ANALYTICS REPORT

TO: E & J GALLO WINERY

FROM: OLIVIA ROBEN

SUBJECT: PRICING RECOMMENDATIONS

DATE: SEPTEMBER 24, 2018

Introduction

Per your request, I have done an analysis on the prices and ratings of our wines. Based on this
analysis, I recommend that we make the prices of our wines distributed similarly to our ratings
distributions. This would allow customers to receive the quality of wine that they are paying
for. Lower rated wines should be priced low, as they currently are, while highly rated wines
should have a higher price point. I would recommend continuing pricing lower rated wines
around $30, however, I suggest based on these statistics that Gallo Wines should raise the price
of higher rated wines to around $65. The outliers should be corrected by matching the price
with the value. Below, I have shown the descriptive statistics of our pricing and ratings for our
wines, as well as a regression prediction based on ratings and a scatterplot demonstrating the
relationship between price and ratings.

Data Analysis

Descriptive Statistics Based on Prices

Descriptive Statistics Based on Ratings

Regression Prediction Based on Ratings

Price and Ratings Scatterplot

Based on solely the descriptive statistics, the majority of the US wines should be priced in the
$25-$30 range. This is due to the fact that the mean or average price of the wines is $31.86. The
median, or the middle value of the price data is $28. The mode, or value that occurs the most
often is $20. Using the descriptive statistics for the points, the range is 20 meaning that there is
not a lot of differences in the ratings of these wines. The mean, median, and mode are also all
close to or are 87, also showing that many of these wines share the same rating. This is how we
know that the wines can be priced similar.

After looking at the scatterplot and regression or trend line, I can make further
recommendations to your wine pricing. The coefficient of determination, also called R^2, can
help as it explains how accurate the simple regression line of the price and ratings of the wines
is. Notice that the R^2 value is .2567 which means that 25.67% of the variation in the price of
the wines is due to the variation in the rating. This number is fairly low as it is close to 0,
meaning that the regression line is not perfect. 15.35 is the value of the standard error which
also shows that the model is not completely perfect as the data values are not exactly on or
very close to the regression line. The slope coefficient from the regression equation is 2.6852
which shows a positive slope. This means that there is a s positive relationship, that generally
the price of the wine increases with the rating. Interpreting this value, one would say that for
everyone increase in the rating, the price rises $2.69. This number is fairly small, so the price
does not increase a lot with the rating. It is important to remember that price and the rating do
not have a perfect relationship. The wines can be priced though more similarly to the
regression line, with higher rated wines having higher prices. For example, when plugging in a
rating of 87 into the regression equation, the price would be $29.87 while when plugging in a
rating of 100, the price would be $64.78.

Conclusion

After completing the scatterplot with the regression equation, I can recommend to you to use
the regression equation to get better prices for your wines. Although the regression line shows
that the price and ratings of the wines do not have a perfect relationship, there is still a positive
correlation between the price and rating of wine. The wines that have been rated the highest
should have a higher price around $65 based on the regression equation, while the lowest
rated wine with a rating of 80, should be priced around $12. The majority of wines with the 87
rating should be priced around $30 which is consistent with my earlier recommendation based
on the descriptive statistics. With these recommendations you will be able to increase your
profits, although taking a look at the most demanded wines or comparing competitor’s prices
could be useful for a deeper analysis.