Nonlinear hedonic pricing: a confirmatory study of South African wines

David A Priilaid1, Paul van Rensburg21School of Management Studies, 2Department of Finance and Tax, University of Cape Town, Republic of South AfricaAbstract: With a sample of South African red and white wines, this paper investigates the relationship between price, value, and value for money. The analysis is derived from a suite of regression models using some 1358 wines drawn from the 2007 period, which, along with red and white blends, includes eight cultivars. Using the five-star rating, each wine was rated both sighted and blind by respected South African publications. These two ratings were deployed in a stripped-down customer-facing hedonic price analysis that confirms (1) the unequal pricing of consecutive increments in star-styled wine quality assessments and (2) that the relationship between value and price can be better estimated by treating successive wine quality increments as dichotomous “dummy” variables. Through the deployment of nonlinear hedonic pricing, fertile areas for bargain hunting can thus be found at the top end of the price continuum as much as at the bottom, thereby assisting retailers and consumers in better identifying wines that offer value for money.Keywords: price, value, wine