Research Focus 2010-3: Cornell Viticulture and Enology 1

Increasing Customer Satisfaction Improves Tasting Room Sales Miguel Gomez

Assistant Professor Charles H. Dyson School of Applied Economics and Management

College of Agriculture and Life Sciences, Cornell University

Key Concepts• Tastingroommanagersshouldfocusonfive

areas to improve customer satisfaction and sales: service, atmosphere, tasting experience, retail execution and tasting protocol (rules pre-established by the winery such as cost of tasting and variety and number of wines tasted).

• Among all drivers of customer satisfaction, excellent service and a suitable tasting room protocol have the largest positive impacts.

• Convertingavisitorfrom‘satisfied’to‘highlysatisfied’paysoff:she(orhe)islikelytospendanadditional$10buyinganextrabottleofwine(with a probability of 93%), and to re-purchase wine in the future (92% probability).

• Systematic monitoring and analysis of customer satisfaction and sales can be a powerful marketingtoolfortastingroommanagers.

ResearchNewsfromCornell’sViticultureandEnologyProgram ResearchFocus2010-3

Tasting room attributes drive customer satisfaction, and have a huge impact on sales performance at wineries.

Research Focus

Our study of tasting room attributes in 12 Finger Lakes wineries showed that customer satisfaction is directly tied to increased sales. Attention to the details of the tasting room experience can convert a “satisfied” customer to a “highly satisfied” customer who will buy on average one additional bottle of wine, spend an additional ten dollars, and is highly likely (92% probable) to become a repeat cus-tomer.

Introduction. Customer satisfac-tion is critical to the success of any business. There is agreement among winemarketersandmanagersthattasting room experiences have a stronginfluenceoncustomersatis-faction, repurchase intentions, tast-

ingroomsalesand,ultimately,onwineryprofits.The tasting room experience is much more complex thansimplycustomers’perceptionsofwinequal-ityandprices.Theirexperienceisalsoinfluencedby such important factors as the design of the tast-ingroom,thecharacteristicsandattitudesofwinepourers, the ancillary services provided by the win-ery,andtheattitudesoftastingroomemployees,among many other others.Recent research in wine regions of Europe and California has underscored the importance of tast-ing room experiences, but these studies often draw conclusions from anecdotal evidence or simple, non-quantitativeobservations.Infact,verylittleisknownaboutwhichattributesofthetastingroom

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• Customerprofitabilitytendstoincreaseovertime, as customers become loyal to a brand or a firm.

Understanding the customer satisfaction-perfor-mancerelationshipsrequiresaconceptualframe-workthatdescribesthecausesandconsequencesof customer satisfaction. We show the customer satisfaction-performancechaininFigure1(Gómez,McLaughlinandWittink2004;Kamakura2001).First,itispossibletoidentifyvariousspecificandmeasurableattributesexpectedtoinfluencesatisfac-tion.Thesespecificattributes,inturn,giveshapetoa set of product or service variables—the satisfac-tion drivers--that lead to overall satisfaction. Itfollowsdirectlythatimprovinguponthesesatis-faction factors, in turn, increases overall customer satisfaction.Increasedcustomersatisfactionshouldleadtogreatercustomerretention.Satisfiedcus-tomersaremorelikelytobecomerepeatpurchasersandprovidefavorable‘wordofmouth’tofriendsandacquaintances.Finally,highercustomerreten-tion and word of mouth are predicted to increase thebusiness’sperformance.Why should the New York small winery industry focus on customer satisfaction?A recent study by Stonebridge Research (2010) il-lustrates the importance of tasting room sales for winemakersinNewYorkstate.In2008,therewere240operatingwineriesinNewYorkand37,000vineyard bearing acres in the state on more than 1,400farms.Onaverage,nearly60%ofNewYorkwine sales are made in tasting rooms, as the indus-tryhasstrongtiestotourismactivities.Infact,over4.98millionwine-relatedtouristsprovidedmore

experience contribute to increased customer satis-factionandtohigherwinerysalesandprofits.Iden-tifyingsuchattributescanhelpwineryownersandmanagersmakedecisionsabouttheirtastingroomstomaximizeprofits,frombuildingremodelingtoemployee selection and training to product assort-ment. Establishingthelinksbetweencustomersatisfactionand sales performance is particularly important for theNewYorkstatewineindustryingeneralandfortheFingerLakesregioninparticular.NewYorkwine entrepreneurs have made substantial invest-ments in their tasting rooms and rely on winery visitorsforalargeportionoftheirtotalsales.Inaddition, a positive experience in the tasting room can contribute to a stronger customer relationship with in- and out-of-state visitors as restrictions to interstate direct sales of wine are relaxed. Conse-quently,weconductedastudyincollaborationwithasampleofwineriesintheFingerLakestoidentifythe drivers of customer satisfaction, to measure the impact of these drivers on overall satisfaction of tastingroomvisitors,andtodeterminethelinksbe-tween customer satisfaction and tasting room sales performance.Why is Customer Satisfaction important? Satisfyingcustomersiscriticaltoabusiness’ssuc-cess.Firmsthatcannotsatisfytheircustomersarelikelytolosemarketsharetorivalswhoofferbetterproductsandserviceatlowerprices.In“TheSci-enceofSatisfaction,”Dr.ClaesFornelldescribessatisfiedcustomersasperhaps“themostconse-quentialofalleconomicassets;indeed,theymaybe proxies for all other economic assets combined” (Fornell,2001).Morebroadly,customersareakeystakeholdergroupaffectingthelegitimacyandlong-termsurvivalofthefirm.Theimportanceofcustomersatisfactiontofirmperformanceisillus-tratedbythefollowinggeneralfindingsfrommar-ketingresearchers:Thecostofattractinganewcustomerisaboutfivetimes the cost of retaining an existing one because oftheeffortrequiredtoinducecustomerstoswitch.• The average company in the United States loses

nearly 10 % of its customers a year.• Ithasbeenshownthatreducingcustomerde-

fectionincreasessalesandprofits.

Figure 1: Customer satisfaction-performance links

Research Focus 2010-3: Cornell Viticulture and Enology 3

veyaskedtastingroomvisitorstoratetheirpercep-tionof25customersatisfactionattributes,overallsatisfaction,andpurchases.Inaddition,thesurveycollected relevant demographic information, such as age, education, as well as other relevant charac-teristics of the visit (e.g., whether the respondent was part of a wine tour).Customer satisfaction attributes. Inthesurveys,cus-tomers rated their visit to the tasting room from 1(poor)to5(excellent)on28questionsaboutat-tributesofthetastingroomthatmightinfluencecustomersatisfaction(Table1).Thequestionsin-cludedratingsofsuchattributesasoveralltastingroom cleanliness, ambience of the tasting room, friendliness of the pourer, variety of wines tasted, qualityandpriceofwine,andavailabilityofwinefor purchasing, among others. To calculate the score for a given factor, we averaged the scores for the at-tributesunderlyingit.Forexample,wecalculated

than$376.5millionintourismexpendituresin2008.The number of tourists increased by 20.2% in com-parisonto2004,withaparallel20.6%increaseinwine-related tourism expenditures, a 20% increase in tourism related jobs, and a 19.9% increase in tourism-related wages. Thesestatisticsattesttothestrategicrolethattast-ingroomsplayintheoverallbusinessandmarket-ing strategies of wineries in the state. The tasting roomsare,inmanycases,thefirstpointofcontactbetween the winery and a customer that, ideally, wouldbecomeloyaltoNewYorkstatewinesafterher visit.The Cornell StudyGiventhekeyroleoftastingroomsforwineriesinthe state, Cornell University conducted an initial study in collaboration with a group of wineries in theFingerLakes.Theoverallobjectivewastoex-aminethelinksbetweencustomersatisfaction and sales performance intheregion’stastingrooms.Thespecificobjectivesofthestudywere as follows:1. Identifywhatattributesofthe

tasting room design and of the customer’stastingroomexpe-rience lead to higher overall customer satisfaction.

2. Measure the relative impor-tanceoftheseattributesinterms of their impact on over-all customer satisfaction and re-purchase intentions.

3. Measure the impact of overall customer satisfaction on tast-ing room sales performance.

To collect data for this study, we relied on tasting room managers at12wineriesintheFingerLakes,whoworkedwithcustomerstocompleteabout600surveysfrombetween June 2009 and November 2009. The surveys were given out to customers of the winery tasting rooms following a pre-established protocol in coordination with the tasting room managers. The sur-

Factor 1:Ambience

• Overalltastingroomcleanliness• Impressionofthegrounds/view• Ambience of the tasting room• Lighting in the tasting room• Sounds in the tasting room

Factor 2:Service

• FriendlinessofPourer• WineknowledgeofPourer• Appearance/PresentationofPourer• Helpfulnessoftastingroomstaff

Factor 3:Tasting Protocol

• Varietyofthewinestasted• Amount of wine served• Cost of the tasting• Number of wines tasted

Factor 4:Tasting Experience

• Flexibilityinthechoiceofwinestasted• Space (elbow room) available for tasting• Waiting time for tasting to start• Waiting time between samples

Factor 5:Retail Execution

• Availability of wine for purchasing• Presentation/Displayofwineforpurchasing• Quality of wine• Wine prices• Discounts available for wine purchase• Availability of non-wine gift items• Easeoffindingthewineryduetosignage

Table 1: Customer satisfaction factors

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and presentation of the pourer, and helpfulness of tastingroomstaff.Thethirdfactoriscalled“Tast-ing Protocol,” which includes rules pre-established by the winery such as the variety and number of the wines tasted, the cost, and the amount of wine served. The fourth closely related factor targets the customer personal experience of the tasting beyond thetastingprotocol.Wecallthis“TastingExperi-ence,”whichincludesflexibilityinthechoiceofwines tasted, having enough elbow space (does the tasting room feel crowded?), and waiting time.Finally,thefifthfactor,called“RetailExecution,”includessuchattributesasavailabilityofwineforpurchasing, merchandising, and customer percep-tionsaboutqualityandprice.Customer Satisfaction DriversFigure2summarizesouranalysisoftheinfluenceofthefivefactors(Ambience,Service,TastingPro-tocol, Tasting Experience and Retail Execution) on overallcustomersatisfaction.ThefigureindicatestheestimatedimpactonOverallCustomerSatis-faction resulting from a one-point increase in each satisfactionfactor.Ourstatisticalanalysisindicatesthatthefactors“TastingProtocol”and“Service”are the primary drivers of customer satisfaction. Aone-pointincreasein“TastingProtocol”scoreleadstoa0.26-pointincreaseinoverallsatisfactionscore.Likewise,theresultssuggestthataonepointincreasein“Service”scoreleadstoa0.19-pointin-creaseinoverallsatisfactionscore.Thefactors“Am-bience”and“RetailExecution”followinimpor-tance, as a one-point increase in their scores results ina0.13-pointincreaseinoverallsatisfaction.“Tast-ing Experience” appears to have moderate impact on customer satisfaction.

thescoreforthe‘Service’factorastheaverageofthescoresofthefourattributesassociatedwithit—friendlinessofthepourer,knowledgeofthepourer,appearance/presentationofthepourer,andhelpful-nessoftastingroomstaff.Customer satisfaction. Wealsoaskedcustomerstorate their overall customer satisfaction with the tast-ing room experience from 1 (poor) to 5 (excellent). This is a critical measure and is expected to be cor-relatedwiththe25attributesdescribedinTable2.Sales performance measures. We measured sales per-formanceinfourways.Customerswereaskedifthey planned to purchase wine during their visit toestablishtheirpurchaseintentions.Inaddition,ifthevisitorwasplanningtobuy,weaskedhowmanybottlesandhowmuchmoneytheyplannedtospendinthatparticularvisit.Finally,tomeasurere-purchaseintentions,theywereaskediftheyplanned to buy wine from this winery in the future and, if so, the source of this purchase.Other attributes or controls.Customerswereaskedaseriesofquestionstounderstandthecontextoftheirvisit.Forinstance,theywereaskedhowmany people were in the tasting room, if this was a return visit, if they intend to visit another winery, andtheirreasonsforcomingtothewinery.Specificquestionswereaskedregardingwhethertheycameto the winery due to a recommendation and, if so, the source of the recommendation. Customers were alsoaskedquestionsondemographicsincludinggender,age,residencezipcodeandeducationlevel.What did the study find?ThestudyidentifiedthemaindriversofcustomersatisfactionintheFingerLakesregion,howtheyin-fluenceoverallcustomersatisfaction,andhowtheyaffecttastingroomsales.Customer Satisfaction Drivers.Ouranalysissuggeststherearefiveimportantfactorsdrivingcustomersatisfaction, which are presented in Table 2. We call thefirstfactor“Ambience,”asitrelatestotheover-all atmosphere of the tasting room facilities. Thus, thisfactorincludessuchattributesastastingroomcleanliness, impression of the grounds and view, and the ambient lighting and sounds in the tasting room.Thesecondfactor,“Service,”focusesontheinteraction between tasting room personnel and customers.Itcomprisesattributessuchasfriendli-nessandknowledgeofthepourer,appearance

Figure 2. Drivers of customer satisfaction

Research Focus 2010-3: Cornell Viticulture and Enology 5

Impact on SalesTheestimatedlinksbetweenoverallcus-tomer satisfaction and various measures ofperformancearesummarizedinTable2.Ourmeasuresofperformanceincludewhether or not the customer purchased wine,theamountpurchased(bottlesanddollars), and the intention to purchase inthefuture.Thefirstmeasureindicatesintentions, the second and third measure customer behavior following the tasting room experience, and the fourth is a mea-sure of loyalty building. The second col-umn in Table 3 includes the sample aver-age values of the four performance measures. That is,70%ofvisitorsintendedtopurchasewine;thosewhodecidedtobuy,onaveragepurchased4.5bottlesandspent$62duringtheirvisit;and88%ofrespondents stated that they will buy in the future. The third column in Table 2 measures the impact of a one-point increase in overall customer satisfaction on the four performance measures. These results provide strong support for a positive relationship between customer satisfaction and performance of

the tasting room. The probability of purchase for customer with a satisfaction score one point above the sample mean is 93%, which is substantially higherthanthatthe70%estimatedforthesamplemean. Higher customer satisfaction scores also have substantialimpactsonbehavior:thehighlysatisfiedcustomer (i.e., with a satisfaction score one point abovethemean)islikelytobuyonemorebottle(5.5versus4.5)andspendadditional$10($72versus$62)duringhis/hervisit.Finally,thestudyfindsa modest impact of increased satisfaction on re-purchase intentions, which is not surprising, given that the probability of buying again is already high at88%.ConclusionsTastingroomsareoftenthefirstpointofcontactbetween a winery and a potential customer, espe-ciallyinregionssuchastheFingerLakes,wherethe share of tasting room sales in total sales is large. The study provides strong evidence that visits to tasting rooms are important to the development of a loyal customer base, in particular because of the stronglinksbetweencustomersatisfactionandsalesperformance. The results suggest that tasting room managersshouldfocusonfivedriversofcustomersatisfaction: tasting protocol, service, atmosphere, tasting experience and retail execution. Among these factors, service and tasting room protocol ap-pear to have the strongest impact on customer satis-faction.Thesefivefactorsshouldbeanintegralpartofthetastingroommarketingstrategy.Inaddition,systematic monitoring and analysis of customer sat-isfactionandsalescanbeapowerfulmarketingtooland may provide valuable information for tactical and strategic decisions.

Performance Measure Winery Averages IMPACT

Probability of purchase 70% 93%

Averagenumberofbottlespurchased 4.5 5.5

Average amount of purchase ($) $62 $72

Probability of re-purchase 88% 90%

Table 2: Impact of Customer Satisfaction on Sales Performance

What makes a good tasting room protocol?

Since“tastingroomprotocol”isthemostimportant driver of customer satisfaction, what arethecharacteristicsthatmakeupasuccessfultasting room protocol?

• Waive the tasting fee when customers decide to purchase your wine.

• Be generous in the amount of wine served.

• Allowforflexibilityinthewinestastedtoaccommodate preferences of the customer.

• Offerfivetosixwinesfortasting.Anythinglessthanfiveleavescustomersunsatisfied;more than six can create confusion— particularly with less wine savvy customers

• There is no general rule regarding the varietyofwinesincluded—butmakesurethatthewinesofferedreflecttheuniquecharacteristics and products of your winery.

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AcknowledgementsTheauthorthanksparticipatingFingerLakeswin-eriesfortheirassistanceinthisstudy.WealsothankAnnemarie Morse, Adam Bloomberg, Sarah Brown and Joanna Upton for their contributions to this study. ThisprojectwasfundedbytheTotalQualityFocusandSustainabilityProgramoftheNewYorkWineandGrapeFoundation.

ReferencesFornell,C.,2001.“Thescienceofsatisfaction.”Har-vardBusinessReview,79:120-121.Gómez,M.,McLaughlin,E.,&Wittink,D.2004.Customer satisfaction and retail sales performance: Anempiricalinvestigation.JournalofRetailing.80:265-278.Kamakura,W.2001.“ProducingProfitableCustom-er Satisfaction and Retention.” Presented at the 12th AnnualART/Forum.

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