An Inquiry Into the Nature and Value of Terroir
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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