Pricing and structuring product trials: Separate versus mixed wine tastings

Abstract

Many sellers offer product trials to allow consumers the option to try products before purchasing. With a product trial, a consumer may find they like a product more than expected, thus stimulating a purchase, but the opposite may be equally likely. Understanding when product trials are profitable, and optimizing the trial structure and associated pricing decisions is a complex challenge. Product trials are common in practice, yet their impact on segmentation and pricing is not well understood, particularly for a multi-product setting. For example, using the example of wine, should a vineyard offer mixed tastings spanning both red and white varietals, or have separate tastings for each, and what are the pricing implications? Product trials can be product specific or offered jointly across multiple products. We model and analyze these separate versus mixed trial structures, considering optimal fee-setting and product pricing decisions and the resulting consumer segmentation, in markets with heterogeneous consumers. By analyzing the relative profitability of separate and mixed trials, we develop a deeper understanding of their distinct strengths. We prove that mixed trials are preferable to separate when customers’ trials are more likely to lead to favorable product impressions, and when consumers have a low-to-moderate preference gap between the products. Our results stipulate when sellers should offer mixed tastings across product varieties, versus the alternative separate tastings, or potentially no tastings at all. We also analyze how product-trial fees should be set, as well as the impact of these trial alternatives on product pricing decisions.