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What’s in a Drink that you calla Chai? Quality Attributes and Hedonic Price Analysis of Tea

  • Deodhar, Satish Y.
  • Intodia Vijay
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    India is one of the leading producers and exporters of tea. However, in the last two decades its share in the world exports has gone down considerably. On the other hand, although the domestic market is large, the per capita consumption in India is one of the lowest in the world. Therefore, Indian growers, processors, and traders could focus their attention to cultivate and expand the domestic market as a buffer against the vicissitudes of export performance. As a first step in their competitive strategy, Indian tea industry may want to understand the valuation consumers place on various quality attributes of tea. This can be done by applying hedonic price analysis to the data on prices and the quality attributes of tea. In this paper, we applied the hedonic price analysis to the data on 43 Indian tea brands. Based on performance of regression equations, exponential functional form was selected for the Box-Cox transformation, where price of tea brands was taken as the dependent variable and quality attributes of tea were considered as independent variables. Indian consumers seemed to attach importance to two quality attributes, aroma and colour. No significant value is attached to flavour and strength of tea. Premium is attached to the tea types CTC Leaf, Teabags, and CTC Fanning in that order over the type CTC Dust. Based on these results, stakeholders in the tea industry may want to enhance or reduce some of the quality attributes during the tea blending process. The newly blended teas may be marketed through aggressive generic promotions to increase overall consumption and/or through firm specific advertisements to improve market share.

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    Paper provided by Indian Institute of Management Ahmedabad, Research and Publication Department in its series IIMA Working Papers with number WP2002-05-05.

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    Handle: RePEc:iim:iimawp:wp00017
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    1. Nerlove, Marc, 1995. "Hedonic price functions and the measurement of preferences: The case of Swedish wine consumers," European Economic Review, Elsevier, vol. 39(9), pages 1697-1716, December.
    2. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
    3. Oczkowski, Edward, 2001. "Hedonic Wine Price Functions and Measurement Error," The Economic Record, The Economic Society of Australia, vol. 77(239), pages 374-82, December.
    4. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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