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Consumers prepared to pay more for pricier wines, report finds

Published:  20 August, 2014

Consumers are prepared to pay more for a bottle of wine if it's slightly more expensive in the first place, a study has found.

In presenting the same wines at different prices, authors of a report examining the bearing of what customers will pay for a wine versus its price were able to gauge how customers react to price before considering other factors.

The authors state: "We suggest that insights into the relationships between price and willingness to pay can shed light on how managers can, through influencing consumers' WTP via price cues, improve (or damage) their firm's competitive position."

The report, entitled Strategic Implications of the Relationship Between Price and Willingness to Pay, by Geoffrey Lewis and Tatiana Zalanb, as published in the Journal of Wine Economics, volume 9, number 2, 2014, found that "moving down market is much easier than moving up market".

"Assuming that the wine merchant has set the price approximately correctly, WTP should be at least equal to price (otherwise, the store would not be selling any wine). It would seem that lowering the price of "good" wine generates sales, but lowers WTP, and that increasing the price of poorer quality wine increases WTP, but not to the extent that it generates sales."

The willingness to pay is defined as the maximum amount a customer will pay for a product before switching to a substitute or giving up the purchase.

Key conclusions from the study showed that non-expert wine consumers rated the same wines quite differently, meaning there is no link between a wine's "intrinsic character and enjoyment".

While price influences both how much a consumer will appreciate a bottle, and how much they will pay for it, their willingness to pay is more affected by price than appreciation.  

"This complex interaction between the factors that determine buying behaviour has strategic implications for competitors in the wine industry. We suggest an understanding of the relationship between WTP and price can be used to shed light on the crisis recently experienced by the Australian wine industry," the report concluded.