SENSORY INFLUENCES ON CONSUMERS WILLINGNESS TO PAY: THE APPLE AND CHERRY MARKETS YING HU

Transcription

1 SENSORY INFLUENCES ON CONSUMERS WILLINGNESS TO PAY: THE APPLE AND CHERRY MARKETS y YING HU A dssertaton submtted n partal fulfllment of The requrements for the degree of DOCTOR OF PHILOSOPHY WASHINGTON STATE UNIVERSITY School of Economc Scences MAY, 007 Copyrght by YING HU, 007 All Rghts Reserved

2 To the Faculty of Washngton State Unversty: The members of the Commttee apponted to eamne the dssertaton of YING HU fnd t satsfactory and recommend that t be accepted. Char

3 ACKNOWLEDGMENT Frst of all, I would lke to epress my sncere grattude to my advsor Jll McCluskey for her encouragement and dedcaton throughout ths whole academc process. Her gudance was gentle but clear and enlghtenng, and her support was ntegral to my survval. She had confdence that I would succeed, takng me n as her student and challengng me to succeed. I am glad that I can now show that her fath n me was well placed. I would also lke to thank my other two commttee members, Ron Mttelhammer and Phl Wandschneder, for the numerous and nvaluable perspectves and deas they contrbuted to ths research project. Every one of them gave crucal help at dfferent tmes, but I would especally lke to thank Ron Mttelhammer, as he was the only one who could help me wrte the program for the model, and hs consstently helpful atttude and unfalng energy n the debuggng process was very much apprecated. I am grateful to all the other professors n the School of Economc Scences here at WSU for ther support and advce, especally to Tom Marsh. They were a dverse and plentful reserve of knowledge from whch I drew many nsghts and nspratons. I thank my fellow students for ther encouragement and companonshp durng the past years. They helped to create a comfortable and focused envronment where t was easy to learn and progress. Last but not least, my grattude and love goes to my husband Andrew Ulrch who has always been there for me, and my parents who have loved me uncondtonally

4 all these years. I would not have become what I am today f t was not for ther love and support. v

5 SENSORY INFLUENCES ON CONSUMERS WILLINGNESS TO PAY: THE APPLE AND CHERRY MARKETS Abstract by Yng Hu, Ph.D. Washngton State Unversty May 007 Char: Jll McCluskey Ths dssertaton conssts of four studes that ncorporate sensory characterstcs n the contet of eamnng consumers wllngness to pay (WTP) for apples and cherres. Indvdual-level data, ncludng sensory responses to apples and cherres, were collected. Effects of sensory attrbutes are compared across dfferent cultvars of apples and cherres. Two methods of elctng consumer preferences are also compared. The frst study uses ndvdual consumer-level tastng data to estmate a predctve model of the relatonshp between sensory attrbutes and WTP for two cultvars of apples and tests whether these attrbutes play a dfferent role across cultvars. Consumer survey data and apple tastng data for both Red Delcous (a tradtonal cultvar) and Gala (a newer cultvar) are compared. The results suggest that frmness and sweetness both postvely affect consumers WTP, but more so for Gala than Red Delcous. Older consumers are less lkely to be wllng to pay premums for both cultvars. Apple-eatng frequency s postvely related to the WTP for Gala but not for Red Delcous. v

6 Meanwhle, beng Hspanc negatvely nfluences the WTP for Gala apples, but t does not affect WTP for Red Delcous. The second study utlzes nstrumental measurements of soluble solds and frmness levels as ndependent varables n the WTP model and compares the estmaton results wth the sensory model. In the thrd study, an etended double-bounded dchotomous choce (DDC) model, a med logt model, s estmated wth cherry tastng data from a survey n whch respondents evaluated fve cultvars. Frmness and sweetness sgnfcantly nfluence WTP n a postve way. Age s an nfluental factor, as well as annual household ncome level under $75,000. Lastly, two elctaton formats of contngent valuaton approach, DDC and payment card (PC), are compared over the WTP for cherres. They generate dfferent parameter estmates, and mean WTP values of DDC eceed those of PC. Even though declarng whch format derves more realstc results s premature, the emprcal results seem to somewhat favor the med logt DDC. v

7 TALE OF CONTENTS ACKNOWLEDGEMENT... ASTRACT...v LIST OF TALES... CHAPTER 1. INTRODUCTION...1 Dssertaton Format...3 Summary of Fndngs...4 References...6. DOES VARIETY MATTER? COMPARING CONSUMERS WILLINGNESS TO PAY FOR SENSORY CHARACTERISTICS ACROSS APPLE CULTIVAR...8 Introducton...8 Methodology...10 Data...14 Emprcal Model...17 Results...19 Conclusons...1 References COMPARISON ETWEEN THE CONSUMER MODEL AND THE INDUSTRY MODEL...3 Instrumental Measurements of Apples...3 The Destructve Industry Model...33 Conclusons COMPARING SENSORY RESPONSE IN CONSUMERS WILLINGNESS TO PAY FOR CHERRIES: A MIXED MODEL APPROACH...37 Introducton...37 The Market for Cherres...37 Prevous Lterature...38 Econometrc Model...4 Data...47 Emprcal Specfcaton and Estmaton Results...50 v

8 Conclusons and Dscusson...53 References A COMPARISON ETWEEN PAYMENT CARD AND DOULE-OUNDED DICHOTOMOUS CHOICE: ELICITATION FORMATS MAKE A DIFFERENCE...69 Introducton...69 Econometrc Models...75 Payment Card Model...75 Double-ounded Model...77 Survey Data...81 Model Specfcaton and Estmaton Results...86 Conclusons and Dscusson...89 References CONCLUSIONS v

9 LIST OF TALES Table Page.1 Summary Statstcs for Demographc Varables...6. Summary Statstcs for Consumer Responses Range and Dstrbuton of Response Rates to the Randomly Assgned Premums Range and Dstrbuton of Response Rates to the Randomly Assgned Dscounts Parameter Estmates of WTP for the Consumer Model Margnal Effects of the Parameters Parameter Estmates of WTP for the Industry Model Margnal Effects of the Parameters Summary Statstcs of Respondents Demographcs Summary Statstcs of Respondents Preferences Summary Statstcs for Consumer Responses over the Cherry Cultvars Range and Dstrbuton of Response Rates to the Randomly Assgned Premums Range and Dstrbuton of Response Rates to the Randomly Assgned Dscounts Parameter Estmates for the Med Logt Model Margnal Effects of the Parameters Summary Statstcs of Respondents Demographcs for the DDC and PC Surveys Summary Statstcs of Respondents Preferences for the DDC and PC Surveys...101

10 5.3 Summary Statstcs for Consumer Responses over the Cherres for the DC Survey Range and Dstrbuton of Response Rates to the Randomly Assgned Premums for the DC Survey Range and Dstrbuton of Response Rates to the Randomly Assgned Dscounts for the DC Survey Summary Statstcs for Consumer Responses over the Cherres for the PC Survey Payment Card Intervals Marked by Respondents Parameter Estmates for the Med Logt Model Margnal Effects of the Parameters for the Med Logt Model Parameter Estmates for the PC Model Comparson of the Mean WTP for oth Elctaton Methods...110

11 CHAPTER 1 INTRODUCTION Evaluaton of consumers wllngness to pay (WTP) for food products s generally accomplshed by nvestgatng the effect of etrnsc attrbutes (e.g. cultvar, sze, grade), consumer demographcs (e.g. age, gender, ncome), and/or consumpton (frequency) wthout ntrnsc varables. The omsson of sensory attrbutes, such as taste, teture and flavor, s lkely to lead to naccurate estmaton. Ths s because sensory characterstcs have a major nfluence on consumers epectatons of qualty and buyng habts for food products. Apples and cherres are no eceptons n that sense. When t comes to purchasng apples, most consumers base ther decsons on apples nternal attrbutes such as taste and flavor (Mller et al. 005). Carew (000) fnds that consumers preferences for apples n rtsh Columba have shfted from tradtonal varetes to newer cultvars owng to ther eatng qualty rather than ther appearance. Studes show that attrbutes such as taste, color, sze, soluble solds, frmness, teture, and other market values are assocated wth the frut qualty of fresh sweet cherry, whch motvates consumers purchasng decsons (Roper, et al. 1987; Dolenc and Stampar 1998). 1

12 The general objectve of ths dssertaton s to ncorporate sensory attrbutes n the contet of nvestgatng consumers WTP for apples and cherres. These sensory varables along wth other factors are eamned for ther effects on WTP va the contngent valuaton method (CVM), whch facltates estmaton of WTP wthout actual purchases nvolved. There are a number of elctaton formats that fall under the CVM. When choosng from among them, one needs to take nto consderaton a few ssues such as cost of admnstratng surveys, ease of takng surveys from the respondents perspectve, precson of the WTP estmates, and possble bases assocated wth the elctaton format n use. Ths study centers on a double-bounded dchotomous choce (DDC) approach as the elctaton format, whch has been endorsed n the lterature due to ts famlarty and ease n the decson makng process (oyle and shop, 1988; rown et al. 1996; NOAA, 1993; Smth, 000). Dfferent elctaton formats may nduce dfferent answerng behavor and hence produce dfferent WTP estmates (Carson et al. 001; Welsh, 1998). And n general, estmates of WTP values from DC formats eceed those from payment card (PC) formats (Welsh, 1998). An emprcal comparson between the estmates of DDC and PC s accomplshed n order to test the convergent valdty of the two elctaton formats, even though the queston of whch avalable elctaton format produces the most accurate estmates s stll under debate.

13 Dssertaton Format Ths dssertaton s presented as four related but stand-alone studes. Chapter s an emprcal paper that analyzes the relatonshp between sensory attrbutes and WTP for two cultvars of apples, Gala and Red Delcous, usng ndvdual consumer-level data collected from a survey where each respondent only tasted apple peces from a sngle cultvar. A number of demographc and consumpton varables are also ncluded to assess ther effects on WTP. A sngle DDC model for both cultvars s estmated, whch ncreases effcency by utlzng the entre data set and epedtes the comparson of how sensory attrbutes and demographcs affect WTP dfferently across cultvars. In Chapter 3, the destructve measurements of frmness and sweetness enter the same DDC model analyzed n Chapter (consumer model) and replace the two subjectve varables of frmness and sweetness, so that an ndustry WTP model s formed. Estmates from ths model are then compared wth those from the sensory model. Chapter 4 assesses the effects of sensory attrbutes and demographcs on WTP for cherres. However, snce the survey data used n the analyss was from ndvdual respondents tastng and evaluatng all fve dfferent cultvars of cherres, a modfed DDC model, a med logt model, s employed to capture the correlaton among valuatons from the same respondents and other unobserved attrbutes. Chapter 5 provdes a theoretcal revew of most commonly used CVM elctaton technques, namely the bddng game, open-ended questonng, PC method, and DC approach, and of comparsons between DC and PC. Then the emprcal estmaton results of the med logt DDC model from Chapter 4 are compared wth those of a PC model to test the 3

14 convergent valdty of these two approaches. Chapter 6 offers conclusons and draws generalzatons that can be made across the studes. Summary of Fndngs Chapter concludes that frmness and sweetness sgnfcantly affect WTP for both cultvars n a postve way but more so for Gala than for Red Delcous. The consumer s age and apple-eatng frequency are sgnfcant factors for WTP for both apples, whereas the consumer s ethnc background affects WTP for Gala but not Red Delcous. Gender, formal educaton level, annual household ncome level, and whether or not the consumer buys organc food, do not affect the WTP. The results of the ndustry model n Chapter 3 show that the physcal measurement of frmness but not sweetness s sgnfcant as an nfluental factor on consumers WTP for both apples, and that ts effect s much less than the correspondng subjectve varable n the consumer model. Chapter 4 fnds that as consumers become more satsfed wth frmness or sweetness the probablty that they wll be wllng to pay a hgher prce for cherres sgnfcantly ncreases. Percentage of organc purchases has a postve nfluence on WTP. The older the consumers, the more lkely they are wllng to pay more, and ths s more so for consumers over 65. Annual household ncome level s only sgnfcant n a negatve way for ncome level under $75,000. Consumers gender does not appear to be a sgnfcant factor to WTP. Furthermore, varance of the random varable turns out to be 4

15 hghly sgnfcant, whch justfes the specfcaton of ncorporatng such a random coeffcent n the model. In Chapter 5, the emprcal comparson between the results from the DDC model n Chapter 4 and those from the PC model reveals that the two elctaton formats of the CVM generate dfferent estmates, and that mean WTP values from the DDC model eceed those from the PC model. Although t would be hasty to judge whch elctaton format produces more accurate results, the emprcal results ndcate that the med logt DDC approach mght be somewhat preferred. 5

16 References oyle, K.J. and shop, R.C. (1988). Welfare measurements usng contngent valuaton: A comparson of technques. Amercan Journal of Agrcultural Economcs, 70, 0-8. rown, T.C., Champ, P.A., shop, R.C., and McCollum, D.W. (1996). Whch response format reveals the truth about donatons to a publc good? Land Economcs, 7, Carew, R. (000). A hedonc analyss of apple prces and product qualty characterstcs n rtsh Columba. Canadan Journal of Agrcultural Economcs, 48, Carson, R.T., Flores, N.E., and Meade, N.F. (001). Contngent valuaton: Controverses and evdence. Envronmental and Resource Economcs, 19, Dolenc, K. and Stampar, F. (1998). Determnng the qualty of dfferent cherry cultvars usng the HPLC method. Proceedngs of the Thrd Internatonal Cherry Symposum, 3-9 th July 1997, Acta Hortculture 468: Mller, S, Hampson, C., McNew, R., erkett, L., rown, S., Clements, J., Crassweller, R., Garca, E., Greene, D., and Greene, G. (005). Performance of apple cultvars 6

17 n the 1995 NE-183 Regonal Project Plantng: III. frut sensory characterstcs. Journal of the Amercan Pomologcal Socety, 59, Natonal Oceanc and Atmospherc Admnstraton (NOAA). (1993). Natural resource damage assessments under the ol polluton act of Federal Regster, 58, Roper, T.R., Loescher, W.H., Keller, J.D., and Rom, C.D. (1987). Sources of photosynthate for frut growth n ng sweet cherry. Journal of the Amercan Socety for Hortcultural Scence, 11, Smth, R.D. (000). The dscrete-choce wllngness-to-pay queston format n health economcs: Should we adopt envronmental gudelnes? Medcal Decson Makng, 0, Welsh, M.P. and Poe, G.L. (1998). Elctaton effects n contngent valuaton: comparsons to a multple bounded dscrete choce approach. Journal of Envronmental Economcs and Management, 36,

18 CHAPTER DOES VARIETY MATTER? COMPARING CONSUMERS WILLINGNESS TO PAY FOR SENSORY CHARACTERISTICS ACROSS APPLE CULTIVARS I. Introducton One would epect for eatng qualty characterstcs to be sgnfcant factors affectng consumers demand for apples. However, n assessng consumer preferences for a food product such as apples, an establshed approach s to nvestgate whch factors have a sgnfcant effect on wllngness to pay (WTP) from among etrnsc attrbutes (such as cultvar, sze, grade), consumer demographcs (such as age, ncome, educaton level), and/or consumpton (frequency of consumng apples). Intrnsc factors such as taste, teture and flavor are typcally not ncluded n the analyss. Ths s unfortunate snce consumers make purchase decsons of apples based on ther nternal attrbutes such as taste and flavor (Mller et al. 005). rennan and Kur (00) fnd that once consumers develop a preference for a product based on sensory characterstcs, t s unlkely for them to change. Thus, sensory characterstcs have a major nfluence on consumers epectatons of qualty and buyng habts. Carew (000) makes the case that consumers preferences for apples n rtsh Columba have shfted from tradtonal varetes to newer cultvars based on ther eatng 8

19 qualty rather than ther appearance. Wnfree and McCluskey (005) argue that the apple ndustry n Washngton should establsh mnmum standards for what consttutes eatng qualty n addton to the normal gradng standards whch are based on color, shape, and sze. ased on a hedonc prce analyss of the Japanese market for mported apples, Kajkawa (1998) found that nternal apple characterstcs had a sgnfcant effect. She used publcly avalable varetal sample averages for growng regons by season to represent br, br/acd rato, and juce as eplanatory varables n her hedonc prce estmaton. Although Kajkawa s analyss s related to the current artcle, t ncludes aggregate data rather than ndvdual apple-level data or consumer-level data. Sensory analyss s a method that can be used to quantfy and understand consumer responses to food products. Foster (004) argued that ths approach helps researchers to understand and manpulate formulatons n a predctable fashon helpng clents to develop a successful product. Sensory attrbutes have been analyzed n other economc studes of food products. Grunert et al (004) nvestgated the effect of sensory eperence wth genetcally modfed (GM) cheeses on atttudes and purchase ntentons of partcpants from the Nordc countres. Maynard and Frankln (003) ncluded sensory analyss n a WTP study of cancer fghtng dary products. Sensory varables have also been used n wne studes. In a study of the sensory attrbutes of ordeau wnes, Combrs, Lecoq, and Vsser (1997) showed that when regressng objectve characterstcs and sensory characterstcs on wne prce, the objectve cues (such as epert score and vntage) are sgnfcant, whle sensory varables such as tannns content and other measurable chemcals are not. Possble eplanatons 9

20 for the nsgnfcance of sensory cues n wne are the dffculty of solatng the effect of each chemcal on the fnal flavor and smell and that only a small percentage of wne purchasers are connosseurs. The objectve for ths study s to develop a predctve model that determnes the relatonshp between sensory attrbutes and WTP for two cultvars of apples and test whether these attrbutes play a dfferent role across cultvars. Owng to ther mportance as nternal attrbutes of apples, sweetness and frmness are chosen to be the representatve tastng factors. Ther effects on WTP are to be eamned, along wth a seres of consumers demographcs and consumpton characterstcs. The Red Delcous varety s the most wdely produced and celebrated apple n the Northwest. However, n recent years, consumers have sought newer cultvars that are more flavorful, rather than redder or shapeler, resultng n lower prces for Reds. The comparson between a tradtonal cultvar (Red Delcous) and a newer cultvar (Gala) s mportant for understandng the market for fresh apples. Key nsghts to be ganed are whether eatng qualty s valued dfferently across cultvars and f demographcs affect valuatons dfferently across cultvars. II. Methodology The contngent valuaton method (CVM) s frequently appled to dscrete survey responses to elct opnons or preferences on varous matters. Sngle-bounded and double-bounded dchotomous choce are two wdely-used bddng methods n CVM for assessng market products or non-market resources. The double-bounded method 10

21 engages respondents n two bds. 1 A second queston assocated wth a hgher or lower value s asked based on responses from the frst queston. If the ntal offer s accepted, a premum wll be asked; whereas f the ntal offer s rejected, a dscount wll be offered. Usng two sequental bddng questons, boundares of WTP are therefore observed. In the double-bounded model (Hanemann, Looms, and Kannnen 1991) used here there are four possble outcomes: (1) the respondent s wllngness to pay s lower than the dscount offered so she/he s not wllng to buy the apple at all,.e. no, no ; () the respondent s wllngness to pay s between the lower bd prce and the ntal bd prce,.e. no, yes ; (3) the respondent s wllngness to pay s above the ntal bd but lower that the premum offered,.e. yes, no ; (4) the respondent s wllngness to pay s above the premum offered,.e. yes, yes. The ntal bd ( 0 ) equals zero and mples no prce dfference between the apple the respondent just tasted and other apples. The second bd s contngent upon the response to the frst bd. It wll be a dscount bd ( D ), f the respondent answers she/he would not buy the apples at ther usual prce. If the respondent answers that she/he would buy the apples at ther usual prce, t becomes a premum bd ( P ). The sequence of questons solates the range n whch the respondent s true WTP for eatng qualty n apples les. The second bd, D or P, n conjuncton wth the response to the ntal preference decson, allows an upper bound and a lower bound to be placed on the respondent s unobservable true WTP. 1 There s a lterature on the approprate number of teratons to nclude n the bddng procedures used n the CVM. Cameron and Quggn (1994) evdenced the problem of anchorng/startng pont bas wth teratons of bds. There s some bas wth the double-bounded model, prmarly due to nconsstences whch may be present between the consumers frst and subsequent bds (Hanemann and Kannnen, 1999). The beneft n effcency from addtonal bd must be weghed aganst ths possble bas. 11

22 Let WTP denote an ndvdual s WTP (bd functon) for the tasted apple. The followng dscrete outcomes (D g ) of the bddng process are Group D g 1 = 3 4 WTP D 0 P < WTP D WTP < WTP < P 0 (.1) Respondents who ndcated they requre no dscount and would pay the premum prce P fall nto the fourth group (D 4 ). Those who ndcated they requre no dscount and would pay a premum of less than P fall nto the thrd group (D 3 ). Respondents who requred a dscount greater than or equal to D fall nto the second group (D ). Fnally, the frst group (D 1 ) contans respondents ndcatng the lowest WTP. Consumers n ths group are not wllng to purchase the tasted apple at the dscount offered. The WTP functon for the tasted apple for ndvdual s specfed as WTP = ε for = 1,,, n (.) where represents a vector of eplanatory varables such as consumers demographcs and consumpton. The varableε s an error term, whch captures unmeasured characterstcs and s assumed to follow a cumulatve dstrbuton F wth mean 0 and 1

23 13 varance σ. The fnal bd that a respondent reaches s represented by. In order to be more effectve n elctng consumers true WTP, dfferent prces, hgher or lower than the ntal prce contngent on the frst response, were offered to respondents. For eample, $1.19, $1.9 and $1.49 were randomly assgned to consumers who responded affrmatvely to the ntal prce, $0.99 per pound for Gala apples. The parameters, are unknown and need to be estmated, as well as the ntercept. As for, t s natural to epect lower wllngness to pay assocated wth hgher bds and hgher wllngness to pay assocated wth lower bds, thus a negatve relatonshp. The probabltes for the above WTP choce groups can be obtaned as: = = = = = = = = ) ~ ~ ( ~ 1 4) Prob(Y ) ~ ~ ( ~ ) ~ ~ ~ ( 3) Prob(Y ) ~ ~ ( ~ ) ~ ~ ( ~ ) Prob(Y ) ~ ~ ( ~ 1) Prob(Y F F F F F F P I P D I D (.3) Note that the tldes ndcate that the coeffcents are estmated parameters. Consequently, the log lkelhood functon s structured as: [ ] [ ] [ ] = = = = = P Y I P Y D I Y D Y F I F F I F F I F I LnL ) ~ ~ ~ ( ln 1 ) ~ ~ ~ ( ) ~ ~ ~ ( ln ) ~ ~ ~ ( ) ~ ~ ~ ( ln ) ~ ~ ~ ( ln (.4)

24 where I = s an ndcator functon for the occurrence of Y = j ( j =1,, 3, 4), and Y j subscrpt denotes the th ndvdual observaton. We assume the error term follows a cumulatve logstc dstrbuton. The ntercept and the slope coeffcent n (.) can be estmated by settng = 0. Then, the mean WTP s calculated as ~ ~, whch also serves as the base value for evaluatng margnal effects of the eplanatory varables. The margnal effect of an eplanatory varable s essentally the dfference between when the parameter estmate s added to the ntercept (base) and when t s not: ~ ~ ~ ~ Margnal Effect of ~ k ~ ~ ~ k k = =. (.5) Mamum lkelhood s employed as the method of estmaton and an optmzaton program s performed n GAUSS. III. Data The data was collected through a consumer tastng survey usng Gala and Red Delcous apples conducted at an outsde publc venue, the Portland (Oregon) Saturday Market n Aprl 004. The tastngs and surveys occurred over two days, and on each day only samples of a sngle varety were dstrbuted to partcpants. Each partcpant tasted slces from only one apple. Partcpants were nstructed to taste the apple slces and respond to sensory questons regardng that apple. Partcpants were also asked about 14

25 ther purchase and consumpton habts and preferences for apples and demographc questons. Contngent valuaton questons were asked n conjuncton wth the taste tests. Overall, there were 487 responses from the Gala apple tastngs and 90 responses from the Red Delcous tastngs. All the responses were collected usng ballots on tablet and laptop computers equpped wth data collecton software. As presented n Table.1, the majorty of the survey respondents for Gala were female (59.8%), as were the majorty of the respondents for Red Delcous (58.6%). Women are over-represented n the eperment, but ths s not a concern snce a greater proporton of women do the household shoppng. Among the seven age categores, ages 5 to 34 have the hghest percentage of respondents for both Gala (1.1%) and Red Delcous (3.4%). Other age groups all have a consderable share ecept for ages 65 and above, whch only capture 4.7% of the respondents for Gala and.1% of the respondents for Red Delcous. Ths s comparable to the general populaton of Portland. In terms of formal educaton, respondents wth a 4-year college degree accounted for the hghest percent of the respondents for both Gala (9.8%) and Red Delcous (3.4%). The percentage of Gala respondents wth a 4-year degree s hgh compared to the general populaton of Portland wth 1.3% (US Census, 005). In the Gala survey, 1.8% reported educaton level as hgh school, 17% reported as -year college or techncal degree, 19.90% reported as advanced degree, and 11.5% declned to answer. Among the Red Delcous respondents,.80% of them reported educaton level as hgh school,.8% of them reported as -year college degree, 16.% of them reported as advanced degree, and 14.80% of them declned to answer. 15

26 Respondents were asked to place themselves n the followng household ncome groups: less than $0,000 (wth 18.5% and 15.5% of the Gala and Red respondents, respectvely), $0,000 to $39,999 (wth 15.6% and.1%, respectvely), $40,000 to $59,999 (wth 13.6% and 19.7%, respectvely), $60,000 to $79,999 (wth 1.5% and 9.7%, respectvely), $80,000 to $99,999 (wth 8.4% and 5.5%, respectvely), and greater than $100,000 (wth 14.6% and 13.1%, respectvely). The ncome responses are comparable to the general populaton of Portland. The major ethncty group was Caucasan, whch accounts for 77% of the Gala survey respondents and 70% of the Red Delcous respondents. Ths s comparable to the general populaton of Portland, whch s 79.5% Caucasan but ths percentage ncludes Hspanc. Respondents were also asked about ther atttudes toward apple consumpton and purchase, as well as ther tastng preferences. Consumer responses are summarzed n Table.. Partcpants were frst asked to rate degree of lkng or hedoncs on a 10 centmeter contnuous scale anchored wth 0 Dslke Etremely, 5 Nether Lke nor Dslke, and 10 Lke Etremely. They responded generally postvely to the apple samples they tasted. The mean of overall lkng s 7.0 for Gala and 6.8 for Red Delcous. Most of the respondents agreed that the frmness and sweetness of both apple samples were acceptable. For Galas, 79.7% of the respondents rated acceptable on frmness, and 83.0% of the respondents for Gala rated acceptable on sweetness. Whle for Red Delcous, 77.% of the respondents rated acceptable on frmness and 86.% of the respondents rated acceptable on sweetness. An overwhelmngly large porton of those 16

27 who dd not accept the frmness or sweetness of the samples stated that the apples were not frm enough or not sweet enough. The majorty of the respondents for Gala (57.7%) and Red Delcous (59.0%) were wllng to pay $0.99 per pound for the apples. Ths s also the mode response amount that respondents report that they usually pay for apples for both Gala (18.5%) and Red Delcous (18.3%). The dstrbuton of responses to the bds for Gala and Red Delcous are avalable n Tables.3 and.4, respectvely. In response to the queston on apple eatng frequency, a pluralty of respondents ndcated that they eat apples more than once a week for both Gala (39.8%) and Red Delcous (33.4%). The respondents were also asked about choce of buyng organc apples. The greater part of respondents for both Gala (67.1%) and Red Delcous (66.6%) do not buy organc apples. IV. Emprcal Model A sngle model for both cultvars of apples s estmated. ased on equaton (.), the model wth both cultvars s epressed as follows. WTP= D D ε = 1,,, n (.6) * 1 1 R R where D R s an ndcator varable for Red Delcous, takng the value of 1 for Red Delcous and 0 otherwse. The astersk s an ndcaton of parameters correspondng to varables for Red Delcous. Frmness and Sweetness are both ndcator varables coded 17

28 as 1 when frmness or sweetness s acceptable. Organc ndcates that the respondent buys organc apples. Frequency s an ndcator varable coded as 1 when the eatng frequency s daly or more than once a week and as 0 otherwse. Gender s an ndcator varable that represents female f t s 1 and male f t s 0. Age s a sem-contnuous varable consstng of the mdponts of all age groups ecept for 65, the latter beng denoted by a dummy varable Senor. Educaton s an ndcator varable that takes the value of 1 f the hghest form of educaton s four-year degree or hgher and 0 otherwse. Snce a substantal number of respondents dd not reveal ther annual household ncome, an ordered logt model s mplemented to predct to whch ncome category each of them belongs by treatng other demographcs as eplanatory varables. Income s a semcontnuous varable correspondng to the scaled mdponts (dvded by 10,000) of all ncome groups that are under $100,000. Hgh Income s an ndcator varable representng observatons that belong to the ncome group above $100,000. Asan, Hspanc and OtherRace are all ndcator varables representng Asan, Hspanc, and other races that are not Caucasan, respectvely. The frst half of parameters n the model evaluates the effects on the WTP for the base case of Gala, whereas the other half evaluates the adjustments for Red Delcous. Essentally, the frst set of parameters reveal how the eplanatory varables affect the WTP for Gala and the sums of the correspondng parameters n both sets shed lght on how the same eplanatory varables affect the WTP for Red Delcous. Margnal effects of the eplanatory varables are calculated usng (.5). The standard errors of the margnal effects are obtaned from the asymptotc varance, calculated by followng the 18

29 delta method of dervng standard errors of non-lnear functon parameter estmates (Greene 003). The margnal effects of the Gala varables are as reported. Snce the Red Delcous varables are analogous to adjustments to the base case (Gala), the net margnal effect of a partcular varable k for Red Delcous s the sum of the margnal effects of * varable k for both cultvars,.e.. k k V. Results The estmated parameters, ther standard errors, and P-values are reported n Table.5, and the correspondng estmated margnal effects, ther standard errors and P-values are presented n Table.6. The probablty of consumers payng more for both cultvars sgnfcantly ncreases as frmness or sweetness moves from beng not acceptable to beng acceptable. However, the adjustments for Red Delcous reduce the postve mpact that frmness or sweetness has on WTP,.e. frmness or sweetness beng acceptable postvely affects the WTP for both cultvars but more so for Gala than for Red Delcous. Older respondents are less lkely to be wllng to pay a premum for both cultvars. It s an open research queston whether older consumers are generally less wllng to pay a premum for hgh qualty n food. It has been reported that post-baby boom generatons demand healther and more sophstcated foods and are wllng to pay for t (Ellson, 004). In the partcular case of apples, the elderly are more lkely to have reduced mastcaton ablty (Dan, Watanabe, and Kohyama 003), whch hnders apple consumpton. 19

30 Income s postvely assocated wth the WTP for both cultvars and to smlar degrees. Gender does not play an mportant role n eplanng the WTP for ether cultvar as a result of estmaton. It appears that buyng organc does not sgnfcantly affect WTP for these (non-organc) apples, and so s formal educaton level. Notce that Fnal d(r), Frequency(R) and Hspanc(R) all have smlar magntudes to ther counterparts, but wth opposte sgns, suggestng that the addtonal effects of Fnal d, Frequency and Hspanc mght have offset the base effects for both cultvars. The followng test s thus conducted: H * 0 k k = : 0 k =, 4, 1 (.7) The P-values of ths test for Fnal d, Frequency and Hspanc are 0.14, and 0.835, respectvely. Thus, t s confrmed that Fnal d, Frequency and Hspanc affect Gala only and have no effect on the WTP for Red Delcous. The fnal bd outcome mples that lower prces are more lkely to nduce consumers to choose Gala and ths s not the case for consumers who choose Red Delcous. Ths s nterestng from the perspectve of how habts affect demand for food products. Demand for a more tradtonal food product such as Red Delcous apples s less senstve to prce than a newer varety food product such as Galas. The probablty of payng more for Gala grows as apple-eatng frequency shfts from low to hgh, whch mples that the more frequently consumers eat apples the more lkely they are wllng to pay more for Gala. On the other hand, the probablty of payng more for Gala declnes from race beng 0

31 Caucasan to beng Hspanc, suggestng that Hspancs are less wllng to accept premum for Gala apples than Caucasans. Ths s an nterestng result because the Hspanc culture places a hgh value on tradton, and Red Delcous s a tradtonal varety. VI. Conclusons As the demand for hgh qualty and healther food contnues to ncrease, there are opportuntes to sell hgh-end fresh apples at hgher prces. Eatng qualty characterstcs such as sweetness, frmness, and jucness entce consumers to buy more apples through repeat purchases. There s a wdespread percepton that the tradtonal and stll popular Red Delcous varety has sacrfced eatng qualty for appearance as marketers and nurseres selected naturally occurrng strans, or mutatons, n response to the percepton that consumers want perfectly red apples. Now, there appears to be a general belef that persstent selecton for hgher color n the Red Delcous has reduced the nternal qualty, and ths has n turn affected consumpton. In response, many new varetes have been marketed such as Gala, raeburn, Pnk Lady, and Honeycrsp. Ths study utlzed ndvdual apple-level tastng data to estmate a predctve model of the relatonshp between sensory attrbutes and WTP for two cultvars of apples and tested whether these attrbutes play a dfferent role across cultvars. A doublebounded dchotomous choce model was employed to evaluate the effects, and the parameter estmates were obtaned through mamum lkelhood method. Frmness and sweetness both postvely affect consumers WTP, but more so for Gala than Red 1

32 Delcous. Older consumers are less lkely to be wllng to pay premums for apples. Apple-eatng frequency s postvely related to the WTP for Gala but not for Red Delcous. Meanwhle, beng Hspanc negatvely nfluences the WTP for Gala apples, but t does not affect WTP for Red Delcous. Other varables, such as gender, educaton level, and whether they buy organc food, do not add sgnfcant eplanatory power n estmatng consumers WTP. In order to take advantage of market opportuntes, the apple ndustry needs an accurate pcture of what customers want and should produce t. Results from ths study could be used n targetng consumers for specfc cultvars. For eample, Red Delcous apples could be a featured product n Hspanc markets, who value relatvely more ths tradtonal cultvar. In sum, the focus of the apple ndustry should be on market analyss and development, eatng qualty development, and reducton of low qualty frut n the marketplace.

33 References rennan, C.S., and Kur, V. (00). Relatonshp between sensory attrbutes, hdden attrbutes and prce n nfluencng consumer percepton of organc foods. Powell et al. (eds), UK Organc Research 00: Proceedngs of the COR Conference, Aberystwyth, pp Cameron, T. and Quggn, J. (1994). Estmaton usng contngent valuaton data from a dchotomous choce wth follow up questonnare. Journal of Envronmental Economcs and Management, 7, Combrs, P., Lecocq, S., and Vsser, M. (1997). Estmaton of a hedonc prce equaton for ordeau wne: does qualty matter? The Economc Journal, 107, Carew, R. (000). A hedonc analyss of apple prces and product qualty characterstcs n rtsh Columba. Canadan Journal of Agrcultural Economcs, 48, Dan H., Watanabe, H. and Kohyama, K. (003). Effect of sample thckness on the bte force for apples. Journal of Teture Studes. 34, Ellson, S. As shoppers grow fncky, bg food has bg problems. Wall Street Journal, May 1, 004, page A1. 3

34 Foster, P Sensory Research. < Greene, W.H. (003). Models for dscrete choce. Econometrc Analyss. Ffth Edton. Prentce Hall. Upper Saddle Rver, New Jersey. pp Grunert, K.G., Lahteenmak, L., Ueland, O., and Astrom, A. (004). Atttudes towards the use of GMOs n food producton and ther mpact on buyng ntenton: The role of postve sensory eperence. Agrbusness, 0, Hanemann, W.M. and Kannnen,. (1999). The statstcal analyss of dscrete-response CV data. In ateman, I.J. and Wlls, K.G. (Eds.) Valung envronmental preferences: theory and practce of the contngent valuaton method n the US, EU, and developng countres. Oford, NY: Oford Unversty Press, pp Hanemann, W.M., Looms, J., and Kannnen,.J. (1991). Statstcal effcent of doublebounded dchotomous choce contngent valuaton. Amercan Journal of Agrcultural Economcs, 73, Kajkawa, C. (1998). Qualty level and prce n the Japanese apple market. Agrbusness, 14,

35 Maynard, L.J. and Frankln, S.T. (003). Functonal foods as a value-added strategy: The commercal potental of cancer-fghtng dary products. Revew of Agrcultural Economcs, 5, Mller, S, Hampson, C., McNew, R., erkett, L., rown, S., Clements, J., Crassweller, R., Garca, E., Greene, D., and Greene, G. (005). Performance of apple cultvars n the 1995 NE-183 Regonal Project Plantng: III. frut sensory characterstcs. Journal of the Amercan Pomologcal Socety, 59, Wnfree, J.A. and McCluskey, J.J. (005). Collectve reputaton and qualty. Amercan Journal of Agrcultural Economcs 87, U.S. Census ureau, Quck Tables

36 Table.1: Summary Statstcs for Demographc Varables Varable Descrpton and Codng Dstrbuton Gala Red Delcous Gender 1 Female 59.80% 58.60% 0 Male 40.0% 41.40% Age % 14.80% % 17.60% % 3.40% % 13.40% % 18.60% % 10.00% %.10% Educaton 1 Hgh School 1.80%.80% -Year College or Techncal Degree 17.00%.80% 3 4-Year College Degree 9.80% 3.40% 4 Advanced Degree 19.90% 16.0% 5 Choose not to Answer 11.50% 14.80% Annual Household Income 1 Less than $0, % 15.50% $0,000-39, %.10% 3 $40,000-59, % 19.70% 4 $60,000-79, % 9.70% 5 $80,000-99, % 5.50% 6 Greater than $100, % 13.10% 7 Choose not to Answer 16.80% 14.50% Race 1 Asan and Other Pacfc Islander 7.40% 6.0% lack 0.80% 1.40% 3 Caucasan, Whte, Non-Hspanc 77.00% 70.00% 4 Hspanc.90% 7.60% 5 Natve Amercan 1.80%.80% 6 Some other Race/Ethncty 1.80% 1.40% 7 Choose not to Answer 8.0% 10.70% 6

37 Table.: Summary Statstcs for Consumer Responses Varable Scale of Lkng Descrpton and Codng Overall Lkng on a 10cm Contnuous Lne Scale Dstrbuton Gala Red Delcous Mean = 6.96 Mean = 6.80 Std. =.17 Std =.55 Frmness Acceptablty 1 Frmness s Acceptable 79.70% 77.0% 0 Frmness s Not Acceptable 0.30%.80% (ranch) 1 Too Frm.00% 4.50% 0 Not Frm Enough 98.00% 95.5% Sweetness Acceptablty 1 Sweetness s Acceptable 83.00% 86.0% 0 Sweetness s Not Acceptable 17.00% 13.80% (ranch) 1 Too Sweet 8.40% 15.00% 0 Not Sweet Enough 91.60% 85.00% uy for $0.99/lb 1 Yes 57.70% 59.00% 0 No 4.30% 41.00% $/lb Usually Pay Gala Red Delcous 1 Less than $ Less than $ % 6.90% $0.79 $ % 4.10% 3 $ $ % 6.0% 4 $ $ % 7.0% 5 $ $ % 10.70% 6 $ $ % 1.40% 7 $1.9 7 $ % 18.30% 8 $ $ % 6.90% 9 $ $ % 6.90% 10 $ $ % 4.10% 11 More than $ More than $ % 3.40% 1 Do not Know 1 Do not Know 14.60% 1.80% uy Organc 1 Yes 3.90% 33.40% 0 No 67.10% 66.60% Eatng Frequency 1 Daly 19.10% 16.0% More than Once a Week 39.80% 33.40% 3 Once a Week 16.80% 3.40% 4 Every Few Weeks 15.80% 17.60% 5 Once a Month 4.90% 4.80% 6 Less than Once a Month 3.10% 3.80% 7 Never 0.40% 0.70% 7

38 Table.3: Range and Dstrbuton of Response Rates to the Randomly Assgned Premums Premum (Prces) Gala Red Delcous Yes to Premum $ % 10.69% $ % 8.6% $ % 7.4% No to Premum 30.04% 3.41% Total 57.8% 58.97% 8

39 Table.4: Range and Dstrbuton of Response Rates to the Randomly Assgned Dscounts Dscount (Prces) Gala Red Delcous Yes to Dscount $ % 3.45% $ % 6.90% $ % 7.93% No to Dscount 0.99%.76% Total 4.18% 41.03% 9

40 Table.5: Parameter Estmates of WTP for the Consumer Model Parameter Descrpton Estmate Std Error z-test P-value ~ 1 Intercept ~ 1 Fnal d Frmness Sweetness Organc Frequency Gender Age Senor Educaton Income Hgh Income Asan Hspanc Other Races ~ Intercept(R) ~ Fnal d(r) * 1 * Frmness(R) Sweetness(R) * 3 Organc(R) * 4 Frequency(R) * 5 Gender(R) * 6 Age(R) * 7 Senor(R) * 8 Educaton(R) * 9 Income(R) * 10 Hgh Income (R) * 11 * 1 Asan(R) Hspanc(R) * 13 Other Races(R) (Note that (R) abbrevates for Red Delcous and ndcates that the parameter estmate s for Red Delcous.) 30

41 Table.6: Margnal Effects of the Parameters Parameter Descrpton Margnal Effect Stad Error P-value ~ Intercept 1 ~ Fnal d 1 1 Frmness Sweetness Organc Frequency Gender Age Old Educaton Income Hgh Income Asan Hspanc Other Races ~ Intercept(R) ~ Fnal d(r) * 1 * Frmness(R) Sweetness(R) * 3 Organc(R) * 4 Frequency(R) * 5 Gender(R) * 6 Age(R) * 7 Old(R) * 8 Educaton(R) * 9 Income(R) * 10 Hgh Income (R) * 11 * 1 Asan(R) Hspanc(R) * 13 Other Races(R)

42 CHAPTER 3 COMPARISON ETWEEN THE CONSUMER MODEL AND THE INDUSTRY MODEL I. Instrumental Measurements of Apples The Gala and Red Delcous apples used n the tastng survey were obtaned from several packnghouses and pre-sorted usng the non-destructve laboratory frmness nstruments, Aweta Acoustcal Frmness Sensor (Aweta), Greefa Internal Frmness Devce (Greefa) and Snclar Internal Qualty frmness tester (SIQ). At Stemlt growers n Wenatchee WA, Gala apples were tested for soluble solds (SS) n percentage br wth Near Infrared Sorter (NIR) and sorted as low SS (0% to 1.9%), medum SS (13.0% to 14.0%) and hgh SS (above 14.1%). Then, half of the Gala apples and 15 boes of Red Delcous apples were left at room temperature whle the rest of the apples were stored n cold room. Later, all the apples were sorted as hgh frmness and low frmness accordng to Greefa frmness levels. Hgh frmness apples were kept n cold room whle low frmness apples were left at room temperature to provde less frm frut for consumer ratngs. Just pror to testng, apples were tested for frmness and then cut n two, one half for taste evaluaton, and the other half for destructve testng for SS. 3

43 II. The Destructve Industry Model The last two nstrumental measurements for frmness and sweetness were recorded and are used n a destructve ndustry model by replacng the subjectve varables Frmness and Sweetness n the consumer model (.6) n Chapter. The rest of the varables n (.6) reman ntact. Eght observatons are ecluded from the estmaton due to the lack of recorded SS measurements. The parameter estmates and ther standard errors, z-tests, and P-values are shown n Table 3.1. Margnal effects of the eplanatory varables and ther standard error and P-values are reported n Table 3.. III. Conclusons Clearly from comparng the estmaton results n Tables.5 and 3.1, the major dfference s that the physcal measurement of sweetness s not sgnfcant as an nfluental factor on consumers WTP n the ndustry model whle the subjectve varable sweetness s hghly sgnfcant n the consumer model. Ths s most lkely due to the subjectve nature of sweetness evaluaton so that SS measurements are not necessarly lnked to consumers satsfacton over sweetness and hence ther WTP. Even though the physcal measurement of frmness s sgnfcant n the ndustry model, ts mpact on WTP s much less compared to that of the subjectve varable frmness n the consumer model. The reason for ths les n the same ssue as what was just dscussed for the evaluaton of sweetness. Consumers are a heterogeneous group, and not only wll ther tastes and preferences vary wdely, but ther perceptons of qualty wll change relatve to the 33

44 stuaton, whch creates dffculty for the ndustry as t searches for fed quanttatve characterstcs that wll be most wdely accepted. 34

45 Table 3.1: Parameter Estmates of WTP for the Industry Model Varable Standard Parameter Estmate z-test P-value Descrpton Error ~ Intercept ~ Fnal d FTA SS Organc Frequency Gender Age Senor Educaton Income Hgh Income Asan Hspanc Other Races ~ Intercept(R) ~ Fnal d(r) * 1 * FTA(R) SS(R) * 3 Organc(R) * 4 Frequency(R) * 5 Gender(R) * 6 Age(R) * 7 Senor(R) * 8 Educaton(R) * 9 Income(R) * 10 Hgh Income (R) * 11 * 1 Asan(R) Hspanc(R) * 13 Other Races(R) (Note that (R) abbrevates for Red Delcous and ndcates that the parameter estmate s for Red Delcous.) 35

46 Varable Parameter Descrpton ~ 1 Intercept ~ Fnal d 1 1 Table 3.: Margnal Effects of the Parameters Margnal Effect Standard Error P-value FTA SS Organc Frequency Gender Age Old Educaton Income Hgh Income Asan Hspanc Other Races ~ Intercept(R) ~ Fnal d(r) * 1 * FTA(R) SS(R) * 3 Organc(R) * 4 Frequency(R) * 5 Gender(R) * 6 Age(R) * 7 Old(R) * 8 Educaton(R) * 9 Income(R) * 10 Hgh Income (R) * 11 * 1 Asan(R) Hspanc(R) * 13 Other Races(R)

47 CHAPTER 4 COMPARING SENSORY RESPONSE IN CONSUMERS WILLINGNESS TO PAY FOR CHERRYIES: A MIXED MODEL APPROACH I. Introducton Qualty s a major marketng factor affectng consumer preferences, the prce of the product, and the demand for alternatve products (Sloof, et al. 1996). The qualty of fresh sweet cherres s assocated wth attrbutes such as taste, color, sze, soluble solds, frmness, and teture (Roper, et al. 1987; Dolenc and Stampar 1998). However, n assessng consumer preferences for a food product such as cherres, ntrnsc factors such as taste, teture and flavor are typcally not ncluded n the analyss. Ths s unfortunate snce consumers make purchase decsons based on ther nternal attrbutes such as taste and flavor (Mller et al. 005). rennan and Kur (00) fnd that once consumers develop a preference for a product based on sensory characterstcs, t s unlkely for them to change. Thus, sensory characterstcs have a major nfluence on consumers epectatons of qualty and buyng habts. The Market for Cherres Not only have cherres been a tradtonal frut crop for centures, they also provde a consderable quantty of antodants and other healthy nutrents. Research shows the connecton between cherry consumpton and health benefts such as easng the 37