Tim Hanni is a trailblazer in the wine industry, renowned for his groundbreaking work in wine education, sensory sciences, and his mission to demystify wine for all. With the prestigious title of Master of Wine, Hanni holds the distinction of being one of the first Americans to earn this credential, marking a significant milestone in his illustrious career.
In this episode, Tim shares how perceptions of wine quality are influenced more by psychological and sensory factors than by price, often making expensive wines indistinguishable from cheaper ones in blind tastings. He introduces the concept of “perceptual individualism,” explaining how personal differences in taste perception affect wine preferences. Additionally, he highlights the complexities of wine pricing, contrasting the traditional cost-plus approach with the need to consider market perceptions and branding.
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Why you have to check out today’s podcast:
- Gain insights into wine perception and psychology.
- Discover the challenges of traditional wine wisdom to understand the wine industry’s myths and realities.
- Learn a comprehensive view on wine pricing contrasting cost-plus pricing with value-based pricing to help you gain insights into the factors that influence wine prices, including production costs, marketing, and consumer perception.
“There are people who buy out on price alone. If it’s more expensive, it must be better. But there’s an inverse relationship between price and quality.”
– Tim Hanni
Topics Covered:
02:01 – Discussing the unique nature of wine pricing and how it affects consumer behavior
04:19 – Talking about the impact of wealthy individuals, particularly those from Silicon Valley, entering the wine industry, which he describes as being over-premiumized
06:22 – Discussing the challenges of market segmentation in the wine industry, comparing it to the evolution of the tech industry
10:22 – Critiquing the wine industry’s elitism and rigidity, using examples to illustrate how misleading some widely accepted norms are
12:18 – The background and story of ‘Two-Buck Chuck’
13:52 – Addressing the often-debated relationship between wine quality and price
16:30 – Introducing the concept of “perceptual individualism”
20:13 – Elaborating on a wine study conducted by Frédéric Brochet at the University of Bordeaux in 2001
24:32 – How wine pricing is determined, focusing on what he refers to as the “bottom-up approach.”
25:48 – Explaining the complexities of wine pricing and how factors beyond production costs influence the final price of a bottle
28:07 – How the complexity of pricing wine remains somewhat elusive
Key Takeaways:
“The label’s not going to make necessarily all that much of a difference in the margin, but the label plus the provenance.” – Tim Hanni
“Unequivocally, sweet wine drinkers have the most taste buds. They have the highest perceptual acuity of any consumers at all. And often you are paying an extreme premium for that sweet wine.” – Tim Hanni
People/Resources Mentioned:
- Julia Child: https://en.wikipedia.org/wiki/Julia_Child
- Trader Joe’s: https://www.traderjoes.com/home
- Fred Franzia: https://en.wikipedia.org/wiki/Fred_Franzia
- Charles F. Shaw: https://en.wikipedia.org/wiki/Charles_F._Shaw
- California State Fair Wine Competition: https://calexpostatefair.com/competitions/california-commercial-wine/
- Joel Butler: https://www.linkedin.com/in/joel-butler-mw-1697667/
- Frederic Brochet: https://www.researchgate.net/scientific-contributions/Frederic-Brochet-2029425754
- California Grape Crush Report: https://www.nass.usda.gov/Statistics_by_State/California/Publications/Specialty_and_Other_Releases/Grapes/Crush/Final/2023/2023_Final_Grape_Crush_Report.pdf
- Robert Parker: https://www.robertparker.com/about/the-rating-system
Connect with Tim Hanni:
- LinkedIn: https://www.linkedin.com/in/timhannimw/
- Website: https://winebusinesseducation.com/
- Website: https://www.myvinotype.com/en/
Connect with Mark Stiving:
- LinkedIn: https://www.linkedin.com/in/stiving/
- Email: [email protected]
Full Interview Transcript
(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Tim Hanni
In lieu of having any better segmentation models, the wine industry just lumps everything together. So, there are people who buy, as you were alluding to, on price alone. If it’s more expensive, it must be better. But there’s a huge number of people that there’s an inverse relationship of price and quality. And this has to do with the ignorance and the arrogance of the industry, part of it, getting into it.
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Mark Stiving
Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the illusory relationship between them. I’m Mark Stiving. Our guest today is Tim Hanni. Here are three things you want to know about Tim before we start. He is the President of Caliber, a wine industry consultancy. He is on the faculty of Napa Valley Wine Academy. He’s the CEO of myvinotype.com. If I were to summarize Tim, he knows wine. So, welcome Tim
Tim Hanni
Thanks a lot. Great to meet you, Mark.
Mark Stiving
Hey, it’s going to be fun. And the reason I invited you on here is because wine feels to me like one of those products where it’s really unique in the world of pricing. And so I just want to know more about pricing wine. Maybe we can learn some lessons on other products. so let me start with telling you what I think about it, and you can say, Mark, you’re so messed up.
Tim Hanni
You got it.
Mark Stiving
I think wine is one of the only products where people have no idea what they’re buying. And so they use the price to tell them, is this a good wine or not? Go.
Tim Hanni
One of the things that I’m working very, very hard to accomplish in the industry is the wine industry is absolutely one of the most arrogant and ignorant industries about consumers of any product I know of. The focus is so much on the product and learning about the product and educating consumers on the product, and we have no idea what the drivers are that creates the affinity between a person and a product. So, it’s kind of a forced technology in that sense. And, in lieu of having any better segmentation models, the wine industry just lumps everything together. So there are people who buy out as you were alluding to, on price alone. If it’s more expensive, it must be better. But there’s a huge number of people, and this is a lot of the work I do in consumer preferences, attitudes, and behaviors, that there’s an inverse relationship of price and quality. And this has to do with the ignorance and the arrogance of the industry part of it, getting into it so that, that actually people feel, I’m constantly being, trying to be sold up to something I don’t want. When I try those wines, I don’t like them. They’re higher in intensity, they’re drier, they’re all these things and I just don’t like them. And so, you’re partially correct. Price can be a driving factor. Obviously flavor’s a driving factor, lifestyle, all these other things. So there you go. Throw it back to you,
Mark Stiving
Yeah. So, one thing you brought up, which I’d never thought of until you just said this, is the arrogance of the wine industry. Now, I lived in Silicon Valley for a long time, and of course you get these multimillionaires billionaires that hit it big in Silicon Valley. They run up to Napa, they buy a winery, there’s no chance they’re going to sell a cheap wine.
Tim Hanni
Yeah. Well, the wine industry is one of the greatest examples in the world of over premiumization and then a self-fulfilling prophecy that makes it harder and harder and harder for anybody to produce good quality, inexpensive wines because of the cost of land, because of the cost of equipment. So as the lifestyle people have entered the market. I was at a conference and this brilliant guy from Tuscany was doing a socioeconomic study of Tuscany, and he said, our conclusion is all of the people that are actually tied to the land, right? That farm that raised children, that created the community, they’re all gone. Tuscany is populated by permanent tourists, and that’s the phenomenon. That’s why my wife and I left Napa. We are just so sick of the, a lot of nice people, but it’s, who’s got more money? Who paid more for this? The self-fulfilling prophecy of the over premiumization resulting in the people that I knew back in the late seventies and the eighties, and what, they’re all gone. They’ve cashed out. They said, bye-bye. So they’ve left the traffic, they left the rich people, they’ve left the $400 curated tasting experience and all that crap. And that’s just not what I’m in this business for. .
Mark Stiving
Okay. So tell me about market segmentation then. So, I assume that you’ve thought about this and that there are different buyers who buy for different reasons, different price points. In my world, I work with tech firms a lot, and we talk about this concept of product-market fit all the time.
Tim Hanni
Yes.
Mark Stiving
And so is there even that concept in one because it’s kind of what you implied when you started this conversation.
Tim Hanni
No, there are so many practices because one of my companies also is winebusinesseducation.com, and we offer a full online on-demand wine business course for people who are in the industry, starting businesses, curious about it and whatever. And I use a lot of tech analogies to kinda where the wine industry is going. So, if you don’t mind, I’ll sort of jam on that for just a second to get to your question. So remember when computing required a secret code and you had to learn DOS, you had to learn commands, it was cumbersome. There were some people who loved it, but it was a relatively small proportion of people. So either people had to use it because that’s what was required of their job to write in the C colon backslash to open a file and do all this.
The people who knew the language and who knew the code, code held power. So, it made them important, it made them relevant. And I don’t care if you hate doing it, that’s your job. I’ll teach you how to do it. So, something called a force technology, and then all of a sudden somebody came along and said, oh, look, here’s a mouse. And instead of all this stuff, you just move this around, see, it moves the cursor, and click, you’re computing. It’s like, no kidding, I’m, look at this. Now, there was a backlash. Buy the gatekeepers who held the paper, oh, no, that’ll never work. It takes too much memory. And it’s just that that’ll never be a thing. All right. So the disruptive innovation that was introduced, the graphic user interface totally changed the game because it actually empowered the consumers at the end of the day. So that, I mean, where would we be today had we not created that new interface? So my proposition is that that’s where the wine industry is right now. We’re still in DOSand you have to learn the secret language and the secret handshake and you don’t really count. You’ve got to adapt to the product, not vice versa. Does that make sense?
Mark Stiving
It does, but I don’t see the leap. How do I go from there to the graphical user interface?
Tim Hanni
So, what’s lacking in the wine industry is an interface where consumers feel they’ve got some confidence that they can do this. They don’t require a sommelier and so forth. And it’s again, data, pretty clearly shows the vast majority of consumers don’t trust wine experts or sommeliers or so on. So it’s become this tyranny of the minority of telling consumers what they should like, what they should smell, what they should taste, and so forth. Where the computing industry said, okay, well, we’ve got young people who want this in a computer. We’ve got business people who want that. So it started to become easy to segment and then personify those markets. Who is this market? So if we’re talking about millennials, we can say, okay, what are the product features that they want in a computer? Why are they buying? How are they using it? Where do they live? Where do they shop? What are their behaviors? And so forth. And there’s nothing like that in the wine industry. If you like sweet wines, well, you’re stupid. You haven’t matured yet. You’re unsophisticated, you’re immature, you’re uneducated and all these things.
Mark Stiving
Was the movie Sideways where he was making fun of merlot the whole time?
Tim Hanni
Well, and then there’s that. Yeah. And it’s like nobody’s safe in the wine industry. If you use the hundred point system that was introduced and popularized by Robert Parker. Oh, that’s dumbing it down. You’re stupid if you like this. You’re stupid. It’s like nobody’s free from the wrath of the ascended in the wine industry. And here’s what’s whack about all of this. Unequivocally sweet wine drinkers have the most taste buds. They have the highest perceptual, acuity of any consumers at all. The French always drank a lot of sweet wines, Europe, in general. And often you are paying an extreme premium for that sweet wine. But you start learning about wine and you get, oh Americans drink sweet wines because they grew up drinking Coca-Cola. Well, that’s the stupidest thing in the world. If you go back a hundred years, French champagne was 30% sweeter than Coca-Cola.
So it’s like this mishmash of BS and misinformation and whatever, and then pushing to consumers, wine and food pairing without even having a conversation. Oh, you should have this wine whether you like it or not. And I’m not trained to actually have a conversation to get you to a wine that you’ll really love. And an authority to tell you that the whole red wine and red meat paradigm is complete BS, it truly is historically from a sensory standpoint and from a scientific standpoint, all the rationale for red wine and red meats just BS. Yeah.
Mark Stiving
Okay. Tell me about two buck Chuck.
Tim Hanni
Two Buck Chuck is a guy who just passed away a bit ago, Freddie Franzia. Freddy was no stranger to the law. His family, his Franzia Winery and that kind of stuff. And Freddy was the king of sourcing very inexpensive fruit, playing spot market and so forth and, we could talk about great pricing after this and being able to process it in extremely inexpensive fashion and get it to market. So Two Buck Chuck arose back when it was two bucks, I think it’s 349 Chuck now. They bought a Napa Winery, Charles F. Shaw, for the name, and then associated it with wine being made outside of Napa. Their family was down in Fresno, and that’s where the family winery. But, just south of Napa is a large commercial area now by the Napa airport. So, we can actually produce the wines and on the back label, be able to produce them bottled in Napa, California. He’s just a brilliant guy, a lot of people hated him.
Mark Stiving
So, talk about the quality of the wine versus the price, right? Because it sounds like he’s the opposite of who we were talking about earlier, the entrepreneur who wants to sell a hundred dollars bottle of cab.
Tim Hanni
Yeah. And this is where it gets really sticky with wine. It’s known over and over again in competitions and blind tastings and whatever, it’s often really, really hard to justify the product and the product attributes and the price. I would say it’s impossible. A good friend of mine that I’d worked with in a lot of my consumer research projects for nine years, we ran something called the Consumer Wine Awards. It was all part of the my vino type stuff that we can get into later. And he was the head of the California State Fair Wine Competition for decades. And, let’s see, mid two thousands with thousands of wines entered into that competition, it’s one of the country’s largest wine competitions and two bucks chuck chardonnay was voted as the best chardonnay in California at $2.
And this just makes wine experts cringe and defend ourselves. And we’ve got this whole system of our authority, but when we screw up by miscalculation of actually tasting the wine blind and trying to defend the price of quality, not so easy to do. So in this case, everybody was scrambling, oh my God, we can’t give this result. Right? So, how do you justify it when you’ve got a hundred dollars and plus bottles of chardonnay? And I think it was still two buck chuck back then. It was a buck 99 at Trader Joe’s, one best of the best chardonnay in the United States.
Mark Stiving
So, my wine, by the way, I used to drink a ton of cab, when I first started drinking wine, and I was 20 something years old, I decided, hey, I’m just going to drink cabs so that I can learn how to drink wine and see if I could taste the differences. And my wine tasting now is beer, but…
Tim Hanni
And why?
Mark Stiving
But my attitude towards wine was always, this is good, or this has a flavor in it I don’t like. And so there was just something that would turn me off. And usually a lot of the inexpensive wines would have a flavor that turn you off, where the expensive ones don’t have that flavor. And so is that, describe me, describe what I was just describing to you.
Tim Hanni
Yeah. It’s called perceptual individualism, and you’ll be with people drinking the same wine, and you’re getting something and they’re not. Right? Have you ever run into that?
Mark Stiving
When I drink Pinot noir, it feels like I’m licking an ashtray.
Tim Hanni
Got it.
Mark Stiving
And my friends love it.
Tim Hanni
Yeah. All right. So, perceptual individualism is a concept I’m forwarding. When I came up with this, there were only 144 Google hits for perceptual individualism in quotes. So the word, so it doesn’t exist. But this is based on, humans don’t, I’m trying not to get too philosophical by a can of work. Humans don’t experience reality. We interpret reality. And what’s meant by that is that in reality, there is no light, there is no color, there is no mass and whatever, there’s energy, and then it becomes through the human perceptual system, light and sound and color and touch and taste and smell and so forth. Does that make sense?
Mark Stiving
Yep.
Tim Hanni
What is very poorly understood, and which is actually my mission now later in life, and part of this whole, my vino type thing, is to find out how much, how great these differences are. What’s the source of these differences, which can be genetic slash anatomical. They could be a process of neural pathway conditioning and or brain plasticity and psychology. And so a lot of times there will be a process or something, or it might just be psychological, that if a person knows that the wine is inexpensive or whatever, it’s literally changing the neurotransmitters that are feeding the brain and giving you a negative experience. So the question is, have you ever done a blind tasting with some of those wines that you find that characteristic to see, if not knowing what the wines are, if you can still distinguish that same thing? So, that’s where a lot of my work resides. And some examples of this are colorblindness. If you don’t have certain receptors, you don’t see certain colors, simple as that.
And that’s genetic anatomy. There are people with a certain gene cluster OR6A2. And if you have that, cilantro is inedible. It is disgusting. It’s horrible. You will never acquire a taste for it. And Julia Child had it. So it’s not something that’s a matter of education or sophistication. And so, at the end of the day, what’s happening for you might be explained genetically or neurologically or psychologically, but that would require a little bit of investigation and trial and stuff.
Mark Stiving
My guess is, it’s genetic only because I want to like it.
Tim Hanni
Yeah.
Mark Stiving
And so, before we got on, I did a little bit of research on some wine studies because I was looking for the studies that said, hey, the cheap wines win. I mean, you brought up the great one with the two bucks chuck, but another study I found that was pretty interesting was the University of Bordeaux Wine Study in 2001, where they took all white wines.
Tim Hanni
Well, actually, I can explain it clearly.
Mark Stiving
Oh, please do so.
Tim Hanni
So, this is my world. And I’ve been doing this for over 30 years. During the intro, one thing that was left out is I’m the first American, along with Joel Butler, to pass a master of wine examination in London, which is the highest credential in the world. But there’s also a story behind it that I went to the wrong writing seminar and it was critical thinking and disruptive innovation for electrical engineers in 1990. And it changed my life. And that’s when the disruption started for me.
So, I started questioning everything that I knew about wine and food pairing. And I was considered one of the gurus of wine and food pairing. I’m a chef by training also, and I’ve been studying wine since I was 14, growing up in Miami. I came across the work you’re referring to, and actually, am a friend now of Frédéric Brochet. He’s one of my 50 mentors around the world. And they took 54 trained wine experts to Bordeaux. They had them sit and create a descriptive lexicon for white wine. All the words all 54 people could throw out. They did the same for red wine and a lot of, there was some crossover of course. And then they merged that and created a master list. Then they gave the participants a white wine and were told they were focusing on the smell.
They wanted smell descriptors not taste. And then the ruse was, they said, what we want to do is see how closely experts’ results match on the descriptors they use. You can use any of the words on this big long list, and you could taste the wine and spit it. So it wasn’t like a blind tasting. Okay. Then they did a red wine, and the same thing. Now, the catch was the red wine was the white wine colored red with natural odorless grape pigments. And, I could even bring up the results of this, the white wine was apples and bananas and pears and lychee and floral and flowery. And the red wine was cassis and prunes and woody and all this stuff. And it was the same line.
Now, they were also doing, FMRI, the functional magnetic resonance imaging of participants, because the study was really about when you have certain prompts, like we were talking about price being could be a prompt that’s going to shift your whole perception. When the experts are able to see the color, what then happens to how they assess the wine and where in the brain how’s that looking? So what they found was there’s kind of a white wine folder for those descriptions in a red wine folder. And once the participants saw the color, then they were primarily directed to that activity center that associated with those words. And that it had nothing to do with what they were actually experiencing. Which equally like the two-buck chuck winning the chardonnay sweepstakes of war really off the experts. Oh, no, that doesn’t happen to me. Yeah, it does. It happens to all of us. It can’t not happen because there is no objectivity in anything sensory.
Mark Stiving
Tim, we are running out of time, but that whole story brings me back to the ultimate question. How do you price a wine?
Tim Hanni
So, wine pricing, the bottom-up approach, and part of our winebusiness.com, we also make financial calculators for those.
Mark Stiving
Pause. When you say bottom-up approach, I’m hearing cost-plus pricing.
Tim Hanni
That’s correct. So what are your cost of grapes? What’s your cost of processing? And turning those grape pressing into wine. Things like the press itself, which can cost just a very modest, one’s a million bucks, but you can get anywhere from, from 50 to 65 cases of wine from a ton. Or if you’re making ice wine, it’s 28. So there’s a conversion of the grapes into juice, the fermentation of the juice and the mus, the pressing of it, barrel aging or oak additives, which is a big, big thing of the cost of wood. Okay, I’m going to… So you end up with your cost of finished goods, you need to then get your FOB cost, and that margin is then your working capital and so forth. that FOB is then translated either into a transfer to your tasting room or going into distribution. You’ve got the markup of the distributor or your tasting room or your wine club, and then the final markup, going to the consumer.
Mark Stiving
Okay. So now, are you saying to me, a $40 bottle of wine costs twice as much to make as a $20 bottle of wine?
Tim Hanni
Not necessarily because then there’s the bottom-down approach, and fundamentally the biggest differential in the cost is the barrels and the barrel aging process and the cost of the goods of the grapes. If there’s a wonderful resource called the California Grape Crush Report, and if you go in for this year, I think the lowest price per ton, recorded, for Napa Cabernet was $500 a ton. The highest price was $65,000 a ton. And that’s just the cost of the grapes. And that’s just one area. So, I mean, it’s like all over the place. So, and frequently grapes are free. We’re getting into that situation again, right now. Just go in and get them off the vineyard and you can have them. So, I mean, it’s just really wacky how the materials, the processes, a lot of disparity, but the fundamentals of fermentation and turning it into wine are pretty much standard, whether it’s $2 or $200.
Mark Stiving
Okay. I want to ask one more pricing question. How much more can I get per bottle? We’ll just talk at the consumer level, if I have a really nice looking label.
Tim Hanni
Depending on a great deal on production quantities and distribution and so on, I can’t put any kind of specific number on it, but you can get a premium if you get that label that really resonates. The label itself will do more to drive volume than margin. So, with Yellow Tail’s a perfect example of that, which was a total accident that exploded in 12 and a half million cases a year during its heyday. So the label’s not going to make necessarily all that much of a difference in the margin, but the label plus the provenance. So it’s like this matrix of different factors. And then based on the market segment, which we can’t clearly define. So, it’s kinda whatever the market will bear.
Mark Stiving
Tim, first off, let me say thank you so much for being on the podcast with me. I really appreciate it. It’s a pleasure. And I’m going to say I still have no idea how to price wine.
Tim Hanni
Yeah. If you want, we could do a follow up and I can actually show a price calculator and I can take, we’ll build a wine.
Mark Stiving
Oh, but we have to understand in the world of pricing, I despise cost-plus pricing.
Tim Hanni
Yeah. Right.
Mark Stiving
So, I’m totally okay with understanding costs to make sure we’re making a profit. Right. I can see that that would be my floor. I mean, I’m kind of with the over premiumization of people that says, my job is to figure out how do I get customers to pay me more money for my product. And and so that’s actually what I was going through and thinking as we were having our conversation. Fabulous conversation. Thank you so much. Tim, as we wrap this up, if anybody wants to contact you, how can they do that?
Tim Hanni
My email is Tim@, and then my name, T-I-M-H-A-N-N-I dot com. And the key websites are, winebusinesseducation.com for our online education program and financial calculators. And then myvinotype.com which is more of the research that I do in how we are perceptually different, what that means in terms of our product likes and dislikes and all sorts of behaviors and attitudes. Really, really cool stuff.
Mark Stiving
Excellent. And, to our listeners, thank you very much for listening. If you enjoyed this, would you please leave us a rating and a review? and if you have any questions or comments about this episode or pricing in general, feel free to email me, [email protected]. Now, go make an impact!
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