Ryan C. Bosworth a, Deevon Bailey a & Kynda R. Curtis a a Department of Applied Economics, Utah State University, Logan,

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1 This article was downloaded by: [Utah State University Libraries] On: 20 March 2015, At: 12:21 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: Registered office: Mortimer House, Mortimer Street, London W1T 3JH, UK Journal of Food Products Marketing Publication details, including instructions for authors and subscription information: Consumer Willingness to Pay for Local Designations: Brand Effects and Heterogeneity at the Retail Level Ryan C. Bosworth a, Deevon Bailey a & Kynda R. Curtis a a Department of Applied Economics, Utah State University, Logan, Utah, USA Published online: 15 Dec Click for updates To cite this article: Ryan C. Bosworth, Deevon Bailey & Kynda R. Curtis (2015) Consumer Willingness to Pay for Local Designations: Brand Effects and Heterogeneity at the Retail Level, Journal of Food Products Marketing, 21:3, , DOI: / To link to this article: PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the Content ) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &

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3 Journal of Food Products Marketing, 21: , 2015 Copyright Taylor & Francis Group, LLC ISSN: print/ online DOI: / Consumer Willingness to Pay for Local Designations: Brand Effects and Heterogeneity at the Retail Level RYAN C. BOSWORTH, DEEVON BAILEY, and KYNDA R. CURTIS Department of Applied Economics, Utah State University, Logan, Utah, USA This study examines consumer willingness to pay (WTP) for packaged ice cream with local, private label, and national brands at the retail level. Data were collected through in-person surveys conducted at retail grocery outlets in Utah in Study results suggest that shoppers are willing to pay significantly more for the national and local brands over the retailer s private label brand. In fact, the local brand with the state-sponsored designation (Utah s Own) had a WTP equal to that of the national brand. The use of local designations or labels is important as shoppers were not willing to pay a premium for the local brands in absence of the locally produced or state-sponsored designation label. Additionally, consumer WTP for different brands and the degree of response to local designations varies substantially by consumer attributes. These differences suggest that locally designated products do not compete directly with private label products in the market. This study provides clear evidence of the value of state-sponsored designations, as well as locally produced labeling for food products marketed in a traditional retail setting. KEYWORDS brands, choice experiment, consumer willingness to pay, ice cream, state-sponsored designations INTRODUCTION State-sponsored designations in the United States are a common method used to promote agricultural food products produced within state Senior authorship is equally shared by the three authors. Address correspondence to Kynda R. Curtis, Department of Applied Economics, 4835 Old Main Hill, Utah State University, Logan, UT 84322, USA. kynda.curtis@usu.edu 274

4 Brand Effects and Heterogeneity at the Retail Level 275 boundaries. At some point, each state has had such a promotion program for its agricultural products. However, state-sponsored designations have proliferated rapidly since 2001 in response to the buy local food movement (Darby et al., 2008; Onken & Bernard, 2010). Although state promotion programs have typically encouraged food retailers to provide shelf space for locally produced foods, retailers have also independently recognized the growing importance of locally produced foods to their overall marketing strategy. This is evidenced by a recent national survey of retail food shoppers indicating that 86% of respondents believed that it was either very important or somewhat important for retail food stores to carry local produce and other locally produced packaged foods (National Grocers Association, 2011). As a result, retailers are seeking methods to communicate to consumers that they have locally produced foods in their stores and state-sponsored designations could potentially be an important method for retailers to use (Clifford, 2010; Kroger, 2012; Whole Foods, 2012; Wild Oats Market, 2012; Martinez et al., 2010). Retailer strategies for locally produced foods are complicated by the fact that these items may compete with the retailers own private label brands as well as with the national brands they carry. For example, national brand manufacturers typically provide their own product promotion and advertising, and many consumers enter retail food stores expecting to see these brands. As a result, locally produced foods, private label brands, and national brands compete for the same shelf space at the retail level. Retailer incentives are to carry products with state-sponsored or locally produced designations if they increase sales or add value. If locally produced foods are close substitutes or even preferred to private label or national brands by some consumers, questions arise about appropriate retail pricing strategies relating to these different brands and local designations. Consequently, evidence of consumer willingness-to-pay (WTP) for products with these designations is a central consideration for state-sponsored programs in terms of their ability to successfully persuade retailers to carry foods with a state-sponsored designation. The food retailer definition of the term local is generally broader than that understood by most consumers (Schmit, 2008). Retailer definitions vary from food produced (1) within 100 miles to a few hundred miles of the point of sale, (2) within a day s drive of point of sale, (3) in the same state, or (4) in states adjoining the state where the food is sold (Schmit, 2008; Whole Foods, 2012). In contrast, a Hartman Group (2008) survey reported that 50% of consumers understood the term local to mean produced within 100 miles of the point of purchase, while another 37% of those surveyed believed that it meant produced in the same state. The economic incentives for retailers to extend geographic boundaries for locally produced foods beyond what is understood to be local by most consumers is clear when one considers that many farmers targeting the buy

5 276 R. C. Bosworth et al. local market (usually with produce items) are small, seasonal operations (Martinez et al., 2010). On average, extending the geographic boundaries for local products better meets retailers sizing (volume) and timing requirements than procuring locally produced foods in smaller, more localized areas. The disconnection between consumer and retailer definitions of locally produced foods presents both opportunities and challenges for farmers, food purveyors, and consumers. Loose definitions for locally produced foods meet retailer needs but have the potential for reducing the value of local designations if consumer expectations are unmet. State-sponsored designations are one potential method for providing a clear definition of locally produced foods for all parties. This depends, of course, on whether or not consumers value (are WTP) for these designations. This study examines consumer WTP for four ice cream brands, one with a state-sponsored designation in this case, Utah s Own, 1 one with a locally produced label, one private label brand, and one national brand. To our knowledge, this is the first study conducted using choice experiments considering these combinations with a non-produce product at the retail level. Data were collected through in-store surveys at five retail grocery outlets in Utah. The survey included choice experiments designed to accurately reflect a real-world shopping experience. The results suggest that national brands and local designations were important in terms of shoppers WTP for ice cream, and both local brands were able to compete well with the national brand in terms of WTP. However, additional shopper willingness to pay did not significantly differ between the state-sponsored and locally produced designations. Moreover, results show that the magnitude of the effects of these local designations varies substantially by shopper characteristics. The following sections describe past work in this area, methods and data used, and these results in greater detail. PREVIOUS WORK A common approach to research examining the demand for food products is to estimate the marginal addition to total value of each of the product s different attributes (Lancaster, 1966). A significant amount of interest in the geographic origin of food products using this approach has emerged in the literature. Communicating the geographic location of food production is an important marketing strategy in Europe. The European Union (EU) has granted legal protection for the names of food products closely identified 1 The Utah s Own program was launched in 2001 and is similar to many other SSDs; see Onken and Bernard (2010) for a comprehensive listing of SSDs. Currently, 300 Utah-based growers and firms are Utah s Own members (Utah s Own, 2013). See for specific requirements for entities to participate in the Utah s Own program.

6 Brand Effects and Heterogeneity at the Retail Level 277 with where they were produced or methods used in production through the European Union Protected Designation of Origin (PDO) or Protected Geographical Designation (PGI). Research indicates that these EU protections are recognized by consumers and are capable of adding value to food products. Examples include such products as Champagne and Bordeaux for wine and Parma ham and Galician veal for meat (Loureiro & McCluskey, 2000). Examples of similar geographic designations also exist in the United States and include Washington spples, Idaho potatoes, and Florida citrus (McCluskey & Loureiro, 2003). The reputation of PDOs and PGIs are built principally on perceived product quality. These designations, while geographically based, relate to production or process but do not attempt to define markets based on geographical locations. Contrast this to the recent intense interest in the United States and Europe in buying locally produced foods, where the principal emphasis is the close proximity of production and consumption. Statesponsored food marketing programs have likely contributed at some level to the surge in interest in locally produced foods in the United States. But other factors, such as environmental concerns (similar to the organic market), a degree of public resistance to corporate control of food markets, and a desire to support local farmers have also contributed to this interest(darbyetal., 2008; Voss, 2000; Onozaka, Nurse, & Thilmany-McFadden, 2010; Martinez et al., 2010). Consumers may also perceive locally produced foods as fresher, safer, and better tasting than other food products (Curtis & Cowee, 2011; Whole Foods, 2012). Evidence for growth in locally produced food market usually cites the increase in the number of farmers markets across the United States (400% from 1994 to 2011; USDA AMS, 2011) because these markets typically emphasize locally grown produce (Onken, Bernard, & Pesek, 2011). Food retailers have also seen growth in the demand for locally produced foods and some such as Whole Foods, the largest natural foods retailer in the United States have a stated commitment to offer locally produced foods to their customers (Whole Foods, 2012). They promote locally produced foods for their potential health and local economic benefits, including reduced environmental impact of food production and transportation, supporting local farmers and communities, and higher quality and flavor. State-Sponsored Designations versus Locally Produced Designations Questions persist regarding the effectiveness of state-sponsored designations in communicating value to local consumers. One early analysis undertaken by Patterson et al. (1999) found that the Arizona Grown labeling program had a minimal impact on increasing prices for Arizona produce. However, a study using conjoint analysis published in 2011 did find significant WTP for carrots and spinach labeled as Arizona Grown (Nganje, Hughner, & Lee, 2011).

7 278 R. C. Bosworth et al. These opposing results could be a function of differences in methodologies or market differences between 2011 and State-sponsored designations assume implicitly that state boundaries are the relevant demarcation for locally produced foods in the minds of utilitymaximizing consumers. However, Darby et al. (2008) found that while a random sample of Ohio consumers had a stated preference for locally produced foods, the same consumers had similar preferences for food whether it was labeled as Grown in Ohio or labeled as Grown Nearby. This suggests that many consumers in their survey failed to differentiate between state boundaries and the nearby area in their preferences for locally produced foods. These factors (questions about consumer demand, evidence of WTP, and identifying the relevant market for locally produced foods) suggest significant complexities must be managed to make state food promotional programs successful and sustainable. Although the results of this study are for a specific state-sponsored designation (Utah s Own), they provide important information about the nature of competition for a packaged product between national brands, private labels, locally produced foods, and statesponsored designations. This information should be helpful to researchers, retailers, and food marketing program managers trying to understand how these designations interact and compete or complement each other at the retail level. Locally Produced and State-Sponsored Designations versus Private Label and National Brands Private label brands are an important component of total sales for food retailers. While the market share for private label products is not publicly available, the number of consumers purchasing private label products increased from 18% in 2000 to 27% in 2011 (NPD Group, 2012; Volpe, 2011). Private label sales typically have higher margins than national brands, suggesting the incentive for retailers is to expand private label sales if possible (Sageworks, 2012). Average price differences between private label and national brands have also decreased over time (Volpe, 2011). As a result, national brand manufacturers are expected to aggressively seek to recapture market share (Steenkamp, Van Heerde, & Geyskens, 2010). If one superimposes the locally produced foods market on the increasingly competitive private label and national brand food product markets, a number of questions arise. First, can locally produced food products compete well against private label and national brand food products in a retail setting for products other than produce? The market groundswell for locally produced foods suggests they can. Second, how do locally produced foods best communicate their localness in a retail setting? Local food producers could do this in a number of ways, including (1) establishing and promoting

8 Brand Effects and Heterogeneity at the Retail Level 279 a brand to local consumers to inform them of the product s attributes including local origin, (2) simply labeling the product as locally produced, or (3) using a state-sponsored label/designation for the product. Finally, what are retailers best strategies for promoting and pricing relative to products with state-sponsored designations and locally produced labels? The research reporting consumer WTP for state-sponsored and locally produced designations focuses primarily on farmers markets and other direct-to-consumer outlets, but food retailing conditions are distinctly different from farmers markets. These include somewhat different demographics among shoppers, such as lower income on average, a larger set of food purchase choices, and the ability to easily do in-store price comparisons (National Grocers Association, 2011). The current study examines consumer preferences and WTP for a commonly used product ice cream at the retail level, thus filling a void in the current literature on consumer WTP for locally labeled food products. METHODOLOGY This study was undertaken in cooperation with the Utah Department of Agriculture and Food (UDAF; management entity for the Utah s Own program) and a food retailer. A survey was developed and then administered to shoppers at five separate retail food stores located in northern Utah between Logan and Salt Lake City in June Survey participants (respondents) were selected on an intercept basis, and if they completed the survey, they received a coupon for a free half-gallon of ice cream. The first six questions of the survey provided the choice sets that are the foundation of the WTP analysis. The other survey questions ascertained the respondents familiarity with the Utah s Own program, if they had purchased Utah s Own food products, and, if so, what Utah s Own products they could recall purchasing. The respondents were also asked to provide basic demographic information such as gender, age, ethnicity, educational level, household characteristics, and income level. Finally, the respondents were questioned regarding their perceptions of Utah s Own products by selecting from a number of possibilities, such as quality, price, supporting local farmers, and so forth. Ice cream was used as the target product for the survey because ice cream is a well-known and well-understood product, and ice cream brands in each of the four categories under examination were sold in each of the five stores (Utah s Own, locally produced, private label, and national brand). Also, ice cream prices can fluctuate considerably in a short period of time and fluctuate independently of the prices of other brands. This phenomenon is based primarily on promotional activity that often affects a single brand at a time. As a result, respondents were expected to have experience with fluctuating prices as well as substantially different prices among brands at

9 280 R. C. Bosworth et al. the same time. Our survey methodology incorporates these features, thus making the choice experiments very realistic to respondents. Two relatively well-known local brands of ice cream were used in the analysis. One ice cream brand (Farr s) has a Utah s Own designation, whereas the other (Russell s) does not. Farr s ice cream is a certified Utah s Own product and qualifies for this official designation. Russell s ice cream is produced in Utah but does not currently qualify for the Utah s Own designation. Hence, this analysis examines and compares the value of adding the Utah s Own designation for the Farr s product and a locally produced label for the Russell s product. The other two ice cream brands used for the analysis were a well-known private label, Western Family, and a wellknown national brand, Dreyer s. The survey questionnaire contained the choice experiment questions as well as questions about respondent characteristics, familiarity with Utah s Own products, and preferences for locally produced products. Choice Set Prices and Attributes Each choice set consisted of three alternatives: two different brands of ice cream at stated prices, and a neither alternative. By showing six choice sets, each respondent was offered choices for every possible combination of brands in the study (Western Family vs. Dreyer s, Western Family vs. Farr s, Western Family vs. Russell s, Dreyer s vs. Farr s, Dreyer s vs. Russell s, and Farr s vs. Russell s). The order in which these choices were presented to respondents and the order of brand placement left to right were randomized and also randomly distributed across respondents. One half of the surveys were randomly assigned the Utah s Own designation (Farr s designated as being Utah s Own), and one half were randomly assigned the locally produced designation (Russell s designated as being locally produced). Among completed surveys, 26% used the Utah s Own designation only, 25% used the locally produced designation only, 26% used both designations, and the remainder used neither designation (see Table 1). Other than the product brand labels and designations, the only other attribute in the survey choice sets was price. The distribution of prices was constructed to ensure a realistic survey design covering a range of plausible prices. Consultation with the retailer regarding pricing ranges across brands indicated that prices for a half-gallon of ice cream typically fluctuate between $3 and $7. The private label, Western Family, was typically less expensive than the other brands, and prices therefore ranged from $2 to $6 for Western Family. Given that typical grocery store prices end in 9, we rounded our prices down to the nearest price ending in 9 to add a more realistic feel to the choice sets. The resulting distribution of prices is shown in Table 2. Our choice sets are simple, with only price and brand

10 TABLE 1 Variable Distribution Brand Effects and Heterogeneity at the Retail Level 281 Variables Mean SD Min Max Brand Variables Western Family $4.03 $1.15 $1.99 $5.99 Dreyer s $5.01 $1.17 $2.99 $6.99 Farr s $5.01 $1.17 $2.99 $6.99 Russell s $5.00 $1.13 $2.99 $6.99 Designation Variables a Both Designations 26% 44% 0 1 Neither Designation 23% 50% 0 1 Utah s Own Designation Only 26% 44% 0 1 Locally Produced Designation Only 25% 43% 0 1 a Both Designations means that Farr s was indicated in the choices presented to the respondents as being Utah s Own and that Russell s was indicated as being locally produced. Neither Designation means that in the choices presented to the respondents that Farr s was not indicated as being Utah s Own and Russell s was not indicated as being locally produced. The Utah s Own Designation Only means that in the choices presented to the respondents that Farr s was indicated to be a Utah s Own product but Russell s was not indicated as being locally produced. The Locally Produced Designation Only means that in the choices presented to the respondent that Farr s was not indicated as being Utah s Own but Russell s was indicated as being locally produced. TABLE 2 Survey Respondent Familiarity with Ice Cream Brands Level of Familiarity Farr s Russell s Western Family Dreyer s Never heard of this brand before 8.5% 10.9% 2.7% 2.7% Know about the brand but haven t 13.1% 24.7% 8.9% 10.0% purchased it before Purchased the brand once before 23.6% 25.9% 16.2% 25.5% Purchased the brand several times 40.2% 25.1% 39.0% 40.9% Purchase this brand frequently 14.7% 5.4% 33.2% 20.8% label attributes. This simplicity, combined with the fact that tastes and preferences over ice creams vary across consumers, enables us to use prices that are, by design, orthogonal to the brand attributes without sacrificing realism or efficiency in estimation. 2 2 For example, Rose and Bliemer (2009) noted that the enforcement of orthogonality as a design principle does not ensure against the production of behaviorally implausible choice situations because the levels of the attributes may be such that one alternative dominates the other alternatives. In such a situation, no information is gleaned from the choice, and the observations do not help estimate the relevant utility parameters. We also note that optimal or efficient survey design is largely an issue of statistical power. As further noted by Rose and Bliemer (2009, p. 612), Any design, even one with a poor or even random allocation of the attribute levels, will theoretically return statistically significant population parameters given a sufficiently large enough sample. Our large sample size and the strongly statistically significant results indicate sufficient statistical power for the purposes of our study. For more on optimal and efficient survey design, see Rose and Bliemer (2009) or Scarpa and Rose (2008).

11 282 R. C. Bosworth et al. Choice Experiment Model A standard random-utility framework was used (Train, 2003), where the choices indicated were assumed to provide the highest level of utility to the respondent among the alternatives. For example, a respondent may have been asked to choose between two half-gallons of ice cream, one indicated as Farr s at a price of $4.59, the other as Dreyer s at a price of $5.09, and a neither alternative. If the respondent made the decision to select Farr s ice cream, then one could assume that that choice would have provided the shopper with the most utility when faced with that particular choice. As a simple starting point, we assumed the unobserved or latent utility to respondent i of alternative j was a linear function of the attributes of the alternatives and an unobserved random component of utility: u ij = β Price j + δ X j + ε ij (1) The latent utility of respondent i for alternative j was denoted u ij. The coefficient β represented the marginal utility associated with paying for alternative j (note that β was expected to be negative). The quantity X j represented a vector of attributes describing alternative j, andδ represents the vector of associated marginal increments to utility associated with each attribute. In this model, each alternative was described completely by a price and set of indicators for brand and designation. Note that both Price j and the vector X j are equal to zero for the neither alternative. Random utility models, such as the one described above, can be estimated using maximum likelihood by assuming a distribution for the unobserved component of utility. Using the techniques described in Train (2003), we assumed the errors were distributed jointly normal and estimated the models with an alternative-specific multinomial probit model. This model has the advantage of being free from the independence of irrelevant alternatives assumption inherent in logit models. The probit-based model also permits us to employ an error structure that allows for cross-alternative heteroscedasticity and an unstructured cross-alternative correlation pattern. To account for the panel, or repeated-choice, nature of the data, we employed standard errors that were clustered at the respondent level. To illustrate our methodology, consider a simplified version of our choice sets. Suppose there were only two brands (Western Family and Farr s) and one designation (Utah s Own) that varied the label on Farr s. The vector X j would then consist of three variables, a constant for the omitted category (Western Family, in this case), a dummy variable for Farr s, and a dummy variable for the interaction between Farr s and the Utah s Own designation. 3 Representative utility would then be modeled as 3 An alternative estimation strategy would be to omit the constant and include an indicator variable for each brand. This produces identical results.

12 Brand Effects and Heterogeneity at the Retail Level 283 u ij = β Price j + δ 0 + δ 1 Farr s j + δ 2 Utah sown j Farr s j + ε ij (2) A test of the statistical significance of the parameter δ 2 indicates any meaningful difference to utility and choice probability when the Utah s Own designation was shown compared to simply being offered Farr s with no designation. As an important extension, we also allowed for a relaxation of the assumption of homogeneous preferences by allowing the parameters of the utility function to vary with respondent characteristics through the use of interaction terms. Willingness to Pay WTP for a particular alternative j can be estimated by solving for the price that would make the representative consumer with the indicated utility function indifferent between paying for alternative j at the stated price or not. Let this price be denoted Price j and set utility equal to zero: Solving for Price j yields: u ij = β Price j + δ X j = 0 (3) WTP for alternative j = Price j = δ X j β For example, total WTP for the omitted category (Western Family) in the example above would have been Price j = δ 0 β while WTP for Farr s (with the Utah s Own designation) would be Price j = δ 0 + δ 1 Farr s j + δ 2 Utah sown j LB1 j β = δ 0 + δ 1 + δ 2 β (4) (5) (6) Note that marginal WTP was calculated by taking the derivative of Price j with respect to a given characteristic. For example, marginal WTP for Farr s, relative to PL was Price Farr s = δ 1 β (7)

13 284 R. C. Bosworth et al. if the Utah s Own designation was 0 (Farr s presented in the choice without the Utah s Own designation) and Price Farr s = δ 1 + δ 2 β (8) if the Utah s Own designation were 1. Similarly, marginal WTP for Farr s with the Utah s Own designation, relative to Farr s without the designation, was Price Utah sown = Marginal WTP for Utah sownlabel = δ 2 β (9) Finally, confidence intervals for WTP and marginal WTP were calculated via the parametric bootstrap method described by Krinsky and Robb (1986, 1990), by taking a large number of draws from the estimated variancecovariance matrix of the parameter estimates. The means of this distribution were given by the parameter estimates, and the covariance was given by the variance covariance matrix of the parameter estimates. See Hole (2007) for a detailed discussion of how to construct confidence intervals for WTP estimates and Bosworth, Cameron, and DeShazo (2009) for an applied example. RESULTS OVERVIEW In this section, an overview of the survey results is provided, specifically a description of the respondent demographic information, a discussion of respondent awareness and perceptions of Utah s Own food products, and, finally, the results of the choice model and associated WTP analysis. Demographic Information and Respondent Characteristics About one half of the respondents (49%) indicated they purchase ice cream at least once per month, suggesting that, on average, participants were very familiar with ice cream as a product and buy it often. Table 2 indicates that Western Family was the most popular of the four brands in terms of reported purchase frequency, followed by Dreyer s, Farr s, and Russell s, respectively. Russell s was the least familiar brand among respondents, whereas Western Family and Dreyer s were the most familiar brands, as fewer than 3% stated that they were unfamiliar with the brand. Table 3 presents summary statistics for survey respondent demographics. When these are compared to the 2010 Federal Census for Utah, we see that the survey respondents were more likely to be Caucasian and more

14 Brand Effects and Heterogeneity at the Retail Level 285 TABLE 3 Survey Summary Statistics for Respondent Demographics Category 2010 U.S. Census Utah Survey Respondents Gender Female 49.8% 66.0% Male 50.2% 34.0% Principal Food Purchaser for the Household (Yes) 78.0% Ethnic Background African American 1.3% 0.4% American Indian 1.5% 0.4% Asian 2.2% 1.2% Caucasian 80.1% 86.9% Hawaiian/Pacific Islander 1.0% 0.4% Hispanic 13.2% 6.2% Not on list 2.7% Prefer not to answer 1.9% Education Level High School Graduate 90.6% 99.2% Bachelor s degree or higher 29.4% 42.1% Age b Persons Aged 65 or Above 9.2% 25.4% Percent of Household Under Age % 35.9% c Household Characteristics Number in Household Children in Household 1.27 Estimated Household Income $56,330 $57,104 a Source of U.S. Census Information at a Estimated as a weighted average of mid-points in the income price ranges in the survey. highly educated than Utah s general population. Hispanics are underrepresented in the sample as most refused to participate in the survey even when invited to participate by a surveyor fluent in Spanish. Over 80% of the respondents had lived in Utah for at least 10 years, and 25% were seniors. Additionally, 42% of survey respondents had a bachelor s degree or higher, indicating that the education level of the sample was higher than the Utah average. As is typical for survey studies conducted in retail food stores, the majority of survey respondents were female, and most of those interviewed were the primary food buyer for their household (Goodman, 2008). Attitudes Regarding Utah s Own Products and Preferences for Locally Produced Products Survey results indicated that almost 80% of the survey respondents were at least somewhat familiar with the Utah s Own program. The level of awareness of Utah s Own was similar to Onken and Bernard (2010), who found awareness rates of SSDs for five other states to be New Jersey (84.1%), Virginia (65.6%, Maryland (52.1%), Delaware (50.3%), and Pennsylvania (48.8%). Approximately one half said they had previously purchased a Utah s

15 286 R. C. Bosworth et al. TABLE 4 Attributes Identified by Survey Respondents as Associated with Utah s Own Food Products Attribute Percentage a Higher quality than other products 32.1% Same quality as other products 22.8% Lower quality than other products 1.5% Locally produced 63.3% Produced in Utah 77.2% Expensive 10.0% Inexpensive 14.7% Fresher than other products 47.9% Environmentally friendly (reduces carbon footprint) 18.1% Supports local farmers 71.0% Supports the local economy 71.0% a Percentages add to more than 100% due to respondent ability to select all that apply. Own food product, but significant confusion resulted when asked to name some of the Utah s Own food products they had purchased. Only about 60% could do so accurately; the remaining respondents referred to produce purchases they had made as being Utah s Own even though they did not actually carry the Utah s Own designation. Consequently, as with Darby et al. (2008), many respondents perceived locally produced and state-designated as one and the same. Over 70% of respondents indicated they believe the Utah s Own program helps support local farmers and the local economy (Table 4). Relatively few of the survey respondents said that Utah s Own was associated with reducing the carbon footprint (environmental connection to buying local). So although a portion of the population may buy locally grown food because of environmental concerns, over 80% of this sample associated the Utah s Own with qualities other than environmental issues. Choice Experiment Results Basic results for the random-utility model, estimated via a multinomial probit model, are shown in Table 5. These results include coefficient estimates and implied total or marginal WTP estimates with associated 90% confidence intervals. These models used 4,653 alternative observations (three alternatives per choice and six choices per person, less three missing observations). The first specification in Table 5, labeled brand effects, modeled consumer choice as a function of the most basic attributes, the brand and price of the offered ice creams. The negative coefficient on the price variable indicated, unsurprisingly, that higher-priced items were less likely to be chosen than lower-priced items. The omitted category, represented by the constant, was the private label, Western Family. The coefficient on the constant was positive and statistically significant in the brand effects model, indicating that

16 TABLE 5 Basic Model Coefficients and WTP Estimates for Brand and Designation Effects a Variables Brand Effects Median Lower 5% Upper 95% Designation Effects Median Lower 5% Upper 95% Price ( ) ( ) Constant $4.44 $3.97 $ $4.43 $3.96 $4.84 (8.176) (8.331) Dreyer s $0.84 $0.50 $ $0.84 $0.50 $1.15 (3.977) (4.010) Farr s $0.82 $0.51 $ $0.37 $0.01 $0.73 (4.192) (1.618)... Utah s Own $0.86 $0.38 $1.36 (2.992) Russell s $0.49 $0.18 $ $0.16 $0.24 $0.56 (2.471) (0.668)... Locally Produced $0.63 $0.16 $1.17 (2.123) Observations 4,653 4,653 Log-likelihood a T-stats are in parentheses. Models estimated via alternative-specific multinomial probit. The model allows for cross-alternative heteroscedasticity and crossalternative correlation in the latent variable errors and the standard errors are clustered by individual. Indicates statistically different than 0 at the 1% level. Indicates statistically different than 0 at the 5% level. Indicates statistically different than 0 at the 10% level. 287

17 288 R. C. Bosworth et al. consumers placed a positive value for the Western Family ice cream (relative to no ice cream). In the brand effects model, there were positive coefficients on the indicator variables for Dreyer s, Farr s, and Russell s. Because these coefficients were interpreted relative to the omitted category, they indicated that consumers have higher utility levels associated with these brands of ice cream than for Western Family (after controlling for price). The Brand Effects column in Table 5 shows the associated WTP results and indicates that respondents were indifferent between paying $4.44 for a half-gallon of Western Family and purchasing no ice cream (i.e., choosing the neither alternative). The same column indicated respondents were willing to pay a premium of $0.84 for Dreyer s, $0.82 for Farr s, and $0.49 for Russell s over Western Family. However, the results indicated by the designation effects model suggest that the values consumers attached to Farr s and Russell s were heavily influenced by whether or not the Utah s Own or locally produced designations, respectively, were shown. The designation effects model allowed the coefficient on Farr s (Russell s) to vary according to whether or not the Utah s Own (locally produced) designation was shown in the choice set. Interestingly, the coefficient on the interaction term between Farr s and the Utah s Own designation was strongly and significantly positive, suggesting that average respondent utility from Farr s was higher in the presence of the Utah s Own designation. One also observes that the base coefficient on Russell s is not statistically different from 0 in the absence of the locally produced designation, but it was statistically different from 0 when the designation was shown. These results suggest that, on average, respondents were not willing to pay a premium for Russell s (over Western Family) when the locally produced designation was not shown, but they were willing to pay a premium for Russell s when the designation was shown. The associated WTP results indicate that WTP for Farr s over Western Family was only about $0.37 without the Utah s Own designation shown. However, this premium increased by about $0.86 with the Utah s Own designation. WTP for Russell s was estimated to be $0.63 higher when the locally produced designation was shown. While the results from the brand effects and designation effects models provided a useful summary of average consumer preferences, an important extension of the model was to allow preferences to vary according to the attributes of the survey respondents. Although tables are not provided, the full results of these specifications are available from the authors upon request. These results show that preferences for brands and responses to the designations varied substantially with consumer attributes. For example, we find that although high-income individuals and seniors strongly preferred Farr s relative to Western Family, the preference seniors displayed for Farr s was almost completely absent when the Utah s Own designation was shown. This means that, ceteris paribus, seniors strongly preferred Farr s to Western Family when the Utah s Own designation was not shown but only mildly

18 Brand Effects and Heterogeneity at the Retail Level 289 preferred Farr s to Western Family when the Utah s Own designation was shown. This result may be explained by previous research showing that seniors are less likely than other consumers to adopt new technologies or try new foods (Pollak, 1970), especially in the case of consumer preferences for organically certified foods and local food purchased through farmers markets (Curtis & Cowee, 2011). Generally, deep preferences for previously consumed foods (Farr s) and reluctance to research or take risks involved in trying new products (such as may be suggested by adding the Utah s Own designation to an existing and well-known label) likely contributed to the results. We also found that senior males did not react positively to the locally produced designation, nor did high-income respondents with children. CONCLUSIONS This analysis compared consumer preferences and WTP at the retail level for a packaged, non-produce item across national, private label, locally produced, and state-sponsored designation brands. The results of this study suggest that local food designations such as the Utah s Own designation have real value in terms of WTP for consumers. The results indicated that, in general, brands were important signals to the respondents when buying ice cream, but when local brands were paired with a Utah s Own or locally produced designation, respondent WTP increased substantially for both products. Importantly, both Farr s and Russell s became more competitive with Dreyer s in terms of WTP when the local designations were provided. Communicating localness to consumers had value in terms of WTP, but no strong statistical evidence was found to indicate that the Utah s Own designation has more (or less) value than labeling the product as locally produced. An examination of the WTP estimates suggested a higher mean WTP for the Utah s Own than for the locally produced designation, but significant overlap in the bootstrapped distributions for WTP for the two designations indicated that the increase in WTP for both was not statistically different. While the results indicated that both geographic origin designations added value to ice cream products on average, there was substantial heterogeneity in consumer reactions to the designations. For example, senior respondents actually had a net negative WTP reaction to the Utah s Own designation on Farr s, and senior males also reacted negatively to the locally produced designation on Russell s. These findings suggest that locally labeled products and associated promotion strategies are probably best aimed at more affluent middle-aged consumers with few or no children. Study results also indicated that retailer strategies that incorporate local designations into their array of offered products, including packaged foods,

19 290 R. C. Bosworth et al. are a viable method for increasing overall sales as market segmentation exists across the different brands and designations. For example, private label consumers were more price-sensitive and had larger families. Finally, the study respondents were familiar with the state-designation program and understand the program emphasis on supporting local growers and the local economy. However, a clearer definition of local and how the program designation fits into this concept should be communicated to consumers. In short, the state-sponsored program adds value to the products that use it, but many consumers are unsure of what the designation actually means. ACKNOWLEDGMENTS Appreciation is expressed to the Utah Department of Agriculture and Food (UDAF) and Associated Food Stores for their assistance with this project. We also express our appreciation to several of our students for conducting the in-store interviews and entering data, as well as two anonymous reviewers for their helpful comments and suggestions. FUNDING This research was supported by the Utah Department of Agriculture and Food and the Utah Agricultural Experiment Station (UAES), Utah State University, and approved as journal paper number REFERENCES Bosworth, R., Cameron, T. A., & DeShazo, J. R. (2009). Demand for environmental policies to improve health: Evaluating community-level policy scenarios. Journal of Environmental Economics and Management, 57, Clifford, S. (2010, October 14). Wal-Mart to buy more local produce. New York Times. Retrieved from Curtis, K. R., & Cowee, M. W. (2011). Buying local: Diverging consumer motivations and concerns. Journal of Agribusiness, 29, Darby, K., Batte, M. T., Ernst, S., & Roe, B. (2008). Decomposing local: A conjoint analysis of locally-produced foods. American Journal of Agricultural Economics, 90, Goodman, J. (2008). Who does the grocery shopping, and when do they do it? Available at Hartman Group. (2008). Consumer understanding of buying local. Retrieved from

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