1. Professor Geoffrey Lewis
Competing in No Man’s land.. Can Marketing turn a Sow’s Ear into a Silk Purse? An experimental study
American Association of Wine Economists
10th Annual Conference
June , 2016
Bordeaux, France
Professor Geoffrey Lewis
Professorial Fellow, Melbourne Business School
The University of Melbourne
Dr Alastair Reed
Senior Lecturer in Viticulture and Winemaking, Melbourne Polytechnic
Ross Lyman
Management Consultant at Ernst & Young
Formerly an executive at Treasury Wine Estates

2. Wine grade & costs (AUD)
Cost per ton (approx.)
RRP Range for 750ml bottle A
$ $15000
$50 - $800 B
$ $2500
$20 - $50 C
$ $1500
$15 - $30 D
$500 - $600
$8 - $25 E
$250 - $300
$5 - $10 F
Unfit for production -
Talk to differences – broadly speaking A grade drinkers (considered luxury drinkers and make up 2% of total wine consumers – are quality focused. E grade wine drinkers are cost conscious and make up 90% of wine consumers. B – D however is a confusing mix of quality and price – what is driving consumers’ choice in this segment?
Other inputs – oak barrels, lower operating efficiency, greater inventory holding costs due to longer maturation.
AAWE Conference - Bordeaux, June 2016

3. AAWE Conference - Bordeaux, June 2016
The research question
Can you turn a sow’s ear (D-grade wine) into a silk purse (B-grade wine) via marketing?
AAWE Conference - Bordeaux, June 2016

4. AAWE Conference - Bordeaux, June 2016
Experimental design
6 x Australian wines, either D or B Grade fruit
South/South Eastern Australian Shiraz
80 x MBA students from Adelaide and Melbourne, conducted over two sittings in February and June 2016
RRP from $8.99 to $27.99 (750ml bottle)
3 Groups, subjected to different conditions
AAWE Conference - Bordeaux, June 2016

5. AAWE Conference - Bordeaux, June 2016
Wines tasted
Wine
Comments 1
‘Commercial’ D Grade, RRP $8.99 2
‘Commercial’ D Grade RRP $8.99 3
‘Masstige’ D Grade RRP $21.99 4
‘Masstige’ B Grade RRP $23.99 5
‘Masstige’ B Grade RRP $27.99 6
Retailers House brand D Grade RRP $14.99
AAWE Conference - Bordeaux, June 2016

6. AAWE Conference - Bordeaux, June 2016
Experimental design
Group A (n=27)
Blind taste
Indicate WTP & Rating
Initial data collected from participants
Shown brand, ads & packaging (no RRP)
Then indicate 2nd WTP and Rating
Group B (n=12)
Blind taste
Indicate WTP & Rating
Initial data collected from participants
Shown brand & RRP (no ads or packaging)
Then indicate 2nd WTP and Rating
Group C (n=14)
Blind taste
Indicate WTP & Rating
Initial data collected from participants
Shown brand, ads & packaging & RRP
Then indicate 2nd WTP and Rating
Group D – Rating, but no WTP – then Blind taste, Shown brand, ads & packaging & RRP, then indicate 1st WTP and Rating – original intent was to show any anchoring effect.
A vs C allows us to test the impact of RRP under conditions of seeing packaging and adverts
B vs C allows to test impact of packaging and adverts under conditions of seeing RRP
AAWE Conference - Bordeaux, June 2016

7. AAWE Conference - Bordeaux, June 2016
Results - Before
Conclusion 1: Q ≠ R – no correlation between wine quality and ratings or WTP
AAWE Conference - Bordeaux, June 2016

8. AAWE Conference - Bordeaux, June 2016
Results - After
AAWE Conference - Bordeaux, June 2016

9. AAWE Conference - Bordeaux, June 2016
Results
AAWE Conference - Bordeaux, June 2016

10. AAWE Conference - Bordeaux, June 2016
Results
AAWE Conference - Bordeaux, June 2016

11. AAWE Conference - Bordeaux, June 2016
Conclusion
Objective characteristics (Packaging, Brand, Price, Advertising) drive Rating and WTP.
All wines aligned with marketing positions – regardless of wine quality.
Therefore you can turn a sow’s ear into a silk purse – shown by Wine 3.
AAWE Conference - Bordeaux, June 2016

12. AAWE Conference - Bordeaux, June 2016
Further research
Test impact of packaging vs advertising
Test silk purse into sow’s ear – B grade fruit sold as commercial.
A grade fruit – same phenomenon?
AAWE Conference - Bordeaux, June 2016

13. Great wine may be made in the vineyard …
but willingness to pay is a function of marketing!
Discussion
AAWE Conference - Bordeaux, June 2016