Wine Product Bundling: Who are the consumers?

An exploratory study

* Christopher Matthews, University of Adelaide The University of Adelaide Business School Email: christopher.matthews@student.adelaide.edu.au Simon Somogyi, University of Queensland University of Queensland, School of Agriculture & Food Sciences Email: s.somogyi@uq.edu.au Rob Van Zanten, University of Adelaide The University of Adelaide Wine Science and Business Email: rob.vanzanten@adelaide.edu.au

Keywords: Product Bundling; Segmentation; Wine Bundling; Wine

Abstract Product bundling is a widespread marketing strategy (Stremersch & Tellis, 2002; Yadav, 1994; Yadav & Monroe, 1993). Part of the attraction of a bundle is that the price is less than the sum of the prices for each of the products in the bundle. The strategy has been most recently used by large retailers in Australia, particularly liquor retailers who often bundle wine with other liquor products. However, there exists a paucity of research into consumer behaviour regarding wine product bundles. Hierarchical segmentation analysis via K-Mean cluster analysis was used to examine the nature of consumers perceptions of wine product bundles and commonalities among those consumers. Three clusters of wine product bundle consumers were identified. The information gained from this exploratory study was aimed at assisting the wine industry when formulating wine product bundles for the consumer. Introduction Product bundling is a marketing strategy, which has become quite common in the market place, particularly in the Australian wine industry. In a wine industry context, this technique involves bundling bottles of wine with other liquor products and paraphernalia, such as beer, spirits, other types of wine (e.g. sparkling wine) and items such as clothing, coasters, etc., which are sold at a single price. The bundle is then sold at a lower price than the sum of the individual products contained therein. This technique is particularly prevalent with the larger liquor retailers (such as Dan Murphys and 1st Choice Liquor), who routinely bundle a case of wine (a case being a unit of 6 or 12 bottles) with a case of beer (24 cans). While literature on the subject discusses the concept of product bundling, there is an absence of research specifically related to wine product bundles. Furthermore, little has been discussed about the types of consumer who would be interested in wine product bundles. As such, this paper will focus on generic product bundling and its application in a wine context by highlighting an exploratory study into the nature of wine product bundle consumers through K-means cluster analysis. The paper will discuss three aspects as follows. Firstly, literature currently available regarding product bundling; secondly, methods used to uncover the wine product bundle consumer; and, thirdly, results, discussion and areas for further research. Literature Review Product Bundling Wine product bundling has received minimal attention, if any, in available literature. As such, this discussion will focus on literature currently available with regard to generic product bundling. The latter reveals that the two most common forms of bundling are: (1) pure bundles; and (2) mixed bundles (Adams & Yellen, 1976; Koukova, Kannan, & Ratchford, 2008; Stremersch & Tellis, 2002). Pure bundles differ from mixed bundles in that the products are not offered for sale separately. Different areas of product bundling have been addressed over time, including: consumers evaluation of bundles, (Heeler, Nguyen, & Buff, 2007; M. D. Johnson, Herrmann, & Bauer, 1999; Nguyen, Heller, & Buff, 2009; Yadav, 1994; Yadav & Monroe, 1993); presentation and formulation of the product bundles (Hanson & Martin, 1990; Mulhern & Leone, 1991); and economic theories related to product bundling (Adams & Yellen, 1976; Burstein, 1960). Product categories selected for prior research have generally allowed for a particular research issue to be conveniently studied. These product categories have included attributes such as everyday use, well known brands, a symmetry between the products being bundled (close fit), ease of functional integration, and complementarity or balanced products (for example, a fast food meal offering two types of

food in the same bundle). Wine product bundling offers a new dimension in the field of bundling research as it differs in at least three important attributes compared to the product categories typically used for this type of research. These attributes include: (1) a highly fragmented market, whereby no single company dominates the market and consumers are offered hundreds of wines in the setting of a traditional liquor outlet (Alonso & Liu, 2009); (2) the notion that a wine purchase is relatively high in risk (T. Johnson & Bruwer, 2004; Lacey, Bruwer, & Li, 2009); and (3) the notion that a wine purchase is often for an occasion and for occasion enhancement (Bruwer & Li, 2007; Spawton, 1991). In addition to these attributes, what must be highlighted is the concept that a product bundle is a type of deal. Therefore, any discussion on literature with regard to product bundling must also highlight literature into how prone consumers are towards a deal. This is discussed in the next section. General Deal Proneness Wine product bundling is a type of a deal, whereby consumers purchase two or more products at a price discounted from the sum of their individual prices. As such, it can be surmised that consumers who are attracted to wine product bundles are also prone to deals. Lichtenstein et al. (1995) discusses the nature of consumers perceptions of deals and developed an eight item scale, with the intention of measuring the level of consumers enjoyment of sales promotions and their tendency to buy the products associated with such deals. They also aimed at assessing whether consumers were prone to specific types of deals. Their scale could additionally be used across different types of promotions. Although their results showed that the proneness to deal was domain specific, the general deal proneness scale has nevertheless been widely utilized in the literature. As such, it is of interest to observe the extent of deal proneness in wine consumers particularly as wine product bundles can reasonably be considered to be a deal. The preceding literature has highlighted various aspects of product bundling, including consumers perceptions of product bundles (deals). As has been discussed, the nature of consumer behaviour regarding wine product bundling has not been identified and was the purpose of this research. In this connection, this paper will attempt to uncover consumer segments interested in wine product bundles. The next section of this paper will discuss research methods employed to uncover these segments. Method To obtain the data necessary to uncover wine product bundle consumer segments, quantitative survey interviews were conducted. Interview respondents were filtered by three criteria: (1) over 18 years of age; (2) resident in South Australia; and (3), wine consumers. The survey was conducted in 14 locations within South Australia. These included liquor stores, cellar door sales, regional visitor centres and main thoroughfares. A total of 262 valid questionnaires were obtained. The questionnaire was comprised 33 questions within three sections: (a) introductory questions; (b) specific product bundling questions; and (c) demographic questions. The introductory questions contained a scale in relation to general deal proneness (Lichtenstein, et al., 1995), which formed the basis for clustering analysis. Other introductory questions included respondents alcohol consumption patterns and the average price they would pay for the product categories contained in the stimuli. Specific product bundling questions included six items on consumers perception of: (a) convenience; (b) discount; (c) value for money; (d) the reason for product bundling; (e) wine quality within the

product bundle; as well as (f) the intention to purchase. These were all measured on a five point Likert scale. These constructs were chosen as prior research into product bundling suggested they were major factors in relation to: (a) consumer behaviour, perceived value and intention to buy (Andrews, Benedicktus, & Brady, 2010); (b) expectations and buying objectives (Puto, 1987); and (c) price discounting (Arora, 2008; Heeler, et al., 2007; Puto, 1987; Yadav & Monroe, 1993). Respondents were presented with three pictures (i.e. stimuli) representing three product bundles: (a) Wine-Champagne; (b) Wine-Beer; and (c) WineSpirit. The issue of possible bias (Aaker, Kumar, Day, & Leone, 2010; Charters, Lockshin, & Unwin, 1999) included: (a) prestige seeking; (b) social desirability; (c) labels/brands; and (d) price. This was addressed by creating bundles devoid of brands, quality and price. Additionally, the stimuli were randomised. It was considered that the absence of price, quality and brand reference points may present the respondent with some computational difficulty. Therefore a simpler two-product bundle was chosen for the said stimuli (Agarwal & Chatterjee, 2003). Hierarchical K-mean cluster analysis was used to segment the respondents. An active variable of general deal proneness was used in this clustering, as a relationship between deal proneness and product bundle attraction exists. Exploratory factor analysis using Principle Component Analysis was performed on the scale items for deal proneness. It was shown that the scale was extracting on one component. A Cronbach Alpha test was conducted on the general deal proneness scale (Lichtenstein, et al., 1995), which resulted in a .833 alpha. This suggested that the scale was reliable. K-means cluster analysis was also deemed an appropriate analysis method as it has been used numerous times to classify wine consumers in previous research (Bastian & Johnson, 2007; Bruwer & Li, 2007; Bruwer, Li, & Reid, 2002). The analysis was performed using Ward method and the resulting dendrogram uncovered three distinct clusters. Using the trial method discussed by Hair et al. (2006) and Janssens (2008), four clusters were uncovered, but one was rejected on the grounds that it contained too few respondents (less than 10). As such, the respondents were then clustered into the three groups, and ANOVA and cross-tab analysis was performed to see how the clusters perceived the active variable of deal proneness. ANOVA and cross-tab analysis were also performed to see how the clusters perceived the passive variables, i.e. the demographic information of the participants, their consumption by volume of the various types of alcoholic drinks and their perceptions of the wine bundles. Tukey and Bonferroni tests and post-hoc F-tests were performed to see if there was a statistical difference between the clusters in terms of active and passive variables. The tests showed that this difference was statistically significant (Janssens, et al., 2008). All test results, which were significant between the groups, were retained in the clusters. Statistical analysis of the responses was conducted using SPSS v17

Results The following segments were identified from the cluster analysis Affluent, Champagne Buying, Deal Avoiding, Bundle Selectors (n=55 21%) The main characteristic of the affluent, champagne buying, deal avoiding bundle selectors is their non-tendency towards deals. Demographically, this cluster has a high household income (i.e. more than 50% have incomes between $75,000-150,000), and they tend to be highly educated (i.e. more than 50% have a bachelor degree or higher). The Wine-Champagne bundle was most likely to be purchased by this cluster, with more being spent on Champagne than by the other two clusters. However, compared to the young, deal prone bundle seekers and the older, wealthy educated deal wavering bundle evaders, this group did not favour any specific wine bundle. Young, Deal Prone, Bundle Seekers (n=102 39%) The distinctive characteristic of this cluster is its tendency for deals, which makes them very interesting in the context of wine product bundling. This cluster has the highest intention for purchasing wine product bundles across the three wine product bundle types. When purchasing wine the young, deal prone bundle seekers rate promotion, price and discounts more highly than affluent, deal avoiding bundle selectors or the older, wealthy educated deal wavering bundle evaders. In addition, this cluster tends to be the youngest group (i.e. 53% aged between 18-39 years) and has the lowest household incomes (i.e. 47% earn less than $75,000). Young, deal prone bundle seekers also have lower education qualifications (i.e. 40% have a vocational certificate or lower). This cluster tends to pay less for Champagne than the other two clusters. Older, Wealthy, Educated, Deal Wavering, Bundle Evaders (n=105 40%) Although this clusters level of proneness towards deals is higher than the affluent, deal avoiding bundle selectors, it remains less deal prone. It also has the oldest respondents of all three clusters (i.e. 62% are aged above 44 years) and tends to have the highest household incomes (i.e. 48% have incomes greater than $100,000). Older, wealthy, educated, dealwavering, bundle evaders also have the highest education of the three clusters, with 21% having a postgraduate diploma or higher. Interestingly, this group does not favour any of the three bundles more than the other.

Discussion and Implications This exploratory study identified a number of wine product bundle consumer segments. Three consumer-type clusters were uncovered that can be used in the context of marketing wine. Of specific interest is the young, deal prone bundle seekers cluster. It tends to be young and have less household income than the other two clusters identified in the research. It has a propensity toward promotions and discounts, and price is an important factor in winepurchase decisions. These attributes offer wine marketers the opportunity to target this cluster with advertising and wine product bundles built around their profile. This cluster mainly contains Generation Y consumers and, as such, wine product bundling may be an avenue to attract these consumers more towards wine (Nowak, Thach, & Olsen, 2006). The affluent, deal avoiding bundle selectors and the older, wealthy, educated, deal wavering, bundle evaders also provide wine marketers with opportunities, but in a more limited way. Market intelligence gained from this research also suggests that some market segments should be

avoided when formulating wine product bundles. Nevertheless, more research needs to be undertaken to correlate these clusters with their perceptions and intentions to buy wine product bundles, so as to form actionable outcomes. An interesting observation is that certain clusters, particularly the affluent, deal avoiding, bundle selectors, tend to avoid deals but purchase bundles, if only a certain type.

Conclusion and Future Research This exploratory study does not provide significant data to create actionable outcomes for an industry-wide approach to product bundling. However, it does provide a critical starting point for further research into this marketing strategy in the wine context. Also, this research has uncovered that wine product bundling is a marketing strategy that is amenable to alcohol consumers. An anecdotal review of advertisements and in-store offerings suggests that wine product bundling is still at an embryonic stage market. However, it is a strategy that is being employed by large wine companies to gain access to large wine retailers. The results of this study have revealed that wineries need to focus on targeting the consumer segment (cluster) most likely to seek wine product bundles. Furthermore, SME wineries have experienced difficulty gaining access to large liquor retailing in Australia. By bundling their wine products with spirits, beer and champagne, SME wineries may gain greater access to this retail format. It can be suggested that wineries also need to be producing beer and spirits (and joint venturing with champagne houses) to gain access to these consumer segments and therefore large liquor retail outlets. The results of this study have shown that product bundling is a marketing strategy which can be used by the wine industry, as there are consumer segments willing to buy the bundles. Due to the exploratory nature of the study the results have various limitations. Firstly, the survey was limited to the South Australian wine market and the scope of the questions was limited to a small number of constructs considered important for an exploratory study and a small sample size. As such, further research needs to be performed utilising a larger sample size with a greater geographic scope and a larger instrument. A further limitation in this research was the simple presentations that served as stimuli in the survey. Further research could provide stimuli that involve brand names, quality inferences and bundle prices. More investigation could be made into the highly deal prone cluster, which was younger and consisted mainly of generation-Y consumers. It would be of interest to further investigate who these consumers are purchasing for, whether they are simply purchasers or actual consumers of the bundled products, and which of the product bundles they would be most likely to buy. Additional insight could be obtained through qualitative in-depth interviews or focus group sessions that probe these issues or by quantitative surveys that test consumers this segment. An observation of interest from the study is that the affluent, deal avoiding, bundle selectors have a tendency to bypass deals however they are willing to purchase bundles. It was surmised that consumers who were deal prone would also be attracted to bundles and vice versa. Nevertheless, this observation appears to be contradictory. Additional research could further explore this anomaly and thereby investigate the affect that deal proneness has on wine bundle purchase intention.

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