Consumers' perceptions of product quality and entrepreneurial survival: evidence from the craft brewery industry

Abstract

Purpose Most studies of entrepreneurial failure do not have good measures of consumers' perceptions of product quality. As a result, perceived quality in entrepreneurial success is often omitted. The craft brewery industry is comprised of small entrepreneurial firms selling an experience good making it an ideal study setting. Using online beer reviews, the authors examine how perceptions of beer quality and the size of brewery production influence entrepreneurial success of microbreweries and brewpubs.Design/methodology/approach Using data from the Brewers Association and over 12 million reviews from beeradvocate.com between 2002 and 2016, the authors examine the relationship between perceived product quality to firm survival. Perceived quality is measured using online beer reviews. The authors expect larger microbreweries will survive longer as will breweries with higher perceived quality. The authors use a conditional log-log hazard model to estimate survival for microbreweries and brewpubs.Findings A one standard deviation increase in the beer ratings reduces the probability of exit by 26% for a microbrewery and 19% for brewpubs. The authors find that larger microbreweries have a lower hazard of exiting.Originality/value Entrepreneurs in the brewing industry start as home brewers before beginning commercial enterprises. Scaling up production is difficult. The initial size of their brewery is an important determinant of their success. Likewise, the perception of the quality of their beer as measured by consumer ratings gives a good market indication about future survival. This research is one of the few studies to examine the influence of perceived quality on firm survival in a growing industry.