DETERMINATION OF THE SURCHARGE THAT CONSUMERS ARE WILLING TO PAY FOR AN ORGANIC CHEESE IN SPAIN

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1 DETERMINATION OF THE SURCHARGE THAT CONSUMERS ARE WILLING TO PAY FOR AN ORGANIC CHEESE IN SPAIN Bernabéu R., Olmeda M., Díaz M. 2 and Olvas R. 2 E.T.S. Ingeneros Agrónomos/Unversdad de Castlla-La Mancha, Campus Unverstaro, s/n, 0207 Albacete, Span 2 Insttuto de Desarrollo Regonal/Unversdad de Castlla-La Mancha, Campus Unverstaro, s/n, 0207 Albacete, Span Abstract Consumer requrements for preferably new, qualty products wth health guarantees are causng compettve adaptaton by agro-food busnesses. In ths sense, cheese-producng enterprses are mmersed n restructurng to adapt to the new scene. To assure the greatest possble success n ths process t s advsable to determne what the preferences of cheese consumers are. In searchng for the answer to ths queston, 420 surveys were made on regular food shoppers for at-home consumpton n the metropoltan area of Madrd (Span). Treatment of ths data conssted n usng the Conjont Analyss technque and maxmum wllngness to pay. Results show that the man dfferentatng element for cheese s orgn and the maxmum wllng to pay for an organc cheese wth respect a conventonal one s 5.42%. Keywords Consumer behavour, Organc, Food Marketng. I. INTRODUCTION Nevertheless, n spte of advances n modernzaton and nnovaton of dary ndustres, the consumpton of dary products and especally of cheese has reached a standstll. In Span n the year 2005, consumpton by Spanards was 7.5 kg per person per year, much lower than the European average, at 2 kg per person per year [] where France, Italy and Germany stand out as the greatest consumers. To the reduced consumpton of cheese n Span, the fact must be added that mportaton of ths product ncreases year after year, reachng 8,700 t n 2005, an ncrease of 2% over the prevous year. Therefore, the natonal cheese ndustry s losng ts market quota. In such a stuaton t s advsable for the natonal cheese sector to carry out a strategy to ncrease ts demand, for whch they can take advantage of new consumer tendences. For, consumers are more and more nterested n knowng the qualtes of the product they are about to buy. Ths fact leads to ncreasng the nformaton wthn reach of the consumer and smultaneously oblgates producers to dfferentate ther merchandze from that of ther compettors. In ths sense, the growng concern for health and envronment can be establshed as an element that dfferentates organc cheese, gven that organc food has a postve mage for consumers. These products are dfferentated bascally because they promote health and are respectful of the envronment. Therefore, from a marketng perspectve, organc cheese-makng s a way to dfferentate the product. Due to all of the above, ths research pursues several objectves. The frst am s to analyse the cheese consumer preference structure, as well as to determne the relatve mportance of the organc attrbute as a dfferentatng element. Secondly, to establsh what the maxmum surcharge s that consumers would be wllng to pay n the case of an organc cheese. II. MATERIALS AND METHODS The chef source of nformaton used was personal ntervews gven to a representatve sample of customary food buyers for home consumpton, resdents n Madrd (Span). The poll was carred out durng the month of December, 2006, on a stratfed random sample per number and age of nhabtants, on persons shoppng n stores, supermarkets and malls. 420 questonnares were obtaned. Maxmum error dd not surpass 5.0 per cent, for a 95.5 per cent confdence level (k = 2), under the prncple of maxmum ndetermnaton (p=q=50 per cent). Before feld work, a prelmnary questonnare was gven to 25 people who normally purchase groceres to confrm that the questons on the poll were well-desgned and understandable. Data analyss ncluded carryng out a multvarate analyss by means of the Conjont Analyss (CA) 2 th Congress of the European Assocaton of Agrcultural Economsts EAAE 2008

2 2 technque [2]. Through the CA, consumer preference structure for vegetable ol was determned, wth the am of dentfyng, explorng and quantfyng ther atttudes to dagnose what consumers really prefer. Nowadays, market researchers are greatly nterested n the composton and formaton of consumer preferences. Such preferences, whch depend on nformaton receved by the consumer, are formed both by extrnsc elements (labellng, place of purchase, prce, orgn, etc.) and ntrnsc elements (colour, texture, fat content, freshness, etc.). The former are part of the producton process whle the latter are part of the product tself. In turn, the composton of consumer preferences seems to be lnked to a quest for qualty as well as an nterest on the part of the consumer n food safety and health matters [-6]. To mplement a conjont analyss t s necessary to dentfy all of those attrbutes that wll form part of the study, as well as establshng the levels assocated wth each attrbute. Wth a revew of lterature, ntervews wth experts and a plot questonnare, the attrbutes and levels most representatve of the process of buyng cheese are then selected. The attrbutes (and ther levels) dentfed as the most mportant were a) prce (6 /kg, 9 /kg and 2 /kg), b) orgn (Castlla-La Mancha, Rest of Span and Foregn), c) commercal type (fresh, sem-aged and aged), and d) producton system (organc or conventonal) due to the growng mportance of organc producton n the regonal and natonal market. Ths assumes a new marketng opportunty for qualty cheese. By combnng these four attrbutes and ther levels, 54 potental profles would be obtaned, whch s consdered an elevated number of products. Therefore an orthogonal desgn was used that reduced the combnatons to nne [7]. The choce of the orthogonal desgn nstead of presentng all possble product combnatons lmts the nformaton obtaned solely to the prncpal attrbute effects. Although ths reduces the number of nteractons, the consumer s only oblged to chose between 9 products (Table ), thus preventng fatgue and routne answers [8]. Once the set of hypothetcal cheeses was desgned, the questonnare was presented to consumers n the form of cards. They were asked to arrange them accordng to ther preferences, by assgnng a rank from one to nne to each card, wth one beng the least valued product and nne beng the most valued. These partal utlty scores were used to descrbe the characterstcs whch most nfluence the overall preference for the product, as well as the relatve mportance of each attrbute Table. Hypothetcal cheese cards shown to those surveyed Card Prce number: ( /kg) Type Orgn System 2 Sem-aged Foregn Conventonal 2 2 Aged CLM () Organc 9 Fresh Foregn Organc 4 9 Aged RSP (2) Conventonal 5 9 Sem-aged CLM Conventonal 6 6 Aged Foregn Conventonal 7 6 Fresh CLM Conventonal 8 2 Fresh RSP Conventonal 9 6 Sem-aged RSP Organc () Castlla-La Mancha, (2) Rest of Span The researcher should specfy what the composton rule of the respondent s. The composton rule descrbes how the respondent combnes the partal components of total utlty of the factors to obtan the jont value. The composton rule most commonly used s the addtve model, whch consders that ndvdual preference for a stmulus s obtaned by addng partal utltes assgned to the factor levels that consttute ths stmulus [9]. Begnnng wth an addtve model, explanng a hgh percentage (80% to 90%) of the varance n ndvdual preference [0]. Its formulaton s: Evaluaton = β 0 + β D + β j D2 j + β k Dk + = j= k = l= 2 β D where β, β 2j, β k and β 4l are the coeffcents assocated wth levels (=,2,); j (j=,2,), k (k=,2,), y l (l=,2) of the attrbutes prce (), orgn (2), type (), and system (4); D, D 2j, D k and D 4l are the fcttous varables for each attrbute. The fnal result of the Conjont software enables to calculate partal utltes of each of the attrbutes and the total utlty of each profle. Wth the partal utltes of each respondent, and to determne the preference structure of the consumers, relatve mportance (RI) of the attrbutes of each product was calculated, as well as the range proporton assgned to each attrbute over the varaton of total ranges [0], accordng to: l 4l 2 th Congress of the European Assocaton of Agrcultural Economsts EAAE 2008

3 maxu mnu RI (%) = 00 ( maxu mnu ) where, RI = relatve mportance; maxu = maxmum utlty; mnu = mnmum utlty. In functon of the relatve mportance of the attrbutes rated by the respondents, and n order to dentfy the degree of consumer loyalty to wnes from ther own regon, segmentaton was done usng cluster analyss of K-means, consderng the consumer preference structure (prce, orgn, type and system), usng the Quck Segmentaton Analyss algorthm [7]. Fnally, multvarate data analyss wth logstc regresson was performed to calculate consumer wllngness to pay (WTP) for organc cheese. Consumer WTP for organc cheese was measured by usng contngent valuaton (CV), a drect valuaton method. A mxed questonng procedure was used, normally called closed-ended wth follow-up. Ths procedure conssts of a dchotomous choce (DC) queston and a maxmum WTP queston. In the DC queston, consumers were asked whether or not they were wllng to pay a gven premum, A, to buy an organc cheese product nstead of a conventonal one. The A amount was a percentage over the prce of the conventonal product, and dffered across consumers (0%, 25%, 50% and 00%). Consumer responses were yes f they were wllng to pay at least A for an organc cheese or no otherwse. Consumers were then asked the exact premum they were wllng to pay. If ther answer was postve, they were asked another queston whch would ndcate how much more they were wllng to pay. If ther answer was negatve, the next queston would determne what the maxmum prce ncrease would be that they were wllng to pay. The dchotomous ndvdual response s smlar to the maxmum utlty choce whch allows calculaton of WTP from approprate welfare measurements. Hanemann [] assumed that consumers were certan of the utlty functon before beng asked and after payng the A amount to buy organc cheeses. However, some components of these utltes are unknown or unobservable by researchers who consder them. Consumers are randomly offered a premum of 0%, 25%, 50% or 00% above the market prce of a conventonal product. Our 420 ntervews worked out to 05 questons per A premum. stochastc. Ths ssue s the crucal assumpton that explans the relaton between statstcal bnary response models and the utlty maxmzng theory. By assumng a lnear utlty functon and a logstc dstrbuton functon for the bnary queston, WTP can be measured through the estmaton of the followng logstc functon: P = β + e ( α + ) where P : f consumers are wllng to pay the A amount and 0 f not, A : the four premums offered to consumers (0%, 25%, 50% and 00%) Therefore, the mean WTP s calculated as follows: E ( WTP ) = 0 + e A ( α + β ) A δ A = III. RESULTS AND DISCUSSION A. Cheese consumer preference structure estmate By analysng the relatve mportance of the dfferent attrbutes consdered, t s seen that for the total populaton the attrbute wth the greatest RI s orgn (6.6%), followed by type of cheese (.22%), prce (20.5%) and producton system (.89%). The utltes calculated n each level of the varous attrbutes show that consumers lean toward sem-aged, low prced cheese from Castlla-La Mancha, produced accordng to the tradtonal system, bascally assocated wth the Desgnaton of Orgn (D.O.) Manchego Cheese [2] (Table 2). B. Wllngness to pay When analysng total populaton WTP for an organc cheese, t s observed that consumers are wllng to pay a prce ncrease n the case of sem-aged organc cheese (0.7 ), whch corresponds to a 2.97% ncrease compared to a sem-aged tradtonal cheese (Table ). Ths WTP s even greater n the case of segments and, as seen on Table. α β 2 th Congress of the European Assocaton of Agrcultural Economsts EAAE 2008

4 4 Table 2. Assgned utltes at levels of attrbutes Segment Segment 2 Segment Attrbutes and levels Total populaton (Type) (Orgn, Type, Prce) (Orgn) (9.6%) (52.%) (28.%) RI (%) Utl. RI (%) Utl. RI (%) Utl. RI (%) Utl. Prce*** /kg 9 /kg 2 /kg Type*** Fresh Sem-aged Aged Orgn*** CLM Rest of Span Foregn System*** Organc Conventonal Sze of the segment. *** Indcates sgnfcant dfferences wth a maxmum error of %. RI = Relatve Importance; Utl.= Utlty Table. Consumer wllngness to pay for organc cheese Segment Segment 2 Segment Total populaton Organc cheese (Type) (Orgn, Type and rce) (Orgn) /kg? (%) /kg? (%) /kg? (%) /kg? (%) Mld Sem-aged* Aged * Indcates sgnfcant dfferences wth a maxmum error of 5%. Consumers from segment are those who are wllng to pay an ncrease n prce for organc cheese, ndependently of ts type. It stands out that they are wllng to pay 6.92 more for fresh cheese than for tradtonal cheese, produced followng organc producton premses, whch represents an ncrement of 5.42% compared to the prce of reference for ths product. IV. CONCLUSIONS One of the frst conclusons derved from analysng the cheese consumer preference structure the low mportance granted to whether cheese s organc or not. On the other hand, orgn appeared to be consumers most hghly evaluated attrbute, convertng t nto a good dfferentaton element. Defntely, the product that gave greater utlty to these consumers, versus the other alternatves, was sem-aged, low prced cheese from Castlla-La Mancha (e.g. Manchego Cheese), produced accordng to the tradtonal system. Consumers n the area of ths study are also verfed as beng wllng to pay a prce ncrease for the organc attrbute, n spte of the most valued cheese beng, n all cases, the one produced n the tradtonal way. The maxmum prce ncrease that consumers are wllng to pay for an organc cheese compared to a tradtonal one s 5.42%. 2 th Congress of the European Assocaton of Agrcultural Economsts EAAE 2008

5 5 ACKNOWLEDGMENT Ths paper was conducted wthn the framework of the "Commercalsaton and Marketng of Organc Products n Castlla-La Mancha" Research Project 0-242/IA-4, whch was fnanced by the Communty of Castlla-La Mancha Councl of Agrculture (Span). REFERENCES. MERCASA (2007). La Almentacón en España Produccón, ndustra, dstrbucón y consumo. [Onlne] Avable at: (accessed on 4 March 2007). 2. Green, P. E. and Rao V.R. (97). Conjont measurement from quantfyng judgemental data. J. Marketng Res., 8: Becker, T. (2000). Consumer percepton of fresh meta qualty: a framework for analyss. Brtsh Food Journal, 02(2): Grunert, K.G.; Bech-Larsen, T. and Bredahl, L. (2000). Three ssues n consumer qualty percepton and acceptance of dary products. Internatonal Dary Journal, 0: Grunert, K.G.; Bredahl, L. and Bruns, K (2004). Consumer percepton of meat qualty and mplcatons for product development n the meat sector-a revew. Meat Scence, 66(2): Verbeke, W. and Vacker, I. (2004). Profle and effects of consumer nvolvement n fresh meta. Meat Scence, 67(): SPSS, Inc. (2006). SPSS Categores. Verson 4.0. Chcago. 8. Krk, J. (982). Expermental desgn: Procedures for the behavoural scences. Brooks-Cole Co. 2nd ed. Monterrey, CA 9. Steenkamp, J. E. B. (987). Conjont measurement n ham qualty evaluaton. J. Agrc. Econ. 8(): Har, J. F., Anderson R.E., Tatham R.L and Black W.C. (999). Análss multvarante. Prentce Hall. Madrd. Span.. Hanemann, W.M. (984). Welfare Evaluaton n Contngent Valuaton Experments wth Dscrete Response. Amercan Journal of Agrcultural Economcs, 66: Tendero, A. and Bernabéu, R. (2005). Preference structure for cheese consumers: a Spansh case study. Brtsh Food Journal, 07(2): Author address: Author: Rodolfo Bernabéu Insttute: ETS Ingeneros Agrónomos Unversdad de Castlla-La Mancha Street: Campus Unverstaro s/n Cty: 0207 Albacete Country: Span Emal: Rodolfo.Bernabeu@uclm.es 2 th Congress of the European Assocaton of Agrcultural Economsts EAAE 2008