Thursday, January 19, 2017

What's in a name? "Biodynamic" as a category label

The reading from Organization Science on "Category Signaling and Reputation" extols the virtues of category signaling for smaller producers. The article argues that these producers could benefit from joining a category if that category fits two primary criteria:

  1. The category has high contrast to other categories, meaning that it is easy to distinguish from other categories.
  2. Quality and cost are linked: only producers with high quality products are incentivized to invest in entering the category.

Biodynamic wine is used as the key example demonstrating how these categories can help consumers address the information asymmetry present in selecting a wine to drink, in contrast to the "organic" label where the two criteria above are less strong.

However, if you asked a person on the street what makes a biodynamic wine different, what would they respond? Before I knew the definition of "biodynamic", the name's similarity to other scientific and engineering concepts like "thermodynamics" led me to believe that the label implied a scientific approach to winemaking or a particular focus on sustainability on the farm, which I associated with high quality. When I did learn what this term meant, I was surprised to find out that what it actually meant was following the cycles of the moon and charring insects in the oven to get rid of pests, which actually reduced my expectation of quality due to the additional costs and the claim of benefits that seem farfetched (to me).

As a consumer with relatively little knowledge, the "biodynamic" label conveyed higher quality to me when I thought it was based on science than it did when I learned what the label actually meant. To what extent is category signaling driven by the perceived definition of the category label rather than the actual definition? If this study were taken further, I would love to know whether there are examples of categories where the perceived definition and actual definition of a category differ substantially, and whether the surprise generated by the discovery of the mismatch negatively affects the otherwise positive effects of category membership.

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