Pricing strategies for Italian red wine

Italian wine is one of the most famous products worldwide and yet very little is known about the pricing strategies and the characteristics of consumers on the domestic market. In this article we attempt to partially fill this gap via the estimation of a hedonic price function for Italian red wine sold in the domestic market for the period 2007–2008. In particular we assess the importance of label characteristics (that can be inferred from the bottle), chemical and sensory characteristics (that can be inferred through testing and tasting) and panel judgements. Our results have been obtained using an innovative procedure that consists in applying dimensionality reduction methods in order to construct latent variables to be used with hedonic price techniques. The analysis shows that price formation follows quite different patterns in the large-scale retail trade and in the wine shops. In the large-scale retail trade, the price mainly depends on the label characteristics (the alcohol content being the most relevant) of the wine sold; other indicators, even when statistically significant, are fairly irrelevant. For wine shops the story is rather different: the price depends also on the sensory characteristics of the wine and it is on this market that wines with particular tastes and characteristics may obtain a better selling price.

► We present a hedonic price model concerning Italian red wines.
► The dataset contains label variables, chemical characteristics and sensory variables.
► We create some composite chemical and sensory latent factors.
► These latent factors are included as covariates in a linear stepwise regression.
► There is an asymmetric effect of the distribution channel on the price.