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The Economics of Marketing Wines – Does Region Matter?

Introduction

I was recently introduced to the Center for Wine Origins. The Center was founded in 2005 by the wine growing regions of Champagne, France, and Porto, Portugal.

Its purpose? To promote and protect the marketing of wines by region.

Wine regional names do not have the protection of trademarks or brands. The Napa region recently became a Center member, and Napa was the first U.S. region to win protection in the European Union (2007). The US provides partial region protection. In 2006, it ended all future label approvals with European regional names. However, the accords grandfathered all existing labels for 16 wines, including Champagne and Port. The result is that in 2010, more than half the wine sold in the U.S. as “champagne” is sparkling wine, and not authentic Champagne.

This article explores the value of marketing wines by region. But first, I provide a summary of what we know about marketing wines from the consumer’s perspective.

What Consumers Are Looking For

1.  Taste

As I reported in The Taste of Wine – Does It Matter?, wine taste apparently does not matter when it comes to how people choose wine. Consider first data from 6,000 blind tastings:[1]

“Individuals who are unaware of the price do not derive more enjoyment from more expensive wine. …we find that the correlation between price and overall rating is small and negative, suggesting that individuals on average enjoy more expensive wines slightly less….”

Lecocq and Visser analyzed data from three data sets totaling 1,387 observations on French Bordeaux’s and Burgundies.[2] They found:

“When non-experts blind-taste cheap and expensive wines they typically tend to prefer the cheaper ones. Our results indicate that characteristics that are directly revealed to the consumer upon inspection of the bottle and its label (ranking, vintage and appellation) explain the major part of price differences. Sensory variables do not appear to play an important role.”

The bottom line: taste is not key when people purchase wines. If taste mattered, the blind tastings suggest they would not buy expensive wines.

2.  What Does Matter?

Lecocq and Visser used their sample to examine this question as well. Their findings:

“Our results indicate that characteristics that are directly revealed to the consumer upon inspection of the bottle and its label (ranking, vintage and appellation) explain the major part of price differences.”

Testing For the Importance of Region

To get some quantitative sense of the importance of regions, consider the following: Burgundy, Bordeaux, and Champagne are French wine regions. The wines from these regions are marketed by region and not the dominant grape in each region. Table 1 lists these regions, the primary wines from these regions, and the dominant grape in each.

One can quibble a bit with this table. In some red Bordeaux, Merlot is the dominant grape. Also, I have not included White Bordeaux because there are many primary grapes.

To test the importance of region, I compared the prices of wines marketed by regions against wines marketed by grapes of equal value. My criteria for “equal value” were the wine ratings from the Wine Spectator database. I looked at wines rated 90-91, 92-94, and 95-100 for the period 2003-2010.

Champagne/Sparkling White Wines

In the case of Champagne, I used Wine Spectator’s White Sparkling Wine category for the comparisons. The results are presented in Table 2.

“Champagne” appears to be very significant as a marketing vehicle. For wines rated 90-91, the price differential is 2.6; for wines rated 92-94, the differential is slightly less but still quite sizeable. There were no champagnes rated more than 94 in the WS database.

White Burgundies/Chardonnays

The results are presented in Table 3.

Here again, it appears that marketing by region makes a significant difference. For the highest rated wines, the White Burgundies are five times more expensive than Chardonnays rated the same.

Red Burgundies/Pinot Noirs

The results are presented in Table 4.

Red Bordeaux/Cabernet Sauvignons

The results are presented in Table 5.

We again see sizeable differentials, especially for wines rated 92-94.

Implications for Wine Marketing

In an earlier piece, I documented that US shops are “full up” with wines marketed by grape/varietal.  Does marketing by region offer a new possibility to gain entry? It could. It is certainly working for the French regions. I will address whether it will work for Napa in a follow-up piece.

Implications for Consumers

If you want to buy via French region, fine. I know people who will not buy wines costing less than $25. But the Wine Spectator findings do suggest that you are paying a premium for wine when you shop by region.


[1] Robin Goldstein, Johan Almenberg, Anna Dreber, John W. Emerson, Alexis Herschkowitsch, and Jacob Katz,” Do More Expensive Wines Taste Better? Evidence from a Large Sample of Blind Tastings, Journal of Wine Economics, vol. 3, no. 1.

[2] Lecocq and Visser, “What Determines Wine Prices: Objective Vs. Sensory Characteristics”, The Journal of Wine Economics, May 2006.

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7 Responses to The Economics of Marketing Wines – Does Region Matter?

  1. Roger Erickson says:

    You could have condensed this article to one line: “Consumers without specific goals can easily be induced – by indirection – to buy ANY wine … so know what you want to use a given wine purchase for.”

    The mapping offered leaves gaping holes for any consumer wanting to reverse the mapping process for their local uses.

    Utility of mappings is often lumped in 3 categories.
    group-to-group, to see looming but distant trains approaching
    group-to-person, to see how group data affects personal options (looming train)
    person-to-group, to actually parse personal options given group data limitations
    (train just before impact)

    In all those mapping approaches, segmentation always rears it’s logical head.
    What does the buyer want? Personal preference, own use, use on others, price, etc.
    Know your audience? (you? your spouse? a food kitchen? wine club? winos?)

    Once sliced & diced that way, exactly NONE of the generalizations made above are of much use to readers, unless they have enough time & brains to read between the lines. There are ample exceptions to every rule-of-thumb described above.

    Walter Shewhart: “Data is meaning without context.” [~1926?]
    Paraphrase: Data mappings are useless, without predefining context.

    • @Roger from John Lounsbury

      I recommend you refill your wine glass and calm down. I enjoyed the article as a confirmation of my own bias. The data presented was well referenced and I am sure the author would be happy to discuss local wine at length provided there were enough glasses for all involved in the discussion.

      Prosit!

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