Comme chaque mois, le pôle de recherche « Place Value and identity » spécialisé dans la filière viti-vinicole de NEOMA Business School publie en exclusivité sur Wine Business News ses articles de recherches académiques.
Par David Menival (NEOMA Business School) and Steve Charters (ESC Dijon)
For some economists price is scarcely the best indicator of quality due to the asymmetric information – reputation is often more important. In general, suppliers have to invest in acquiring a reputation in order to signal quality, as the inability of prices to reflect quality can lead to market uncertainty. Reputation becomes a signal, especially for experience goods whose quality cannot be evaluated before purchase. Consequently, price of good is largely explained by the reputation of goods, and not the other way around, and the consumers’ willingness to pay is often correlated to their perceptions of quality.
The fact that quality signals are imperfect and reputation is significant is relevant to the wine industry. It is very difficult to explain the large range of prices between two bottles which have very close intrinsic qualities. Thus, we propose that geographic reputation can play a huge role as a signal of quality. In fact, wine tends to operate not merely at the level of the individual proprietary brand, but at the level of what economists term the “collective brand” and marketing academics “the territorial brand”. That’s why consumers of wine may pay much higher prices for a wine from a reputable location because they do not have sufficient information overall or they are uncertain about quality of the individual wine.
In our research, the particular interest was in the relationship between reputation and the geographical location of the wines of small producers as well as to the prices charged for their wines. Therefore, we propose to explore two issues: does geographic reputation have an impact on the prices charged by producers of wine (specifically the growers), and if so what is its effect?
Champagne and geographic reputation
Overall, the Champagne industry offers a range of asymmetric information to consumers, focused on production information, the vineyards, and wine quality. The industry is split into two parts. There are growers (also known as vignerons) and large merchant (known as négociants or the houses). Here we focused on cellar door sales by the growers. We used a sample of 576 growers and developed an OLS regression using the following variables:
- Average price charged by the wine growers.
- The echelle de crus of champagne. Conversely to other famous wine industry classifications, the echelle de crus of champagne focuses on villages and not on producers or individual vineyards. This echelle de crus can be easily recognised by consumers, based on bottle labels and signs at the boundaries of a grand cru or premier cru villages. Therefore, we assumed that it can influence the price of cellar door sales, with growers belonging to the grands crus villages profiting from a better geographic reputation than the others.
- The distance of the growers’ location from one of the historical centres: Epernay or Reims. We assumed that the most renowned sites are close to these centres with attraction decreasing with a greater distance. Therefore, we detect the closer of the historical sites for each grower and measure the distance of their village from it. The measure is in centimetres using an official, national map.
- The presence or not in the village of a well-known négociant with a potentially global reputation. This relationship may have a positive impact by the most renowned négociants on the average price charged by growers because négociants are not considered as competitors but as some kind of superior brand to be followed. To assess this we used one of the best known French wine guides, (the Hachette Wine Guide), and we noted where there was a négociant situated in the same village as the growers in our sample. So, we assumed that the presence of a listed négociant in the same village as growers could have an impact on the growers’ prices.
- The presence (or not) in the village of other growers also listed in the Hachette Wine Guide. We assume that the price-reputation interaction with smaller producers could be significant, even if they lack the international reputation of a negociants.
Results and implications
Our results show that the presence of the most renowned growers’ brands, the importance of the distance from the historical centres and of the echelle de crus on the average price of grower champagnes have an impact on price. Distance, whilst less important than some of the other factors, provides interesting results. Its presence as an element influencing price tends to challenge traditional notions that the vineyard is the overriding determinant of reputation in French appellation contrôlée wine regions, suggesting rather that social and historic (transport-related) factors may have an impact. Consequently, smaller, less well-known producers, being situated in less reputable villages or further away from the key regional centres certainly find that adding value to their product is harder. The result may be that other solutions (targeted promotions, wine tourism, selling to consumers with less detailed awareness of the specifics of the region) are necessary to increase sales and to add to the potential value of the product. Further, growers who fail to get critical endorsement in a place where others have gained it may lack the necessary strategies to signal quality and be forced to rely on nothing more than price competitiveness to promote their products.
From Menival, D. and Charters, S. (2013), The impact of geographic reputation on the value created in Champagne. Australian Journal of Agricultural and Resource Economics. doi: 10.1111/1467-8489.12033