Influence of Essential Wine Attributes

There are multiple factors that determine the price of products and services, such as the cost of the production, the demand for the products and services, the determined price of the competing companies, the purchasing power of the consumers, regulations and standards fixed by the government, company objectives, and the used method of marketing. In the context of wine, a few additional factors come into consideration while determining the price. Wine price pointing is influenced by several factors including inherent aspects to the winemaking (Staley, Blackman, & Oczkowski, 2017), and features of the market (Lee, 2012). The former referring to attributes like grape variety, region, vineyard resources, winemaking decisions, among others, while the later focuses on the reputation of the wines in the different markets, quality perceived by the customer and all the emotional aspects related to the product (Ali, & Nauges, 2007; Cecchi, 2017). The purpose of this report is to explore the various factors that determine the price point of wine and their relationship with the input price.

What could mean obvious is the fact of considering inherent production costs in order to determine the final price of the wine. Quality of the wine could be determined by different aspects such as grape variety, location, picking method, fermentation, among others (Carew, & Florkowski, 2010), and at the end it is this quality the one that could determine in good proportion the price of the final product (Ling, & Lockshin, 2003). In other words, the determination of the final price depends directly on the cost of its attributes. Producers might consider historical sales, consumers demand and previous experts’ considerations in order to determinate the wine price (Oczkowski, 2016).One of the aspects that influence the most when considering input costs is the wine region, as its level of reputation could support the price (Ling, & Lockshin, 2003; Schamel, & Anderson, 2003). According to Ling & Lockshin (2003) in majority of the cases, the prices are mostly set by experts’ opinions as quality aspects are subjective and may vary from person to person.

As stated by Oczkowski (2016), the price and quality of the wine strongly depend on the available information on the quality of the wine, which indicates to the geographic appellations of the wine. Carew and Florkowski (2010) also support this by stating that information displayed on the label regarding reputation, colour, vintage, and appellation are significant factors for the customers while purchasing. The area where the grapes have been cultivated has a crucial role to play behind the quality of the wine as well as its reputation. As observed by Atkin and Johnson (2010), the assessment of the consumers, in terms of buying wine, depends on the place of origin, region, quality, taste, vintage, and reputation. The place of origin of the grapes that are made into wine, are significant as they are researched, described, and protected under laws.

Marketing Influences

Terroir is a French term that indicates to the range of distinctive influences on a place or region. Terroir is useful for both the winemaker and wine marketer – the winemaker utilizes the different influences to create the wines, and the wine marketer uses the information regarding terroir for marketing purposes. As different regions have different terroir, the quality of the wine varies from region to region. Hence, it can be said that terroir is significant factor of deciding the quality of the wine. Appellation is a term that informs about the unique terroir of a wine region. It not only defines the geographic boundaries, but also protects the quality and brand image of the wine region and the wine producers of that region by regulating the cultivation and growth of the grapes and applied methods of winemaking. Therefore, Atkin and Johnson (2010) put great emphasis on the information regarding appellation to be displayed in the label as a marketing strategy.

Market conditions may significantly affect the price determination. Even though the winery establishes certain input costs to be considered as well as their own expectations in regards what is expected from their own work, the forces of the market at the end might determine in high proportion the final price as there are aspects such as supply and demand that has to remain in certain equilibrium and cannot be considerably affected only for production characteristics (Oczkowski, 2016).

The influence of the cost and quality perception from the customers on the price pointing was also corroborated by J. Jess (personal communication, September 6, 2018) at the cellar door of Punt Road with the particular case of Pinot Grigio, declaring that a bottle of this wine should not cost more than $20 because the market is not willing to pay more than that. For this reason, the process of making this type of wine does not require the same effort compared with other varieties.

The price variety of wine depends on the region, vintage year, production technique, producer, and especially the reputation of the wine classification. According to Ling and Lockshin (2003), the reputation of the wineries as well as the ratings of the wine critics and tasters are major contributing part of the pricing of the wine as this information is crucial to the customers. Since sensory quality is extremely important in the perceived value of wine, wine tasting is an integral part of determining the cost of the wine. As demonstrated by Folwell, Bales and Edwards (2001), 20% reduction in the tasting room price of premium wine has substantial impact of the profit levels. Due to the reduction, both the net present value as well as the internal rates of return decreased. Moreover, their research further proved that change in the wine price has more effect on the profitability than the change in the grape price.

Conclusion

The grape variety can also be considered as a contributing factor in the pricing and marketing of wine. As opined by Staley, Blackman and Oczkowski (2017), wine producers would benefit by providing the information of using grapes from single vineyard while promoting of the wine. The price-perceived quality of the consumers has always been an important factor of consumer purchase behaviour. Although this price-perceived quality technique is applied in a variety of product categories, it has been employed more in particularly the products that are the symbol of status, durable, and especially difficult to evaluate. The evaluation of the quality wine is difficult as it involves a number factors, such as age, packaging, winemaking process, appellation, ratings, perception of the brand, critics opinion, and word of mouth. According to Lee (2012), the relation between the quality of the wine and its price is becoming increasingly significant as, in today’s emerging markets and booming economy, the consumption of wine is growing in the developed countries, the expectations of the middle class is increasing, and the wine is turning into an integral part of fine dining.

Where the wine is found and its levels of availability influence directly on the price, as the more convenience to acquire the wine a lower quality is perceived, and hence lower prices are settled (Taylor, & Barber, 2008).

This was supported by T. Shand (personal communication, September 6, 2018), winemaker at Punt Road, indicating that in the particular case of the Block 8 Shiraz the price was determined not only by the quality of the wine and the inherent production costs but for the way it has been sold. The specific market for this wine is the people who visit the winery, as it is sold only at the cellar door, so it is a total experience rather than only the mere purchase action. In other words, the people who visit the winery and make of this a special occasion are willing to pay for the overall experience and not only of the product itself.

Being wine a product that needs to be tasted in order to determine a quality consideration, customers rely on expert’s opinion, being those knowledgeable and influential people who have tried the product before and have provide their judgement that perhaps is now linked to the final product and affects directly the final price (Oczkowski, 2016; Taylor, & Barber, 2008).

In terms of economics, a product or service is called an experience good when it has characteristics that are difficult to evaluate before consumption. In the case of such experienced goods, the customer must depend on various quality determinants, such as the evaluation of the experts of the product or service. As observed by Taylor and Barber (2008), there is a positive relationship between the ratings regarding the wine quality and the price of the wine. The strength of this relationship depends on the individual attention of the customers on the product itself and its ratings. Since its first consumption, wine has been evaluated. Based on those evaluations, the wines have been systematically ranked through years. These ranks and rates have a great impact on the pricing of the wine and the customers’ perception of various wines. Although the informal ratings of wine by a number of blogs, cooking magazines, and retailers have an impact on the customers’ perception and pricing, it is much less than the impact of the rating system created by the Robert Parker and the Wine Spectator (Taylor & Barber, 2008). In the case of wines that are low in quality, great accessibility indicates negative information regarding the product, and thus, decreases customer demand for that wine and lowers its price (Lee, 2012).

Executive Summary

For this particular report it is analysed the case of Stanton & Killeen winery. Stanton & Killeen is a winery located in the Rutherglen wine region. This region is known internationally for if fortified wines, being Muscat their main variety. This area also draws attention for its red sparkling wine, being produced mainly by Shiraz and Durif, or the mix of them. Apart from the above, this winery also produces different varieties of red and white wines. The considerations of pricing the wines vary depending on the type of the wine, but for this particular research the focus was on the NV sparkling Shiraz and the Muscat. According to W. Killeen (personal communication, September 23, 2018) the price of the Shiraz is determined mainly for its production costs, as from winery to winery the production method changes and hence its quality and price, being their Sparkling red unique for being fermented traditionally. On the other hand, in the particular case of Muscat, the consideration that affects directly its price pointing is marketing, because as a region being known globally for this particular wine they have to maintain similar prices that guide the international customer to understand the region connection and its value. In addition, it is clear to the wineries of the region that the similarity of the price of this wine allows to be recognized that is why this type of “agreement” is respected and followed when pricing.

As there are several factors of determining the price of a product or service, the pricing of wine depends on a few unique aspects, such as the grape variety, region, appellation, and the process of winemaking. the final cost of the wine does not only depend on the quality, but also on the price-perceived quality of the consumers. As an experience good, wine at first needs to be consumed and then its quality is determined. Therefore, the consumers have to rely on the systematic ranking of wines and the experts’ opinions while buying wine. Hence, the rating and reputation are crucial factors in the marketing as well pricing of wine.  

References:

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