The Law of Diminishing Returns

I decided to write this after an email from someone who read my travel story and was asking questions about value and ratings on the wines I had reviewed. Firstly, lets get the most important factor on the table. The price of a wine does not have to have any relationship to its quality.

That means it quite possible to have a $100 bottle of wine that many people think is just ordinary wine. By the same token, its possible to get a $40 wine that many people will think is better than most $75 wines they have tried. And this relationship, or lack thereof is just as applicable at the $15 versus the $25 price points too. Lets examine this in a bit more detail.

In theory, it would make perfect sense if a $20 bottle of wine was twice as good as a $10 wine and in some cases that’s exactly what happens. The reason for this is simple, it costs about “x$” to make a bottle of plonk level wine. A bottle of supadupa wine that is aged in new oak and made from top quality grapes may only cost about 2x$ to make, possibly if the grapes are hand picked, new French Oak is used and the wine is bottled into a “sexy bottle” and aged for a few more years it may cost 3x$. Start to get the picture?

Now lets examine quality. A base level bottle of drinkable wine is of “w” level quality, how much better is a bottle of the top shelf stuff? About 3 times “w”? Lets be generous and say 4 times “w”!

So, on one hand we have a cost to produce that does not have a significant multiplier, lets say about 2 – 3 times. On the other we have a quality range of say 3 or possibly 4 times. Now lets examine the final part of the jigsaw puzzle, the retail price of the wine and remember our base drinkable wine which costs x$ to produce sells for $10.

The price range of drinkable bottled wine is from say about $10 to about …..how much do you want to spend? Grange is $300 so that’s about a thirty times price multiplier at a retail level. But remember we only have a 2-3 times multiplier on cost and a 3 - 4 time multiplier on quality. That can be frightening from the consumer’s perspective when you think about it.

So what can we do about it? The answer is “qpr” (quality price ratio) or value for money. At all price points, there are very good value wines that are better value than their competitors, there are wines that represent average value and there are wines that represent poor value. The objective is to go for the best value wines at whatever price point you are looking at buying.

In terms of the law of diminishing returns, a $10 bottle of wine is frequently twice as good as a $20 wine, but a $40 bottle may only be fifty percent better than the $20 wine. And the $100 bottle may only be 25% better than the $40 bottle. A $250 bottle may not even be as good as a $75 wine, so be aware that cost is no indication to either quality or value.

One of the major reasons for writing my tasting notes, Journal and trip notes is to try and share all levels of information from the good to the ugly, as well as the great value wines to be found.

As an aside to this weeks journal, judging from some emails I received, it’s obvious that a couple of the newer producers I visited seemed to take my comments on their wines personally. The comments on their wine are not personal; they are about what people produce, not about who they are as people. I know from running my own business its hard and disappointing when you don’t get a glowing report card, but there are three options in life. Dig your head in the sand and don’t participate, improve the product or don’t take it personally. (This is meant as positive advice, not a dig, so please take it in a positive fashion.)

Till next week.

Cheers

Ric