The hedonic valuation of South African wine brands

Doctoral Thesis


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University of Cape Town

This study aims to value South African wine brands. Deploying blind and sighted versions of hedonic quality it defines (1) ‘functional’ wine brands as those with consistently higher levels of intrinsic quality as proxied by their blind tasting scores, and (2) placebo-type ‘symbolic’ wine brands as those with statistically significant positive predictive differences between their blind and sighted scores. Through a series of econometric analyses applied to 8225 wines sampled over the eight year period from 2000 through 2007, a higher proportion of functional-to-symbolic brands is notified. Bi-polar clustering is observed in both brand-classes, with positive and negative brand-effects yielding positive and negative ‘non’ brands, respectively. Such clustering extends to those brands presenting simultaneously with both functional and symbolic brand-effects. Here brands decompose into zones of either Symbolic Values (with positive placebos and weak intrinsics) or Functional Values (with negative placebos and strong intrinsics). When these zones are graphed relative to their intrinsic blind to sighted-minus-blind scores, no brands appear to occupy the middleground. Each zone is located approximately one standard deviation left and right of the grand-sample mean intrinsic score. This functional-to-symbolic typology confirms and extends the literature on brands in general (Bhat and Reddy, 1998), and wine brands in particular (Mowle and Merrilees, 2005). Two wine brand valuation techniques are subsequently presented and comparatively assessed. Each is based on the combined use of non-ordinal wine valuation models and discounted cash-flow methodologies. The first price-premium approach defines brand equity value (per bottle) as the difference between a wine’s price and a valuation of its intrinsic worth as measured by blind ratings. The second quality-premium approach defines brand equity value as the difference between a wine’s intrinsic value and (instead of price) the value of its perceived quality when sampled sighted.

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