AAWE, Economics Dept, New York University, 19 W 4th St, 6Fl., New York NY 10012aawe@wine-economics.org

AAWE Working Paper No. 137 – Economics

 

Measuring Consumer Preferences Using Hybrid Discrete Choice Models

David Palma, Juan de Dios Ortúzar, Gerard Casaubon,
Luis I. Rizzi & Eduardo Agosin

Abstract

Wine is a complex product. Preferences for it are not only highly heterogeneous throughout the population, but also amply susceptible to context. The objective of this study is to discover and measure these preferences, focusing on a set of non-sensory attributes of wine.

To identify the most relevant non-sensory attributes of wine, from the consumers’ standpoint we considered four sources: existing literature, a Delphi survey (applied to wine marketing experts), in- depth interviews and a web-page survey answered by fairly large sample of wine consumers. Not all sources were consistent on which attributes were the most important. Notably, consumers did not select price as a relevant attribute on the web survey, even though it had been considered relevant in the in-depth interviews. Finally, six wine attributes were selected for inclusion in a stated choice (SC) experiment: grape variety, alcohol level, label design, product recommendations, price and discounts.
An efficient experimental design was then developed and a web based SC survey was applied to 274 regular wine consumers (who had already answered the previous web survey). These consumers have high income (among the richest 20% of the Chilean population), only 28% of them are female and 33% are 35 years old or younger. The SC experiment simulated a purchase, at a retail store, for a casual meal with friends. A fixed fictional brand was used for all the wines presented on the experiment. With this data we estimated various discrete choice models, including mixed logit and hybrid choice models.
Grape variety was found to be the main driver of preferences. Evidence of preference for higher alcohol levels was also discovered. Price proved to be highly endogenous, as it is strongly related to wine’s expected quality. Recommendation by a friend and critics were equally valued, except in the case of (self-declared) expert consumers. Preferences over label designs showed high variability. The results also suggest that price is a key attribute in the construction of expected quality by the consumer before tasting the product.

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