What is Hedonic Regression?

HEDONIC REGRESSION.  Is that not the most awesome description of my weekends ever written?   Although it sounds like the ultimate lifestyle affliction, Hedonic Regression is actually a very interesting economics based method of calculating value and demand.  Basically Hedonic Regression breaks down a product into it’s characteristic components.  This method is used in real estate all the time.  Rather than advertising “House for sale” it is thought that breaking that house down into it’s components will increase it’s value and demand.  2,000 square foot house for sale on a quarter acre lot, 20 minutes from downtown.  There that sounds a lot better doesn’t it?
Hedonic regression and pricing structures have been studied for quite some time with respect to wine.  Marketers want to find out what it is that consumers base their decisions on, they want to find out what makes them perceive one one as more valuable than another.  I found this very interesting study from UC Davis.  It’s a long read so I will summarize a few salient points.  There are 4 types of wine consumers: Connoisseurs, Aspirational Drinkers, Beverage Wine Consumers, and New Drinkers. Although each buyer has different attitudes and preferences each drinker is influenced by the same factors:
Previous Experience and Knowledge of the Product, Objective Cues (which include Production Region, Brand and Label), the Occasion and finally, Price.  Taste specifically is not considered a factor because you cannot tell what a wine tastes like until you open it. Rather it is a sub category of the Previous Experience and Knowledge category. The conclusion of this study states that consumers almost always make a purchase starting with a price range in mind first.  Then they analyze the other components to determine which product to purchase.
Hedonic pricing studies have been used from Bordeaux to British Columbia and Stellenbosch to Washington State. One of the most well known economists to study wine is a man by the name of Orely Clark Ashenfelter. He analyzed the results of the Judgment of Paris in this study (http://www.liquidasset.com/tasting.html)    If you would like to know more about the economics of wine you can attend the American Association of Wine Economists 4th annual meeting at UC Davis June 25th-28th, 2010. One of the experts attending this event is Johannes Edinger. He wrote a very interesting piece on the Hedonic Pricing Structures in Okanagan Valley wines (In British Columiba, Canada)  A must read, check it out here.

Back to Hedonic Regression, how do you purchase wine?  Do you agree with the categories and factors listed?

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