The concept of country brand

The concept of country brand
2
The country brand is a set of
perceptions and beliefs that people hold
about a country.
The Country
Brand Trap
It is a sort of a public good that can play
in favor or against the goods and
services that the country produces.
Rodrigo Berríos y
Rodrigo Saens
The concept of country brand
The concept of country brand
3
4
¿Why country branding is particularly
important in the wine market?
Because wine is an experience good: a
product whose quality is difficult to
observe in advance.
So, in this market a better quality is not
a guarantee of a higher price.
The perceived quality in the wine
market is largely determined by the
country of origin effect.
French wines, for example, have a
positive country of origin effect. The
opposite is true for Chilean wines.
The concept of country brand
The concept of country brand
Perceived Quality
6
The main objective of this work is
to assess the country of origin
effect in the wine market.
Positive
Price
Premium
Negative
Price
Premium
Actual Quality
The stylized facts
7
The average price and quality indicators in
table 1 show that consumer’s willingness
to pay is heavily influenced by the country
of origin effect.
In vintage 2005, for example, the
price/quality ratio is 0.99 in the case of
France but only 0.26 in the case of Chile.
The stylized facts
8
Country or region of origin
Vintage Indicato
r
Argentin Australi
a
a
Californi
a
Chile
France
South
Africa
2005
Price
Quality
Ratio
25,4
85,3
0,30
38,8
88,6
0,44
55,6
86,9
0,64
22,2
85,6
0,26
84,2
89,9
0,99
27,1
85,6
0,32
2001
Price
Quality
Ratio
21,9
84,1
0,26
28,8
86,8
0,33
48,0
86,0
0,56
16,3
83,4
0,19
59,0
86,3
0,68
23,9
85,4
0,28
1997
Price
Quality
Ratio
15,6
81,4
0,20
26,2
86,4
0,30
40,8
87,6
0,47
13,8
82,9
0,17
75,0
83,5
0,90
19,5
84,5
0,23
Source: Wine Spectator
The model
Sample
9
10
Our sample is composed by 14.284 bottles of
wine from six regions or countries, and six
vintages: 1997, 1999, 2001, 2004, 2005 and
2007.
N° of bottles
Argentina
Australia
California
Chile
France
South Africa
Total
996
2.792
5.967
1.178
2.427
924
14.284
We use a hedonic pricing model; this is, one
that decomposes the market price into
separate components that determine the
consumer´s willingness to pay for a bottle of
wine.
The principle underlying a hedonic
regression is straightforward: the price of a
good is a linear function of its attributes.
The model
11
Results and Conclusions
12
For each vintage (1997, 1999, 2001, 2004,
2005 and 2007) we estimate the following
equation:
Variables
ln pi = β0 + β1ln qi + β2 Dk + β3 lnYi + ei
Where pi and qi are price and wine rating of
the bottle i. Dk is a dummy variable taking the
value 1 if the wine is from region/country k
and 0 if it is not. Yi is a vector of control
variables.
Vintage
1997
Vintage
2001
Vintage
2007
Price-Quality Elasticity
3.55
2.74
4.04
Brand Argentina
-0.33
-0.48
-0.39
Brand Australia
-0.19
-0.41
-0.36
Brand Chile
-0.34
-0.60
-0,40
Brand France
0.57
-0.09
0.24
Brand South Africa
-0.43
-0.50
-0.43
Conclusions
13
Conclusions
14
1. Quality matters in the wine market. We
find a significant and positive relationship
between price and quality.
The price-quality elasticity has remained
in the range between 2.7 and 4.0 over the
last decade.
2. French wines still have a significant
positive country of origin effect, even if
we compare them with Californian
ones. Unfortunately, the opposite is true
for newcomers wines.
This phenomenon is evident today in the
Chinese market, for example, where French
wine sales outstrip their Australian competitors
based mostly on their country brand.
Conclusions
15
16
3. The negative price premium of
newcomer wines has remained constant
over time.
Since consumers in this market are
ignorant about product quality, they find
easier to choose based on the country
brand.
Thank you.
The stylized facts
17
18
1997
N>90
%
1999
N>90
%
2001
N>90
%
2004
N>90
%
3
4
18
16
18
15
62
19
57
16
Australia
70
20
98
19
137
22
228
34
246
40
California
267
26
200
18
275
23
336
29
377
24
9
5
17
8
30
12
30
13
40
21
83
15
104
18
82
25
122
34
268
44
2
2
12
11
31
15
51
22
86
34
Chile
France
South
Africa
The reputation or perceived quality of the
wines of a country is determined by a
combination of factors:
2005
N>90
%
Argentina
a. The effective average quality (or
objective) of its wines, both current and
past. The tradition matters in this market.
Factors explaining the country brand
19
b. The price. Since in this market there are
information asymmetries, the price is a sign
of quality.
c. The critical mass of fine wines. Chile has
Factors explaining the country
brand
Factores que explican la marca-país
20
d. Mass or boutique production of wines.
Average cases of wine by brand:
Chile
: 15864
Argentina: 7470
Australia : 16257
Napa
: 2800
Factores que explican la marca-país
21
Factores que explican la marca-país
22
5. La especialización. Mientras Chile ha
mantenido su castigo de precios, el estado de
Oregon lo ha reducido sustancialmente.
Otro ejemplo de especialización. En
uno de los últimos números de la
revista Wine Advocate, Robert Parker
le da a 41 vinos la categoría de
excelentes (entre los 94 y los 99
puntos), mientras que entre los 90 y los
93 puntos sitúa a 158 vinos
argentinos.
No es suerte. Casi toda la producción de
Oregon (un 92%) es Pinot Noir.
Todos son Malbec.
Wine varieties for country: Vintage 1997
23
Perfil de cepas por país: Cosecha 2007
24
N Zealand
37,1
S Africa
Oregon
0,0
N Zealand
34,3
50,47
0,00
Oregon
78,79
Chile
54,21
Sonoma
38,64
Australia
36,84
Argentina
2,63
21,03
0,00
0,00
4,47
33,33
20,00
C. Sauvignon
Other Red Wines
40,00
1,39
60,00
Malbec
Zinfandel
3,32
1,69
96,19
80,00
Sonoma
34,90
9,02
7,55
Napa
2,27
31,94
0,00
34,02
Chile
2,63
24,77 0,00
Napa
86,7
S Africa
1,87
6,06
0,76
1,0
46,14
67,91
Australia
Argentina
20,59
0,72
19,53
0,00
20,00
40,00
100,00
Merlot 120,00
Shiraz/Syrah
C. Sauvignon
Other Red Wines
Pinot Noir
4,81
48,13
Malbec
Zinfandel
Carmenere
60,00
3,35
80,00
Merlot
Shiraz/Syrah
100,00
Factores que explican la marca-país
25
Factores que explican la marca-país
26
Los oportunistas cambian su especialización
relativa. Escapan de variedades poco demandadas
o de otras donde no tienen ventaja.
Las regiones o países ganadores se
especializan en variedades con exceso de
demanda y, después, las alimentan vía
marketing. Tres ejemplos:
Los países perdedores hunden a sus variedades
específicas produciéndolas a gran escala. Un
ejemplo es Australia con el Shiraz.
a. Oregon con Pinot Noir
b. Argentina con Malbec
c. Napa con Cabernet.
Chile no ha dejado de producir un cabernet
barato.
Comentarios Finales
27
Comentarios Finales
28
1. Mejorar la reputación de los vinos chilenos
no es sólo un asunto de mejorar la calidad
individual. Se debe elevar la calidad en forma
colectiva.
3. No podemos ni debemos imitar la
especialización masiva de bajos costos de
Australia.
4. No hay innovación disruptiva en vinos.
2. Tampoco se trata de un chispazo. Para el
Wall Street Journal, el Carmenere es una
variedad que nunca debió ser encontrada.
5. Pero no todo es tan malo. Existen algunas
señales promisorias. Dos ejemplos: Montes y
Concha y Toro.
Muchas gracias.