Determining Wine Prices

Wine, as most people know, is a popular good in the Italian market. Furthermore, Italian brands are at the height of the wine market in numerous countries around the world. While some wines might seem over-the-top expensive, higher wine prices can act as a stimulant rather than a deterrent. Knowing that a wine has been highly priced leads one to believe that the quality must be much better than the rest—but is it? Red wine, white wine, locally grown, vintage, grape variety, technology—these are the factors that enter a “hedonic price function.” This process is used to determine which factor affects the price of a bottle more than the others.

Our article used the hedonic technique to evaluate three different types of wine: two Bordeaux and one Burgundy. They used two Bordeaux from different years and a Burgundy to distinguish between time and regions in France. The “sensory” characteristics that they considered were aromatic intensity, finesse of aromas, firmness of attack and suppleness. These factors are only experienced when a glass of wine is in your hands. They also considered “objective” characteristics including name, color, ranking, appellation, and vintage. These are the elements that you can observe in liquor and grocery stores while inspecting the bottle.

The results of their experiment showed that the price of Bordeaux and Burgundy wines is determined by objective characteristics because it is easier for a consumer to observe a wine bottle in the store and make a decision than to taste each wine and apply a sensory critique. The jury grade of the sensory elements did have an impact on the wine prices, though it was considerably smaller than objective characteristics.

The results of the study lead one to consider the implications of the importance of objective characteristics. Wine companies must invest a lot of time and money in marketing, advertising and wine labels. The wine bottles that do not draw a person in with their label will lose consumers and therefore revenue. Smaller companies and regions may not have a chance, then. On our hike along the Path of the Gods in the Amalfi coast we met a man who tended to several vineyards in the region. He explained the careful process of picking the grapes, preparing the wine, and carrying the vases over the rocky path without spilling them or dropping them. His wine products are an example of those that might not make it in the industry. His inability to market his wine has caused him to only sell to close neighbors and inhabitants of the region. It is a shame, though, because the smaller regions and unknown vineyards often produce the highest quality wine.