the vineyard. Vintners quality stratify and segment into batch lots the final product through the growth, harvest, crush, fermentation, and aging processes. The best-of-the-best represents single-vineyard designated lots. Third-party rating sources still matter, but not as much as in the 90s and early 2000s. All vintners understand the

63 generational demographic of their current customer base. However, many of the vintners seek to learn the implication of the latest generations, Millenials and GenZ. TTB appellations, a means of vintner and grower value appropriation, matter. Growers can capture premiums for selling grapes from branded appellations. Vintners can command higher prices for appellation branded wines. Each appellation has an association to help market the resources and final products. Some appellations, like Oakville, are very good at marketing the value of their resources.

In sum, this research advances our understanding of the influence of ingredient brands on the marketing value of products. I used a sequential mixed-methods explanatory interview approach to investigate the quantitative effect and a qualitative study to explore in greater detail explanations for the outcomes. Study 1 used three theoretical models based on scarcity signaling, supply-side scarcity, and demand-side scarcity. Study 2 used insights and plausible explanations from subject matter experts to understand the outcomes of marketing value better. The research suggests that producers can command higher prices and anticipate a higher quality rating with terroir ingredient brands.

Practical Implications

In addition to advancing our understanding of the marketing value of terroir brands, the study also has practical implications for vintners and growers. At first appearances, a vintner will pay more for a branded ingredient (e.g., terroir brand), single-vineyard sourced grapes. However, the benefits to the host brand (i.e., vintner) for the added value of the terroir brand may outweigh the costs. Savvy vintner and grower marketers highlight the unique points-of-differentiation in the marketing and promotional material of the terroir of their vineyards. Additionally, growers can draw attention to other successful vintners, their quality ratings, and industry reviews (e.g.,

64

Beckstoffer To Kalon), highlighting their commitment to the quality and consistency of their ingredient products.

There are several benefits to vintners. First, a vintner can reduce the costs of new SKU promotions (Norris, 1992). Given the high costs of marketing and promotions within consumer goods and the small to negligible advertising budgets of the small production wineries, vintners can appropriate value. For example, vintners can appropriate the customer awareness of an established terroir brand (e.g., Beckstoffer To Kalon) and benefit from the broader market brand awareness of the terroir. Second, producers can benefit from the brand authenticity of terroir brands. Beverland (2005) highlighted the successful practices of luxury wine brands to create an impression of authenticity to include sincerity in their storytelling and messaging related to place, product uniqueness, and traditions.

Third, Keller (2010) highlights the positive added-value effects of secondary brand associations through brand knowledge transfer. In this scenario, a host brand receives benefits via brand knowledge transfer (e.g., awareness, images, feelings, experiences, etc.) from a terroir brand (e.g., Beckstoffer To Kalon). Fourth, an ingredient may represent a product line extension strategy (e.g., add a new flavor or variety to an existing category) for a producer (Desai and

Keller, 2002). A terroir brand may represent a new product line extension into a new segment

(e.g., vintner adds Beckstoffer To Kalon) or a slot filler expansion into an existing category (i.e., vintner adds Beckstoffer Missouri Hopper to a current terroir product line).

Many producers will also adopt a self-branded ingredient branding strategy. In this scenario, the producer takes a terroir brand that they own; in other words, the producer owns a vineyard(s). The vintner (or grower) either brands the vineyard with a name (i.e., a vineyard name) or chooses a typical self-branded naming convention, ‘estate-grown.’ The disadvantage of

65 the estate-grown brand is the lack of direct connection to a single-vineyard. A vintner can use the estate-grown brand if 95% of the grapes are sourced from any vineyard owned by the producer.

For example, in Napa Valley, estate-grown wines can be sourced from contiguous vineyards across one or more sub-appellations as long as the producer owns them. Estate-grown wines reflect the highest quality from the producer but are theoretically disadvantaged relative to single-vineyard branded wines per aforementioned theoretical arguments.

From the grower’s perspective, a supplier has various options enabled through ingredient branding. Ingredient branding claims better profit margins through higher prices aligned with demand for scarce resources, reduced costs with increased volume size orders, and longer-term vintner relationships to stabilize demand (e.g., evergreen contracts). First, Kotler and Pfoertsch

(2010) highlight a multi-level marketing strategy for an ingredient supplier, such that the supplier can opt to market to the end customer and drive demand and a preference for their ingredient products by pulling customers into the channel (e.g., Intel Inside marketing strategy). In Napa

Valley, growers such as Beckstoffer Vineyards have broad brand awareness and drive demand for their ingredient, grapes (e.g., To Kalon Vineyards), through their organization's investments in marketing and promotional materials. Second, growers’ within an appellation have aggregate marketing objectives for building brand awareness, brand preference, and brand loyalty for the appellation's terroir and brands. Growers can collectively co-market with other growers and stimulate demand through their regional grower associations (e.g., Oakville Winegrowers).

Limitations and Future Research

Like any research, this mixed-methods study has limitations that highlight opportunities for future research. First, this research focused on a single varietal, Cabernet Sauvignon, wine within the Oakville AVA in Napa Valley. The Napa Valley Vintners (2020) accentuated that

66

Cabernet Sauvignon represented the top planted variety (51%) in the Napa Valley AVA, followed by Chardonnay (13%), Merlot (9%), Pinot Noir (6%) and Sauvignon Blanc (6%). Some interview participants stressed the importance of terroir brands for Pinot Noir, a delicate varietal frequently marketed as an expression of terroir. Second, there are 16 sub-appellations (AVA) within the Napa Valley AVA. Therefore, the study has external validity concerns regarding generalizability to other AVAs and other US regions. Third, this research uses a single source for quality rating data, Wine Spectator. Future research could test several other quality rating sources such as Wine Advocate and Wine Enthusiast.

Fourth, this research does not adequately explore consumer demand and preference for luxury wines. I argued that consumers drove up demand and prices for terroir branded wines as a result of scarcity (i.e., the psychology of scarcity). Such perceptions and responses to label scarcity signals (i.e., terroir brands, case production information, vineyard block, clone, etc.) require a future study such as a conjoint preference experiment. A few interview participants suggested a consumer varietal segmentation such that their Pinot Noir customers were different from their Cabernet Sauvignon customer base. Related, interview participants often underscored their lack of understanding of the generational consumer, the buying pattern, and preference differences between baby-boomers, millennials, and GenZ.

Fourth, interview participants highlighted the importance of the cult wineries and their influence on winemaking style and business model. Screaming Eagle, a well-known cult winery within the Oakville AVA, 750 ml bottles of single-vineyard wines sell for $3,000 (wine.com,

2020). This research did not investigate the nature of cult luxury goods. Finally, winery owners and managers often commented on the challenges of running their tasting room teams, a part of their direct-to-consumer channel. Tasting room advisors and associates promote the vintners'

67 brands and are often the first exposure a consumer has with the brands. These brand ambassadors sell vintners’ most expensive SKUs in their most profitable channel. A future research area may include brand ambassadors in the direct-to-consumer channel.

Conclusion

This mixed-methods research demonstrates that vintners that use site-specific terroir co- brands (i.e., single-vineyard brands) command a 56% price premium difference over an abstracted brand, appellation, from the same appellation, Oakville AVA. Additionally, vintners benefit with a 2% quality rating improvement through a terroir co-brand over appellation brands.

The second part of the study identifies possible explanations for price and quality differences from Napa Valley subject matter experts. Semi-structured interview themes included vintner demographics (i.e., Large, midsize, and small), historical background (Phylloxera and cult wines), terroir, labels, price, quality, customers, and appellation. As a whole, this research advances our understanding of the marketing value imparted by terroir ingredient brands for luxury wines.

68

REFERENCES

Anesi, A., Stocchero, M., and Dal Santo, S. (2015). Towards a scientific interpretation of the terroir concept: plasticity of the grape berry metabolome. BMC Plant Biology, Vol 15 (191).

Aurier, P., Fort, F., and Sirieix, L. (2005). Exploring terroir product meaning for the consumer. The Anthropology of Food (online), URL: http://journals.openedition.org/aof/187.

Barham, E. (2003). Translating terroir: the global challenge of French AOC labeling. Journal of Rural Studies, Vol 19, pp. 127-138.

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120.

Barney, J., and Clark, D. (2007). Resource-based theory: Creating and sustaining a competitive advantage. Oxford University Press, New York City.

Beckstoffer Vineyards, URL: http://www.beckstoffervineyards.com/heritage/to-kalon/history (accessed March 2017 – Nov 2018).

Brinkmann, S. & Kvale, S. (2015). Interviews: Learning the craft of qualitative research interviewing (3rd Ed.). Thousand Oaks, CA: Sage Publications.

Charters S., Spielmann N., and Babin B. (2017). The Nature and Value of Terroir Products. European Journal of Marketing, Vol 51, 748-771.

Charters, S., and Spielmann, N. (2014). Characteristics of strong territorial brands: The case of Champagne. Journal of Business Research, Volume 67 (7), 1461-1467.

Cheaha, I., Zaino, Z, and Phaua I. (2016). Conceptualizing country-of-ingredient authenticity of luxury brands. Journal of Business Research, Vol. 69 (12), 5819-5826.

Creswell, J.W., and Creswell, D. J. (2017). Research design: Qualitative, quantitative, and mixed methods approaches (5th ed.). Thousand Oaks, CA: Sage Publications.

Cronbach, L. J., and Meehl, P.E. (1955). Construct Validity in Psychological Tests. Psychological Bulletin. 52 (4), 281–302.

Deloire, P., Prevost, and Kelly, M. (2008). Unraveling the terroir mystique: an agro-socio- economic perspective. Perspectives in Agriculture, Veterinary Science, Nutrition and Natural Resources, Vol 3 (32), pp. 1-9.

Demsetz H. (1973). Industry Structure, Market Rivalry, and Public Policy. The Journal of Law & Economics, Vol. 16 (1), 1-9.

69

Demossier, M. (2011). Beyond terroir: territorial construction, hegemonic discourses, and French wine culture. Journal of the Royal Anthropological Institute, Vol 17, pp. 685- 705.

Desai, K.K, and Keller, K.L. (2002). The effects of ingredient branding strategies on host brand extendibility. Journal of Marketing, 66, 77-93.

Dierickx, I. and Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), 1504-1511.

Erevelles, S., Stevenson T.H., Srinivasan, S., and Fukawa N. (2008). An analysis of B2B ingredient co-branding relationships. Industrial Marketing Management, Vol 37 (8), 940- 952.

Gibbert, M., Ruigrok, W., and Wicki, B. (2008). What passes as a rigorous case study? Strategic Management Journal, Vol. 29 (13), 1465-1474.

Goode, J. (2014). The science of wine: From vine to glass (2nd ed.). University of California Press. Hakstian, R., Roed, J., and Lind, J. (1979). Two-sample T^2 procedure and the assumption of homogeneous covariance matrices. Psychological Bulletin, 86(6), 1255-1263.

Hair J., Black W., Babin B., and Anderson, R (2010). Multivariate data analysis. Pearson Prentice Hall, Upper Saddle River, New Jersey, 7th edition.

Haynes, S. (1996). Geology and Wine 1. Concepts of Terroir and the Role of Geology. Geoscience Canada. Vol 26 (4), pp. 190-194.

Hebert, H. (2019). The new architecture of wine: 25 spectacular California wineries. Gibbs Smith. Hoffmann, D. URL: http://www.thephoenixcollection.com/media.php (accessed October 2019).

Hunt, S. (2010). Marketing Theory: Foundations, Controversy, Strategy, Resource-Advantage Theory. New York, NY: M.E. Sharpe.

Hunt, S., and Morgan, R. (1996). The resource-advantage theory of competition: dynamics, path dependencies, and evolutionary dimensions. Journal of Marketing, Vol 60, 107-114.

Jacobides, M.G., Thorbjorn, K., and Augier, M. (2006). Benefitting from Innovation: Value- Creation, Value Appropriation in the Role of Industry Architectures. Research Policy 35, 1200-1221.

Jacobsen, R. (2010). American Terroir. New York, NY: Bloomsbury Publishing.

70

Kapferer, J.N., and Bastien, V. (2012). The luxury strategy: Break the rules of marketing to build luxury brands (2nd ed.). Philadelphia, PA: Kogan Page Limited.

Keller, K. (2013). Strategic brand management: Building, measuring, and managing brand equity (4th Ed.). Edinburgh Gate, United Kingdom: Pearson Education Limited.

Keller, K. (2003). Brand synthesis: The multidimensionality of brand knowledge. Journal of Consumer Research, Vol 29 (4), 595–600.

Kotler P. & Pfoertsch W. (2010). Ingredient branding: Making the invisible visible. Berlin, Heidelberg: Springer-Verlag.

Kotler, P., Keller, K., Brady, M. & Goodman, M. (2016). Marketing Management (3rd Edition). Edinburgh Gate, UK: Pearson Education Limited.

Linder, C., and Seidenstricker, S. (2010). The Strategic meaning of ingredient brands: A resource-based analysis. Asian Journal of Marketing, Vol 4, 1-16.

Lippman, S., and Rumelt, R. (1982). Uncertain imitability: An analysis of interfirm differences in efficiency under competition. The Bell Journal of Economics. Vol 13(2), 418-438.

Maison, D., Greenwald, A.G., and Bruin, R. (2004). Predictive validity of the implicit association test in studies of brands, consumer attitudes, and behavior. Journal of Consumer Psychology, Vol 14 (4), 405-415.

Marshall, C., and Rossman, G.B. (1999). Designing Qualitative Research (3rd ed.). Sage Publications Inc.

Mendelson, R. (2016). Appellation Napa Valley: Building and protecting an American treasure. Vale e Grace Books, Inc.

Miyazaki, A., Grewal, D., and Goodstein, R. (2005). The effect of multiple extrinsic cues on quality perceptions: A matter of consistency. Journal of Consumer Research, Vol. 32, 146-153.

Napa Valley Vintners (2020, March 15). https://napavintners.com/.

Nielsen (2015). It’s all in the mix: red blends are stirring up U.S. wine sales. Date Posted: 11.06.2015. URL: http://www.nielsen.com/us/en/insights/news/2015/its-all-in-the-mix- red-blends-are-stirring-up-uswine-sales.html. Date accessed: 07.12.2018.

Norris, D. (1992). Ingredient branding: A strategy option with multiple beneficiaries. Journal of Consumer Marketing, Vol. 9 (3), 19-31.

Oakville Winegrowers Association, URL: https://www.oakvillewinegrowers.com/ (accessed October 2019).

71

Pappu R., Quester P.G., and Cooksey, R.W. (2006). Consumer-based brand equity and country- of-origin relationships. European Journal of Marketing, Vol 40 (5/6), 696-717.

Penrose, E. (1959). The theory of the growth of the firm. Oxford University Press, New York City.

Pharr, J. (2005). Synthesizing country-of-origin research from the last decade: Is the concept still salient in an era of global brands? Journal of Marketing Theory and Practice, Vol 13(4), 34-45.

Pinar, M., and Trapp, P.S. (2008). Creating competitive advantage through ingredient branding and brand ecosystem: The case of Turkish cotton and textiles, Journal of International Food & Agribusiness Marketing, Vol 20, 29-56.

Podsakoff, P., MacKenzie, S. & Podsakoff, N. (2016). Recommendations for creating better concept definitions in the organizational, behavioral and social sciences. Organizational Research Methods, 19(2), 159-203.

Ponnam, A., S, S., and Balaji, M. (2015). Investigating the effects of product innovation and ingredient branding strategies on brand equity of food products. British Food Journal, Vol. 117 (2), 523-537.

Radighieri, J.P., Mariadoss, B.J., Grégoire, Y. and Johnson, J.L. (2014). Ingredient branding and feedback effects: The impact of product outcomes, initial parent brand strength asymmetry, and parent brand role. Marketing Letters, Vol. 25 (2), 123-138.

Ricardo, D. (1817). Principles of political economy and taxation. London: J. Murray.

Rosenthal, R. (1991). Meta-analytic procedures for social research (2nd ed.). Newbury Park, CA: Sage.

Seguin, G. (1986). Terroirs and pedology of wine growing. Experientia 42 (8), 861-873.

Spielmann, N. (2014). Brand equity for origin-bounded brands. Journal of Brand Management, Volume 21 (3),189–201.

Stuen, E., Miller, J., and Stone, R. (2015). An analysis of wine critic consensus: A study of Washington and California wines. Journal of Wine Economics, Vol 10 (1), 47-61.

Swaminathan, V., Reddy, S.K. & Dommer, S.L. (2012). 23: 237. Spillover effects of ingredient branded strategies on brand choice: A field study. Marketing Letters, Vol 23 (1), 237-251.

Swinchatt, J., and Howell, D. (2004). The winemakers dance: Exploring terroir in the Napa Valley. University of California Press.

72

Thakor, M. (1996). Brand origin: Conceptualization and review. Journal of Consumer Marketing, Vol. 13 (3), 27-42.

Thakor, M., and Lavack, A. (2003). Effect of perceived brand origin associations on consumer perceptions of quality. Journal of Product & Brand Management, Vol. 12 (6), 394-407.

Tiwari, K., and Singh, R. (2012). Perceived impact of ingredient branding on host brand equity. Journal of Marketing and Management, Vol. 3 (1), 60-77.

Trubek, A.B. (2008). A taste of place: A cultural journey into terroir. Berkeley, CA: University of California Press.

Vaidyanathan, R., and Aggarwal, P. (2000). Strategic brand alliances: Implications of ingredient branding for national and private label brands. Journal of Product & Brand Management, Vol 9 (4), 214-228.

Van Leeuwen, C., and Seguin, G. (2006). The concept of terroir in viticulture. Journal of Wine Research, Vol 17 (1), 1-10.

Wall Street Journal. URL: https://deloitte.wsj.com/cmo/2017/01/24/who-has-the-biggest- marketing-budgets (accessed October 2019).

Wernerfelt, B. (1984). A Resource-Based View of the Firm. Strategic Management Journal, 5(2), 171-180.

Wilson, J. (1998). Terroir: the role of geology, climate, and culture in the making of French wines. University of California Press, Berkeley.

Wine.com. 2014 Screaming Eagle wine. https://www.wine.com/product/screaming-eagle- cabernet-sauvignon-2014/165265 (accessed February 2020).

Wine Spectator. Source of wine data, ratings, and reviews. http://www.winespectator.com/. (accessed April – December 2018).

United Nations Educational, Scientific and Cultural Organizations, UNESCO (2010, January 29). Planete Terroirs. Retrieved June 1, 2018, from http://www.unesco.org.

US Bureau of Labor Statistics, Price Inflation of Wine (2020, April 1). https://www.officialdata.org/Wine-at-home/price-inflation/1995.

USDA, National Agricultural Statistics Service (2020, April 12). https://www.nass.usda.gov/Statistics_by_State/California/Publications/Specialty_and_Ot her_Releases/Grapes/Crush/Reports/index.php.

73

Yarrow, A. (2015). At What Price To Kolan? Jancis Robinson. Posted: 4.15.2015. https://www.jancisrobinson.com/articles/at-what-price-to-kalon. Date Accessed:11.27.2018.

Yeung, P., and Thach, L. (2019). Luxury wine marketing: The art and science of luxury wine branding. London: Infinite Ideas Limited.

Yin, R. (2018). Case study research and applications: Design and methods (6th Edition). Thousand Oaks, CA: Sage Publications.

Zhang J., Gou, Q., Liang, L., and He, X. (2013). Ingredient branding strategies in an assembly supply chain: models and analysis. International Journal of Production Research, Vol 51, 6923-6949.

74