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w w w. v w m m e d i a . c o m S e p t - O c t 2 015 | V I N E YA R D & W I N E RY M A N A G E M E N T 8 3 distributors and retailers, resulting in a final shelf price. Although sim- ple and easy to implement, cost- based pricing almost surely leaves wineries with a significant amount of unrealized revenue, results in inefficiencies throughout the sup- ply chain and inhibits the use of more advanced and more accurate analytics in other areas of the busi- ness of wine. While most wineries remain mired in cost-based pricing, value- based pricing is practiced by pro- ducers as disparate as soft drink companies, which are experiment- ing with vending machines that charge different prices based on ambient temperature; to software and telecommunications firms that charge different market segments different prices for the same prod- uct or service; to airlines, which charge different prices for the same seat on a flight based on the day of the week the flight was booked, en process. While wineries, like most firms, have an abundance of data, value-based pricing involves utilizing methods of data analysis to which wineries are not accus- tomed. Specifically, wineries must develop an accurate profile of the purchasing behavior of their con- sumers, including how much they are willing to pay for their wine, how that willingness to pay differs across market segments, how they will respond to price changes, how they will respond to promotions and what quantity they intend to buy at a specific price in a specific time period. This is accomplished through demand estimation, which requires moving from the more comfort- able spreadsheet analysis to more sophisticated econometric mod- els used to understand consumer behavior. 1 At its core, demand estimation involves putting into practice, the theory of consumer length of stay, the number of days until the flight occurs, and the fre- quency of the flyer. In contrast to cost-based pric- ing, value-based pricing involves using purchase data to build a pro- file (i.e., model) of consumer behav- ior. Because value-based pricing is based on actual purchase data, as opposed to survey data, insights into consumer behavior are based on what consumers actually do and not on what they say they would do. Armed with a model built on actual consumer behavior, wineries can then price their wines based on what consumers are willing to pay, rather than cost. Value pric- ing leads not just to revenue gains, but to efficiency gains, since price ultimately determines whether too much or too little wine remains on the shelf. To be sure, value-based pric- ing is not costless. To begin with, value-based pricing is a data-driv- Innovative solutions to fit your cidery equipment needs! 7975 Cameron Dr. Bldg 1500 · Windsor, CA 95492 · USA Phone 707-544-5300 · Fax 707-837-8742 Email dtgroup@dellatoffola.us www.dellatoffola.us Filtration Bottling & Packaging CIP/Pasteurization