The hedonic valuation of South African wine brands

D Priilaid,P Van Rensburg

doi:10.4102/sajbm.v43i1.173

Abstract

Working with a set of 35 South African wine brands identified in Priilaid and Van Rensburg (2010a), this study presents two brand valuation techniques that combine non-ordinal wine valuation models with conventional methods of valuation. The first price-premium approach defines brand equity value as the difference between a wine’s price and a valuation of its intrinsic worth. 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. With a set of assumptions regarding consistency in future wine quality, hectorage, price premiums, and sales volumes, brand valuations for each method are calculated as the net present value of the brand premiums paid per unit over the total cases sold. The consequent computations reveal how the price-premium method realises a mean valuation three times greater than the average derived from the alternate quality premium method. This difference is attributed to extreme valuations noted at either end of the price-premium sample, and suggests that this method is perhaps less conservative than perceived quality premium-based valuations. Additionally, the specification of perpetuity is observed to be too extreme. Alternate time scenarios are considered, with a period of ten years posited as perhaps more appropriate to such computations.

Highlights

From the perspective of economics, hedonics refers to the efficacy, utility or pleasure derived through the consumption of a particular service or good
Price premiums can generally be regarded as a measure of the extent to which a consumer is willing to pay for a product over and above its intrinsic value, and as such can be considered a measure of customer loyalty
Keller (2003) believes that brand valuation techniques come with certain advantages, namely: (1): they provide a means to increase the aggregate value of a firm; (2): they can assess any hitherto unacknowledged branded assets; (3): as a source of collateral these valuations can prove useful in raising company loans; (4): they can provide a solid framework upon which stakeholders can assess company performance; (5): they can assist in strategic planning, resource planning, and the preparation of marketing plans, and (6): they can be included in the calculation of appropriate third-party brandlicensing fees

Summary

Introduction

From the perspective of economics, hedonics refers to the efficacy, utility or pleasure derived through the consumption of a particular service or good. The hedonic model hypothesizes a market of assorted products with various associated price, quality and characteristic differences and a diversity of consumers, some more willing to pay for certain characteristic bundles than others. Hedonic modelling has gained recognition as a form of wine price analysis (see inter-alia: Nerlove, 1995; Coombris, Lecocq & Visser, 1997; Schamel, 2000; Schamel & Anderson, 2001; Thrane, 2004; Van Rensburg & Priilaid, 2004).

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Results

Conclusion