Differential effects of brand, ratings and region on willingness to pay: a hedonic price approach

Abstract

How consumers respond to signals of a products quality plays an integral role in marketing strategy. While the effects of product characteristics such as brand, region of origin, and ratings have been studied extensively, research on how they interact with each other and the differential effects of these by market segment has not been studied. This paper provides a unique insight into the purchasing behavior of US wine consumers and shows how brand, region and ratings interact and how each has a different effect dependent on price segments and varietal. We attribute these differences to unobserved heterogeneity across consumers who respond differently to different signals of quality. Using data on retail wine purchases in the USA combined with third-party ratings, we used a fixed-effects model to analyze willingness to pay for wine. Our findings provide marketers with a guide to which product characteristics in terms of brand, ratings, and region are the most effective signals of quality to different consumer market segments.