Reputation Tapping: Examining Consumer Response to Wine Appellation Information
Total Page：16
File Type：pdf, Size：1020Kb
Reputation Tapping: Examining Consumer Response to Wine Appellation Information Brad Rickard, Assistant Professor Charles H. Dyson School of Applied Economics and Management Cornell University Presented at the 2014 Virginia Vineyards Association’ s Winter Technical Meeting Charlottesville, VA February 1, 2014 Background USDA SCRI Grant “Improved grape and wine quality in a challenging environment: An eastern U.S. model for sustainability and economic vitality” The project has five objective areas: promote increased grape and wine quality, reducing canopy management labor and the use of herbicide inputs and nitrogen losses from the vineyard reduce the occurrence of environmental stresses through better cultivar and vineyard site matching tools reduce costs of grape production while improving grape and wine quality provide learning resources for producers, workforce development, and consumers establish a reputation for consistent, high quality grape and wine production in the East. Reputation-based work at CU • I have worked on two separate projects with two different graduate students studying the role of reputation in eastern wine markets 1.Using Zagat Survey data (that describes reputation) and restaurant specific menus to understand the type of restaurants that are more likely to serve NYS wine http://www.wine-economics.org/aawe/wp-content/uploads/2013/07/AAWE_WP139.pdf 2.Using a lab experiment with real consumers and real wines to see how different types of reputation-type information affects demand and WTP for wine http://www.wine-economics.org/aawe/wp-content/uploads/2012/10/AAWE_WP119.pdf How to create a reputation? • Firm reputation is influenced by terroir, wine expert scores, other good press, and past vintages • Collective reputation describes the reputation of a group of firms in a region (and in addition to terroir, expert scores, and good press among neighbors) it is impacted by the AVA and these same factors across others in their AVA. • We think that collective reputation might also be influenced by linkages to other (more famous or well-established) regions/appellations. • We call this idea “reputation tapping” Laws on Reputation Tapping… • In 2006 the United States signed an “Agreement between the European Community and the United States of America on trade in wine” that was amended in 2010. • Article 7 states that “certain names may be used as names of origin for wine only to designate wines of the origin indicated by such a name, those listed in Annex IV, Part A, names of quality wines produced in specified regions and names of table wines with geographical indications, and Part B, names of Member States.” • Annex IV lists hundreds of protected EU names Some label information no longer used… But we see some non-label references And we see regional references Our Research Question • We want to see how consumers respond to information about this “reputation tapping”, and to determine if this type of information influences their valuation of wine • In addition, we are curious if this information affects all regions, all wines, and all consumers equally. • We suspect that it may be more important for lesser-known regions The Approach • We set up a lab experiment at Cornell that asked 264 non-student subjects to bid on seven white wines from three U.S. regions • Chardonnay from CA, OR, and VA; Pinot Gris from CA and OR; Viognier from CA and VA • All wines had simple labels, were from ‘09, and all received expert scores in the 80s. • Subjects randomly signed up to one of three “information” treatments (no info, AVA info, AVA info plus info on French regions) A Picture from the Lab U.S. Regions for our 7 wines Wine Regions in France • The three varietals included in today’s auctions have historical roots in three regions in France • Alsace with Pinot Gris • Burgundy with Chardonnay • Rhône Valley with Viognier For example: A Wine in Treatment 1 ( Control) State: California Varietal: Viognier State: California Varietal: Viognier Wines in AVA: Santa Ynez Valley Treatment 2 • Warm weather • Limited rainfall State: California Varietal: Viognier AVA: Santa Ynez Valley Wines in Similar Region in France: Lower Rhône Valley Treatment 3 • Warm weather • Limited rainfall Incentives • All subjects received $25 to participate • We also told subjects that, for each wine, one subject would be randomly selected and a “market price” would be randomly drawn from a bag of chips • There was a distribution of prices on the chips that was centered on the retail prices for the wines • Once a subject was drawn, they could not be selected a second time • We then compare the subject’s bid to the market price • If bid>market price, they buy the wine for the market price • If bid<market price, no sale Summary of the data Variable Mean response (n=264) Average WTP ($ per bottle) 9.06 Wine knowledge (1=low, 5=high) Familiar with Chardonnay (1-5) 3.49 Demographics Familiar with Pinot Gris (1-5) 3.08 Age (years) 41.44 Familiar with Viognier (1-5) 1.84 Female (%) 74 Familiar with California Wines (1-5) 3.21 Married (%) 67 Familiar with Oregon Wines (1-5) 2.20 Children in home (%) 32 Familiar with Virginia Wines (1-5) 1.71 Primary shopper (%) 82 Familiar with French Wines (1-5) 2.63 Primary wine shopper (%) 78 Average wine spending (per 750 ml) Vegetarian or vegan (%) 5 Less than $10 29.4% Restaurant meals (number per 4.02 $10-$15 59.6% week) Above $15 11.0% Overview of the Results • We found a premium of about $0.55 for Pinot Gris wines (relative to Chardonnay) • Wines from Oregon and Virginia received bids that were approximately $0.88 less than wines from California. • Overall, the information treatment effects (relative to no information) were not statistically significant. • However, for wines from OR and VA, the treatment that introduced information about AVAs and French appellations (treatment 3) was positive and significant (bids increased by approximately $0.52 per bottle). • Furthermore, among subjects that were relatively familiar with wine, this reputation tapping effect increased to $0.66 per bottle for wines from VA and OR Implications for Wineries in Emerging Regions • First, drawing attention to AVAs for wines from emerging regions does not seem to impact consumers’ valuation, even among consumers that are relatively familiar with wine varietals and regions. • Second, our results suggest that information that ties AVAs to well-established regions in France did resonate with subjects in our experiment • This indicates that making such links to more established regions in France may prove to be an effective marketing strategy for wines from emerging regions, notably among consumers with some wine knowledge. So that brings us back to this slide… Research Funded by: USDA/NIFA/SCRI # 2010-01183 “Improved grape and wine quality in a challenging environment: An eastern US model for sustainability and economic vitality” Thanks for Listening! Questions? Suggestions? [email protected] 607.255.7417 A Summary of the Key Results Variable Unrestricted Restricted Sample I Restricted Sample II Sample (all) (subject bids >$3) (tasting experience) n= 263 n=220 n=134 Constant 7.6937*** 13.4063*** 15.5959*** T2: AVA information -0.4415 -0.7331 -1.4442 T3: AVA & link to France -0.4084 -0.0995 -0.7401 OR or VA -0.8787*** -0.8757*** -0.8994*** OR_VA + T2 0.3294 0.2293 0.2761 OR_VA + T3 0.3934* 0.5160** 0.6554** Wine knowledge index 0.1019** 0.155* 0.3471* Wine expenditure index 0.2828*** 0.1984*** 0.2302*** Age -0.1166 -0.3035 -0.0916 Pinot Gris 0.3601** 0.5438** 0.7260*** Viognier -0.1878 -0.1056 0.0389 Winery Treatment 1 (T1): No Treatment 2 (T2): Treatment 3 (T3): appellation T1 information plus information T2 information plus information that information about AVAs ties AVAs to regions in France (French Region listed below) Summary of information presented to subjects Picket Fence California Chardonnay Russian River Valley AVA, Mâconnais, Burgundy Ideal cool and foggy climate, Sandstone-alluvial based soils Morgan California Santa Lucia Highlands AVA, Well- Haut Rhin, Alsace Pinot Gris drained soil, Warm during day, cool at night, Zaca Mesa California Viognier Santa Ynez AVA, Lower Rhône Valley Warm weather, Limited rainfall Del Rio Oregon Chardonnay Rogue Valley AVA, Côte d’Or, Burgundy Surrounded by rivers and forests, Rocky well-drained soils Airlie Oregon Willamette Valley AVA, Bas Rhin, Alsace Pinot Gris Mild year-round temperatures, Limited rainfall during summer Veramar Virginia Chardonnay Shenandoah Valley AVA, Mountains Chalonnaise, Burgundy on both sides, Warm and dry growing season Barboursville Virginia Viognier Monticello AVA, Upper Rhône Valley Granite-based clay soils, Long growing season.