Strategies for Developing Reputations in the Wine Industry - Essay Example

Little came of it. Every effort to grow vinegar, or vines of European origin, met with failure from an unknown pest, Phylactery as well as diseases In a new environment. The discovery In the late sass that native American and European vines could be grafted gave Valance’s nascent wine Industry a lift – but In the early 20th century. Prohibition promptly brought It to a standstill. In the late-sass, experimental plantings of vinegar showed promise. With the establishment of six new wineries in the sass, the recovery was officially underway.

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By 1 995, Virginia had 46 wineries; by 2005, 107 and today a total of 200. Several wines have been recognized with national and international awards, especially Boggier. There are five primary wine regions in Virginia, each marked by distinct characteristics In terrain, climate, and varietals. Yet the array of wines produced In the region’s red-clay soil Is staggering. It’s not unusual for a winery In Virginia to have 30 or more different releases a year.

The economics of producing a little bit of everything may encourage such overachieving-?there’s something for everyone-?but the lack of focus means that even after all these years, Virginia hasn’t discovered which wines it does best. The result is that only a small percentage of wines have established good Individual reputations. This reputation for poor quality is quite prevalent In nearby Washington DC which has the highest per capita consumption of wine of all US cities. Few DC restaurants carry these “local” wines.

When interviewed, DC sommeliers indicated they have a few Virginia wines on their list but when they suggest a wine for dinner, customers reject them. (Washington Post, 2010) One sommelier said he regularly put Virginia wines in the pairings menu for the restaurant’s PRI-flex meals but encountered resistance from customers. A few wines from Trump (formerly) Kluge Estate and Horton Vineyards have quality. What strategies are Virginia wineries using to build an improved reputation and have these collective efforts been more effective than individual efforts to build a single winners reputation?

The Academic Literature: According to Win, MacDonald and Stemma, (2008) Reputation captures the assessment of an entity either of the industry, of an individual firm or of groups of firms by external constituents, and define industry reputation as the collective judgments of an industry by stakeholders and the general public, where that judgment is based on assessments of the economic, social and environmental impacts attributed to that industry over time.

Reputation is not only influenced by the aspects of the firm that impact on its perceived quality (strategies, behavior, eventual belonging to a collective coalition, etc. ), but also by the characteristics of the Judgment process. (Castrato and Delegates, 2008 ) The reputation of an industry can be affected by deliberate and non-deliberate actions and events, caused by either industry members or outsiders. Individual firms have motivations not to participate in collective reputation management and/ or to actively engage in competitive reputation management (Barnett, 2002, AAA, b).

Reasons for nonparticipating arise when some firms are “footing the bill” for collective reputation management strategies, giving other firms opportunities to free-ride on other firms’ efforts (Olson, 1965, King et al 2002). Alternatively, firms may prefer to allocate their limited attention and resources towards building their own competitive reputation advantage to pursue above average profits (Barnett, Bibb). When individual firms identify opportunities from products or processes to differentiate them from others in the industry (Barnett, 2002, Bibb; King et al. 002 they are motivated to act individually, sometimes in a way that competes with the collective reputation management of their industry. Industry culture and fiercely competitive individual firm strategies may further hamper a united collective front by an industry (Aldrich and Fill, 1994). Many management scholars have highlighted the role of trade associations as an efficient vehicle to organize collective manipulation and conduct industry reputation management. (King and Lenox, 2000 ). Reputations are assets in which individuals and firms invest, requiring them to trade short-term pay- ifs for long-term benefits.

Reputation is an expectation of quality that reflects long- term cumulative investments, but it can change as a result of short-term accidental or intentional actions (Bombproof and Channel, 1990). Price premiums attached to good reputations compensate sellers for their investment in quality and reputation. Consumer learning is a crucial element of the process of reputation building. In the markets of the so-called “experience goods” such as wine, consumers can assess the quality only after purchase. In these markets a seller’s reputation for quality therefore becomes a valuable asset.

Hornier, 2002) As summarized by Bombproof and Channel (1990), “by signaling consumers about product quality, favorable reputations may enable firms to charge premium prices, attract better applicants, enhance their access to capital markets, and attract investors”. In an effort to manage industry reputation, industry members may Jointly mobile resources and plan actions Therefore collective reputation management means all activities and behavior undertaken by members of a collective to deliberately alter Judgments about the reputation of the collective.

Activities include information sharing, Joint research and voltmeter, establishing codes of conduct, allying through trade associations, and performing industry-level public relations and advertising (Aldrich and Fill, 1994). Conversely, individual or competitive reputation management refers to activities undertaken by a single firm to enhance its own reputation and competitive position visa-Г-visa other members of the industry. Activities include firm-level public relations activities, advertising or changes in operational practices.

Because its focus is on competitive differentiation, competitive reputation management may conflict tit collective reputation management activities. Firms with greater visibility, size or proportion of their business in the industry (Barnett, Bibb) are both more likely to engage in collective action and are better positioned to influence other firms to participate (Hoffman and Cocoas, 2001; Mammon et al. , 2004). Their greater connectedness and centrality can further catalyst collective action, for example through founding and initially financing trade associations (Aldrich and Fill, 1994).

Higher levels of connectedness and interaction within an industry have been found to promote collective action. Mammon and McGowan, 1996) Typically larger firms in an industry benefit most from collective reputation building activities. Garaged and Lava found that, controlling for the fact that both types of reputation are released simultaneously, significant positive spillover effects result from the umbrella, the magnitude of which depends positively on the individual reputation level of the wine under the umbrella (Garaged and Lava, 2010).

Given the importance of collective reputation for the wine sector, there are a few papers that investigate this issue within national wine markets. London and Smith (1998) study the impact of quality and reputation on price, using data from the market for Bordeaux wine. The empirical findings show that rises in reputation matter even more than rises in actual quality since the impact on price of expected quality (reputation) is twenty times higher than the current quality one.

Furthermore, both individual and collective reputations matter, even if collective reputation affects wine prices only if it is a good predictor of future quality. (Castrato & Delegates, 2008) Building a Collective Reputation: Collective efforts abound in Virginia. There are examples of institutional (state government) and collective (I. E. Industry) reputation building activities. The Virginia Governor’s Cup competition is a result of a partnership amongst the Virginia Wine Board (VOW), the Virginia Wineries Association (W”), which owns and manages the competition, and the Virginia Vineyards Association (WA) and the Governor.

This investment in the Governor’s Cup competition is intended to further enhance the growing reputation of Virginia wines and any wine made from 100% Virginia fruit is eligible. One of the most important aspects of the competition is the educational impotent of the Judging. After the competition, regional forums for the winemakers are held with the head Judge, to provide direct feedback on how their wines were received.

The mission of the Virginia Wineries Association is to: ;Improve the quality and uniqueness of Virginia wines ;Increase and expand the market share of Virginia wine sold in state, national and international markets ;Improve the profitability of vineyard and wine businesses in Virginia ;Maintain (enhance) Virginians rural character and beauty through the expansion of Virginians wine industry ;Facilitate the development of complementary apply and service industries for the Virginia wine industry Economic Impact: Sales of Virginia wine reached a record high in fiscal year 2011 with more than 462,000 cases sold during the fiscal year.

This figure marked a sales increase of more than 11% over the previous fiscal year. Virginia is now the nation’s fifth largest wine producer and seventh largest wine grape producer. According to the most recent economic impact study, the Virginia wine industry employs approximately 3,000 people and contributes almost $350 million to the Virginia economy on an annual basis. The study, funded by the MA, reflected the impact of 120 wineries in 2005; today, there are nearly 200 farm wineries in the state. Frank, Riemann & Co. , 2010). The study results, which displays key economic impact figures for both 2010 and 2005, dramatically exhibits the industry growth. This growth is attributed to the investments of the MA and the collective efforts to improve the quality of wines and to enhance the image of Virginia wines overall. Virginia Wine, Wine-grapes and Vineyards 2005 Economic Impact Full-time 2010 Economic Impact equivalent Jobs Wages paid 4,753 $156 million

Wine produced (cases) 439,500 3,162 $84 million 320,200 Retail value of Virginia wines sold $73 million $11 million $8 million Number of wineries Number of grape growers Grape-bearing acres 193 386 2,700 129 262 2,000 million $45 million Vineyard revenue $57 million Number of Wine-related tourism expenditure $131 wine-related tourists Taxes paid: federal Taxes paid: state and local $42 million $43 million $15 million $21 million Building an Individual Reputation: Wineries in Virginia also work to improve their own competitive, individual reputation and to gain recognition through awards.

For example, Gray Ghost Winery was awarded a Gold medal on the 2010 Chardonnay in November 2011, in a competition dominated by California entries, and was one of only two Chardonnays awarded Gold medal status. Gray Ghost completed the 2011 competition season having garnered 128 medals in international national and regional wine competitions. For thirty years international wine competitions, such as the Virginia Governor’s Cup Competition, San Diego International Wine Competition, as well as the London International Wine Spirits Competition.

Yet Ingested highlights with great detail on its website its memberships in Virginia Wine Associations. As an early planter it indicates that it has been recognized more as the industry has grown and built an umbrella reputation. In the wine market the hiring of external winemakers is a standard business practice employed by a winery aimed at improving both the quality of wines and their reputation (Delegates, 2005). This is a practice employed by Trump Winery in Charlottesville, Virginia for their Kluge wines as they strive to enhance their individual reputation.

Virginia Visioning were among 11 rated “outstanding” in the 003 International Boggier Tasting. Horton Vineyard’s 2001 Boggier, Michael Shapes’ 2001 Boggier, and Chrysalis Vineyard’s 2001 Boggier each received “outstanding” ratings in a very challenging competition featuring many of the world’s top producers. The main purpose of the tasting event, sponsored by the Virginia Wine and Food Society was intended to compare Virginia Visioning with some of the best Visioning produced in the world. Virginians Boggier producers continue to invest in competitive and collective public relations and still garner awards.

A tally of 2011 sectional and international awards captured by Virginia wines shows 12 Decanter awards at the 2011 London International Wine Fair; a top honor at a Hong Kong wine competition; and 86 medals, including a “Double Gold,” at Finger Lakes International in New York. The San Francisco Wine Competition also recognized 22 Virginia wines. CONCLUSION In Virginia collective reputation building efforts have a greater impact on sales and consumers’ perception of quality than individual efforts. The growth in sales and employment between 2005 and 2010 indicate the return on both collective and individual investments in building reputation.

The larger wineries and the most well known wine farms tend to be more active on the board of the wine industry association, for example, and spend more time lobbying the state government for financial support and policies that promote the industry as a whole. Yet smaller wineries benefit substantially from these reputation strategies. Smaller and less known wineries have been recent winners of the Governor’s Cup competition and have been selected for inclusion in the Governors Case annually, and saw significant increase in their sales between 2005 and 2010.