Economics Exam Questions Flashcards
Describe and discuss – underlining pros and cons - two cases of innovative packaging for wine
(it should’t be a question, but just in case)
-Bag in Box: saves room in transport, weighs less so less pollution from transport, recyclable materials lowers carbon footprint BUT aesthetically unattractive,and are inadequate for ageable and sparkling wines. Best wines for this packaging are wines meant to be drunk young, cheap, etc. bulk
-Plastic Bottle (PET) - these are highly recyclable = lower carbon footprint, weight 35% less than glass so less pollution from transport. The high permeability of plastic has been overcome with more barriers to o2. Biggest hurdle is customer acceptance. ideal for mid-level wines looking for new, environmentally conscious packing with wine meant to be drunk young due to previous permeability issues of plastic wine packing.
Summarize the main differences in the wine supply chain between Italy and Portugal. Make a comparison between the Italy and the Portugal wine distribution system.
Italy:
-long standing winemaking tradition
-top producer by volume,
-decrease in production
-50% viticulture is coop
-tradition!
Portugal
-younger generation winemakers
-20 years ago making wine only for domestic market, now exporting
-increasing production
-small producers
-Innovation/ experimentation!
The world wine market: Describe the trends and major players (top exporters and importers).
Trends: low alcohol, natural wines, low sulfur wines
Recent trends: rose and sparkling
Top exporters: France (natural), Germany (low alcohol - says google?)
consumers: US, england
Give a brief description of a wine supply chain (hint: draw a scheme/table) and explain the role of intermediaries in wine distribution. Write down main pros and cons of Ho.Re.Ca. versus large scale retail (supermarket) marketing channels.
Wine industry:
Grape grower -> Winery
-> Intermediates:
-negotiants
-wholeseller
-merchant/distributor
-importer
-> Retailers:
-supermarket
-wine shop
-hospitality
-liquor store
Winery -> Consumer
Intermediates -> Consumer
Retailers ->
Trading down, trading up and flanking: what do these marketing terms refer to? Give some examples of application to the wine world.
Trading up:
-increasing features/benefits
-improving quality
-backing it with higher quality in order to justify price
Trading down:
-reducing features/benefits
-reducing quality to suit selling price demanded by customers
Examples in wine:
-luxury wine vs box wine
(luxury = better fruit, specific vineyards/vinification, nicer packaging) (box wine all about cost-effectiveness)
Flanking:
-focusing on a competitors weak points to be competitive
(like offering magnums/special wines/special bottles when they don’t)
(Note that Rossetto has Flanking in as “flakering” in his slides. Probs some Italian to English shenanigans)
Explain the role of branding as a benefit for consumers & producers
A brand is a cluster of attributes that defines the identity of a wine in the eyes of a consumer.
consumer:
-customer loyalty
-consistency
-credibility
producer:
-customer recognition
-demand stimulation
-trade negotiation power
List the main points about brand protection in the case of wine.
-Quality, awareness of produce
-Consumer benefit; easily ID the item, a warranty of quality, and hedonic aspects
-Producer benefit; competitive advantage, ease of product communication, protection by law, and brandy loyalty.
Discuss main points about wine brand protection in the example of collective brands.
A collective brand involves two or more farms whose products are supplied on the market under a common brand, while maintaining full managerial and economic autonomy. ex: biodynamic brands, regions like Picpoul de Pinet
The main purpose of the collective brand is to build a broader and stronger product reputation otherwise difficult to reach by individual (small) farms.
1) It allows the consumer to identify the product (but not the producer).
2) It offers guarantees on quality or on the production method as defined by the regulations (reduction of risk to the consumer)
3) it guarantees the origin of the product
4) it allows a collective communication (co-marketing)
Report the main brand strategies adopted by a large wine company
Product of same category belonging to different brands:
-mother company aquisition
-partnership
-collaboration
-aquisition of cellars
Advantage:
extension of assortment on the market (especially when sub brands known)
Examples:
Nestle, Kraft, Constellations, The Wine Group
Multiple brand strategy
Which method do you use for fixing the price of a long aged wine to be sold in the winery shop? Which pricing strategy would you apply? Justify your choices
Options of Price Fixation
-markup pricing
-cost-based pricing
-differentiated pricing
-break even analysis
-dynami pricing
-competitive
-premium pricing
-psychological
-price skimming
-bundle pricing
-Premium: product price is set higher than those similar to it
-Differentiated: adding value to a commodity
-Price is objective/fixed while the value is subjective and varies in different conditions.
-When the quantity is low, there is more willingness to pay by the consumer because the item is then deemed rare
Provide a definition of need, and the difference between absolut need and relative need
Need: Something needed to maintain and satisfy homeostasis/to survive. Can be satisfied.
Absolute need:
criteria will NOT be changed by economic growth,
Ex. Physiological needs - need it to survive
Relative need:
criteria WILL change with economic growth, less required for survival but will boost quality of life. Cannot be satisfied.
Ex. societal standards, cultural habits - keeping up with Jones’
Illustrate the concept of wish in marketing. AKA “want marketing” in English
A want is a desire that they may, or may not, be able to obtain. Marketers can show a product that is appealing to the desires of wealth or success. Wine is a want or relative need
Write down Maslow’s needs/pyramid with reference to wine.
(think: Please Sleep Like Every Sheep)
1) Self-actualization: to become the most that one can be
2) Esteem: respect, self-esteem, status
3) Love & belonging: friendship, intimacy, family - WINE!
4) Safety needs: personal security, employment, health
5) Physiological needs: air, water, food, shelter, clothing
Fulfillment of one need is not necessarily dependent on another. Recognizing where consumers are on Maslow’s hierarchy helps in tailoring marketing messages. For example, marketing a wine as a symbol of prestige may appeal to those seeking Ego needs.
definition of price
The amount that consumers will be willing to pay for a product.
definition of demand
measures the consumers willingness to pay
Explain the difference between price and value
-Price is fixed by the market, is objective, and is equal for everyone
-Value is subjective, different for everyone, and difficult to measure
Discuss why price is so important for producers and consumers.
-Producers:
affects profit margin, affects decision making to increase or decrease production
Consumers:
fundamental basis for comparison against other products
Write down the main factors (at least three) affecting the price of wine
-Cost
-Quality perception
-Vintage
-Aging (financial cost)
-Expert judgements
-Climate change
-Luxury wines
-Marketing strategies
Examples:
1) scarcity; supply and demand, the less there is the more you can charge
2) vintage; certain years are better than others
3) expert ratings/scores; consumers internalize these and make purchases based off of them
Explain how the price is fixed by a wine producer and by a large retailer
1) Need to account for variable costs and fixed costs to set minimum price at the break even point (where profit is zero)
-variable costs (VC) must always be covered
-fixed costs (FC) must be covered in long run (partially in short)
-Average variable cost (AVC)
P = (FC / Q) + AVC
2) Account for consumer perception and competitor prices to set a max price
3) Decide target price and markup (within steps 1 & 2)
4) Do the math
Mark-up (MU):
P = AC / (1 - MU%)
(AC = average cost of production)
Target Profit (TP):
P = [(FC + TP) / Q ] + AVC
Large retailers only take into consideration the cost of the bottle and have the option for selling bottles below cost where wineries typically do not.
What type of relationship do price and quality have
Negative relationship (price up, quantity down)
Decisions about price fixing are affected by:
-The cost of production (minimum price) (fixed and variable costs)
-Price demand elasticity
-The consumer perception (max price)
-The competition (price of competitors)
Factors affecting price can be group as follows:
◼ Costs (production cost)
◼ Quality (attributes)
◼ Market
◼ Marketing strategies
◼ Government (or institutional) issues
◼ vintage
◼ aging
◼ expert judgements
Describe the communication process
Message begins with the “Sender” (marketing manager, advertising manager/agency etc)
Is “Encoded” via storytelling (advert, coupon, press release, store display etc)
And sent along a “Message Channel”
Where it is “Decoded” by the “Receiver” (customer, client, media etc)
The “Receiver” also sends “Channel Feedback” directly to the “Sender” in the form of their reaction (generally an increased purchasing if the message worked as intended).
Throughout this process there is “Noise” that comes in from other ads, news, displays etc. These can cause disruption in the “Encoding”, “Message Channel”, or “Decoding” steps of the process. Senders need to make their message stand out fromthisNoise.
List the communication channels
Two major categories: direct channels (direct or personal contact) and indirect channels (aggregate response)
Direct channels:
-Direct marketing = Personal selling
-Public meetings = exhibitions, festivals., trade marketing
-Digital marketing = phone, mail, internet & social media
-Publicity = press, radio, tv, conferences, seminars
-Relationships with experts = sommelier, review, guide
Indirect channels:
-Marketing strategies = packaging, label, product
-Advertising = mass-media (Tv, radio, movie, newspapers)
-Promotions = $ Discount, sale clearance
-Sponsorship = events, exhibitions, conferences
-Propaganda = unpaid and out-of control advertising
Which of the following wine countries have a huge specialization in wine exports? (there are two correct answers)
a. United States of America
b. Chile
c. Argentina
d. New Zealand
b. Chile
d. New Zealand
Which of the following wine products have a high income elasticity?
(there are two correct answers)
a. Entry level bottled wine
b. Champagne
c. Basic bag in box wine
d. Ultra premium bottled wine
b. Champagne
d. Ultra premium bottled wine
Definition of inelasticity
Demand for a product doesn’t change as much as the price.
There will always be a demand for the product = gas, bread, pasta
Which are the three pillars of sustainability in the vine – wine supply chain?
Recent research on sustainability has led specialists to suggest two more pillars. Could you describe one of them?
1) Environmental = minimal impact
2) economic = employment
3) social sustainability = keeping agriculture alive
New:
4) Cultural identity:
Cultural sustainability recognizes the importance of preserving and promoting the cultural heritage and traditions associated with winemaking. This pillar encompasses the protection of historical vineyards, traditional winemaking techniques, and the cultural identity of wine-producingregions.
What is the flagship wine in Austrailia
Shiraz
What is the flagship wine in Argentina
Malbec
What is the flagship wine in New Zealand
Sauvignon blanc
What is the flagship wine in Uruguay
Tannat
What is the flagship wine in South Africa
Pinotage
What is the flagship wine in Chile
Carmenere - but Cab. sauv is grown the most
What is the flagship wine in Spain
Albarino
Which are the three most important drivers of enotourism?
1)Cultural heritage:
Ex. Associating museums, architecture, winery visits/tasting, food/art
2) Landscape
Ex. Rivers, mountains, participate in harvest
3) Events
Ex. Festivals
Explain in which markets wineries are price setters (the firm can decide its own price), and in which markets wineries are price takers (the price is set by the market or by the buyers).
Winegrowers:
-grape price is flexible
-farmer is price taker (suffers vintage variability)
Integrated winery:
-enhansed by differentiation
-high competition
-negative pressure on prices
-price takers to supermarket
-price setters to farmers
Cooperative:
-price is set by the buyers of fruit (them)
-greater market power due to high volumes and wide range of supplied wine
Distributors (1-4) (market power high)
1) Supermarket: strong market power (size)
-profit from quantity sold, focus on value
-price setters
2) Retail shops:
-small size
-profits from medium/high price wines
-price setters?
3) Ho.Re.Ca.
-customer service
-higher prices
-price setters?
4) Direct sales from winery:
-increases market power of wine producer
-sell wine for less that retail but more than supermarket
-price setters?
Consumers:
-price taker
-no say in the matter
Explain Chile’s wine industry imports and exports and flagship wine
They produce wine for export not to consume;
-10.3 million hL produced,
-8.5 million hL exported.
biggest importers:
US, UK, China
-Their flagship variety is Carmenere but the variety that is grown the most is Cabernet sauvignon.
Wine pricing segments (levels and prices of wine)
<$4 Extreme value
$4-10 Value
$10-15 Popular premium
$15-20 Premium
$20-30 Super premium
$30-50 Ultra premium
$50-100 Luxury
$100-200 Super luxury
$200+ Icon
A Winery buying a vineyard is an example of
Upstream vertical integration
Upstream is towards the raw materials
Downstream is towards the consumer
(I have this starred and highlighted in my notes as a question Gennari hinted he might ask)
Rose
Consumers
-France
-Germany
-US
Production
-France
-Italy
-Spain
-US
-40% increase in consumption between 2002 - 2018
-trendy
-young people drinking it
