Benchmarking against the Dirichlet Model on local food products: Does designation of origin affect brand loyalty?

Transcription

1 University of Aarhus From the SelectedWorks of Polymeros Chrysochou 2006 Benchmarking against the Dirichlet Model on local food products: Does designation of origin affect brand loyalty? Polymeros Chrysochou, Agricultural University of Athens Georges Giraud George Chryssochoidis, Agricultural University of Athens Available at:

2 Benchmarking against the Dirichlet Model on Local Food Products. Does Designation of Origin Affect Brand Loyalty? Pol Chrysochou*, Georges Giraud and George Chryssochoidis Abstract For more than 15 years the European Community has been interested in the support of local food products. The main aim of this strategy was local food products gain a respective market share, alongside with increasing consumer loyalty towards them. Although the results from many studies show high involvement and commitment from consumers towards local food products, the main issue which still exists is whether attributes such as designation of origin influence the actual purchase behaviour and, moreover, behavioural loyalty towards them. For measuring loyalty we applied the Dirichlet model on scanned data on dry-cured ham collected in French supermarkets. As a first approach to this matter, the results show that price and type of brand are more important drivers enhancing behavioural loyalty than quality labels. Keywords: Local food products, Dirichlet model, brand performance measures, scanned data panel Track: Marketing Research and Research Methodology *Author to whom correspondence should be addressed to. pochr@agribusiness.aua.gr 1

3 1. Introduction For more than 15 years the European Community has been interested in the support of local food products. Adoption of regulations across European Union for the protection of those products and the introduction of PDO/PGI labels, support this aspect. Due to the need for setting off traditional cooking methods and culinary traditions, creating awareness on local products and at the same time guaranteeing to consumers, quality labels were introduced (Ilbery & Kneafsey, 2000). Local food products constitute a niche market across Europe with around 7-9% of the total food consumption, especially those with origin label. If specific marketing actions will be adopted it can be considered to reach not more than 15% (Giraud, 1997). While strategies need to be applied in order to increase their market share, the main issue is not only to measure how those products are perceived by consumers and their attitudes towards those products, as most studies have done so far (Giraud, 2003). Studies should also focus on consumer s actual behaviour and possibly on how those products perform when launched in the market. In the literature, actual buyer behaviour and brand performance is highly linked to loyalty and more specific, to behavioural loyalty (Jacoby & Chestnut, 1978). Various types of measurements have been suggested to measure behavioural loyalty, which are known as Brand Performance Measures. From the theoretical point of view, models have been introduced, with the Dirichlet model being the most widely used and, at the same time, with high empirical generalizations in marketing (Uncles, Ehrenberg & Hammond, 1995; Bhattacharya, 1997; Ehrenberg, Uncles & Goodhardt, 2003). The Dirichlet model has been shown to be applicable to many product categories and to have substantial uses, particularly with regards to the analysis of what are known as the brand performance measures (Ehrenberg, 1988; Uncles et al., 1995; Ehrenberg & Uncles, 1999; Ehrenberg et al., 2003; Rungie & Goodhardt, 2004). The model has been tested in more than 50 product and service categories such as coffee (Hallberg, 1996), laundry detergents (Stern & Hammond, 2004) and clothe retailers (Brewis-Levie & Harris, 2000). The model is also able to describe the various observed brand performance patterns, and in that sense, it also helps explain and predict them (Ehrenberg, 1988; Ehrenberg & Uncles, 1997; Ehrenberg et al., 2003). The model can also be used as a benchmark tool to predict various regular patterns that are steady in many product categories, across many countries and at different points of time. Such patterns are the Double Jeopardy effect, the Natural Monopoly effect and the Duplication of Purchase Law (Ehrenberg et al., 2003). In a previous study on wine loyalty, Jarvis et al. (2003) wondered whether consumers are loyal to specific brands or loyal to specific attributes of the products. This suggests that there is not one category of products but different categories, based on the product attributes, and each category has different loyalty levels (Dore, 2001). We share the same opinion and, moreover, for local food products this suggestion may have implications, as attributes of those products, such as quality labels, seem to influence consumer behavioural loyalty more than their brands actually do. This approach may have ramifications for marketing strategies. For instance, if consumers show higher levels of loyalty to an attribute of a local food product, then an appropriate marketing strategy would be the application of loyalty type programs, based on those attributes. On the opposite, if a category shows higher levels of switching, then switching strategies, like sales promotions, should be adopted, based on those attribute categories. 2. Methodology The notion that brand loyalty levels in most established competitive markets follow theoretical norms is conceptually appealing. Researchers, such as Ehrenberg, have repeatedly 2

4 established that simple parameters such as penetration, purchase frequency and market share are capable of accurately predicting many other aspects of consumer behaviour including behavioural brand loyalty. Such prediction is easily accomplished using the Dirichlet model of consumer purchasing behaviour. The predictive capabilities of the Dirichlet are well known. It has been said that the Dirichlet model may be the best known example of an empirical generalization in marketing with the possible exception of the Bass model (Uncles et al., 1995). The predictive power of the model and furthermore its goodness of fit, has been suggested to be measured using correlation coefficients between observed and theoretical values of the model. Many authors who assessed the Dirichlet have followed procedures consistent to the tradition of Dirichlet studies (Ehrenberg, 1988; Uncles et al., 1995) in seeking correlation coefficients of 0.9 or so. In this study, aim will be given to describe behavioural loyalty on dry-cured ham, a common local food product, with the use various brand performance measures. The methodology used is based on predicting the theoretical values of the Dirichlet model, which is thought to be the best known example of an empirical generalization in marketing (Uncles et al., 1995; Bhattacharya, 1997), providing useful benchmarks for predicting patterns, which have been observed empirically, and predicting loyalty as well. The brand performance measures can be used as predictors of loyalty, with the share of category requirements (SCR) being one of the most important measures. As Stern (2004) notes, SCR has potential weaknesses and, in order to address them, he introduced additional measures of loyalty. One of this weakness is that SCR is confounded by purchase incidence, where actually is based on time incidence. In this case, he used an additional measurement of loyalty, reported as polarization index φ, which is related to the S statistic of the Dirichlet model. The polarization index φ captures changes in the heterogeneity in consumer choice vectors as purchase incidence changes. Both indexes (φ and S) capture changes in the heterogeneity in consumer choice vectors as purchase incidence changes and measure the same thing. But as S varies from 0 to infinity, φ may vary from zero to one. Values close to zero indicate pure homogeneity on consumer choice, which means that there are high switching levels in the product category as all buyers have the same propensity to buy individual brands from it. Values close to one indicate that there is a maximum heterogeneity, which means that there are high levels of loyalty in the product category as each consumer buys only their favorite brand from it (Fader & Schmittlein, 1993). The study is organized as follows. In the beginning, we check whether the model fits well and follows the well established benchmarks, which have been proved to be followed in many product categories. Then, we measure loyalty based on the attributes of those products and check whether each attribute influences behavioural loyalty. One of the core research questions of this study is which attributes of local food products are drivers of behavioural loyalty and, more specific, if quality labels constitute one of the most important drivers. 3. Analysis and results This study was carried out in the framework of the European project so-called TYPIC Typical Food Products in Europe: Consumer Preference and Objective Assessment. Scanned data from four supermarkets in region Auvergne in France were collected for one year (March March 2004). The panel consisted of 789 shoppers from whom 778 (98.6%) bought from the category of dry-cured ham during the observation period. The category included 10 different brands (Table 1). During the observation period the total number of packages bought was 4,674 with a total turnover 16,659. The average amount spend per panellist was approximately and the average packages bought was 6 per buyer. 3

5 Table 2 presents several brand performance measures for each individual brand. O is the observed values from the panel and T is the theoretical ones, as predicted from the Dirichlet model. The correlation coefficient for penetration between observed and theoretical values is 0.98 which suggests the well fitting of the model and its good predictability power (Uncles et al., 1995). Also the correlation coefficient for Share of Category Requirements (SCR) is 0.72, which can be considered as good, if we take into account that SCR is a measurement that depends on the number of purchases and since the average annual purchase frequency is low and there are many small brands, this is somehow expected. The performance measures presented on the table are market share, penetration, the percent of buyers who bought once and more than five times, average purchases per buyer of each brand and of the category, share of category requirements, the percent of solely loyal and their purchase rate. We include also the observed and theoretical predictions of the model for the average brand, something which is more useful in order to get a clearer picture of the whole category. For the average brand of the category the market share is about 10% with a penetration around 26%. The purchase frequency of the average brand in the product category is around 7 packages and of the brand level around 2 packages on an annual basis. The category seems to have a significant percent of buyers who buy from the product category only once (58%) and only 10% of them buy more than five packages annually. The share of their category requirements is about 31% which means that from their annual purchases in the product category, 31% is made on the specific brands, on average. Finally, according to the percent of solely buyers the results show that there is only a small percent of buyers (3.4%) who are loyal to specific brands. This suggests that the category has too few solely loyal buyers and there is a high switching level between different brands. On the average brand we can notice that the model predictions are very close to the observed ones. Some considerable deviations from the model occur on the percent of buyers buying once and in the percent of buyers being solely loyal to the category. In the first case the model under predicts the observed measures and in the second case it over predicts them. This suggests that the market of dry-cured ham is a repertoire market with few loyal buyers and high switching levels between brands. However, the solely loyal buyers are heavier users of the products, as they buy approximately almost twice more products than common buyers do. As mentioned above, the model fit is very close. According to individual brands the model under-predicts most of the measures (i.e. SCR, Solely loyal) for the larger brands and overpredicts for the smaller ones. This trend has been observed in almost all cases analysed (Ehrenberg & Goodhardt, 1979; Ehrenberg at al., 2003). Whilst in some cases this trend is larger than usual, this may probably exist due to that as the product category consists of many small brands with low purchase frequencies. Some interesting deviations from the theoretical predictions of the model occur for the leader of the category (Ham_2), in which the percent of solely loyal buyers are less than theoretically the model predicts. Also the opposite occurs when predicting those buyers who buy just once the brand. Same occurs for Ham_1 as well. This suggests that for those brands their switching levels are higher than predicted. The characteristics of both brands are that are from Distributors and Without DO (i.e. Designation of Origin). This may happen due to that these types of brands have high switching levels between similar ones, with same characteristics. Finally, on Ham_7 and Ham_9 the model predictions for purchase frequency of solely loyal buyers are less than those observed. Those brands succeed higher purchase rates on their loyal buyers but this does not occur for all buyers when buying those brands. In other words, those brands are highly preferred from their loyal buyers. 4

6 With respect to patterns, the Double Jeopardy effect can be easily observed from the table results. Moving from Ham_2 towards Ham_10, penetrations decrease greatly almost 10-fold. Smaller brands, therefore, not only have far fewer buyers than bigger brands, but also show somewhat lower average purchase frequency. Ham_2 has 2.5 where Ham_10 has 1.8 average purchases annually. The Double Jeopardy effect is however small and this is due to the low purchase frequency of the brands and their low market share as well. The frequency of consumers of a specific brand, who have bought the whole category, increases slightly from 6.4 to 8.8 with decreasing market share. This trend is the Natural Monopoly effect, which suggests that large brands monopolize the light buyers of the category. For the dry-cured ham category the trend is followed more strong than the model predicts. Especially in the case of small brands the deviation is very high. The more heavy the buyers are on the category the more are specialized in the brands they choose and tend to prefer smaller ones with specific attributes. This analysis has helped us answer the first research question on whether local food products show similar patterns like other products categories or they are unique. It seems that in the case of dry-cured ham the model fits well on the observed measures. Dry-cured ham category can be characterized from the high switching levels between brands and the low levels of solely loyal buyers. The Double Jeopardy trend exists but its effect is rather small than observed in other product categories. On the opposite, the Natural Monopoly effect is very high for big brands. Concluding, this gives the impression that as a market it may be described as one with some niche characteristics. Using the φ index, as calculated from the S statistic of the Dirichlet model, we provide a method that can be used to predict loyalty on an attribute level of the products. This postulates that consumers of dry-cured ham may not be loyal to a specific brand, but to an attribute or to a number of attributes. To dissect the drivers of loyalty, the φ index was determined for each product category, as those were generated before. The index varies between zero and one, where values close to one indicate high levels of loyalty in the product category and values close to zero indicate high switching levels in the product category. The results are presented on Table 3. The highest degrees of loyalty are between brand type categories where consumers have a low propensity of switching; hence the φ index is the highest. Almost the same loyalty levels exist between price categories. Subsequently, the lowest propensity to switch is within the brand and price categories. This suggests that consumers stay loyal to a specific brand type and price range as well. On the other hand, designation does not have high levels of loyalty. Hence, this category has the lowest levels, suggesting that designation is not an important driver of loyalty. Consumers do switch between DO and Without DO products but they stay loyal in specific brand types and price levels. This analysis helped us answering the second research question of this study and suggests that finally the important drivers of behavioural loyalty are the type of the brand and price. Designation does not succeed high levels of loyalty as expected. Maybe it constitutes an important factor for a segment of consumers but not for the majority of them. This has ramifications in the local food product category where marketing managers should be cautious employing loyalty type programs based on product characteristics such as designation. In general, we could say that price may drive volume but brand drives loyalty and in the case of designation, loyalty needs to be strengthened. 4. Discussion Implications This study has discussed the concept of loyalty and how this is applied in a local food product category such as dry-cured ham. A range of loyalty related measures have been used in order to predict behavioural loyalty. For this respect we used as a benchmarking tool the 5

7 Dirichlet model and the norms drawn from it, as those have been proved to apply in many product categories, across many countries and time (Ehrenberg et al., 2003). We also used a method to measure the most important attributes of local products that affect loyalty, with respect to quality labels. The dry-cured ham market can be characterized as a repertoire market with few solely loyal buyers. This implies that for this type of market relative marketing strategies should be employed. We should notice that there is no possibility for marketers to convert a repertoire market into a subscription market by any degrees (Sharp, Wright & Goodhardt, 2002). What is more important is that marketers should understand in which type of market they operate and employ market strategies accordingly. In our study we found that norms, which exist in most product categories, apply on a local food product category such as this of dry-cured ham as well. The Double Jeopardy trend seems to apply as well, suggesting that consumers seek to prefer brands with higher share and be more homogeneous in their choices. The Natural Monopoly effect seems to be applied as well suggesting that big brands monopolize their light buyers (Ehrenberg et al., 2003). Consumer purchase behaviour towards dry-cured ham category is obviously price sensitive, suggesting that consumer s preference is based on the product s price. Many consumers tend to be loyal in specific attributes of the products but what drives loyalty is not the same to what drives volume. Our results show that price is a factor which affects loyalty but mainly attracts volume, especially when this is in combination to appropriate promotion strategies. Designation is less important driver, not as much as theoretically expected. Brand type is an important driver of loyalty and this might have been occurred due to that the panel consisted of owners of loyalty cards and there is a high proportion for being loyal to distributors brands. For further research, a panel should be much wider to eliminate this tendency. Local food products constitute a different product category requiring unique marketing strategies. Those strategies should focus on increasing consumer s behavioural loyalty towards those products. Quality labels could enhance confidence of consumers towards those products, as they exhibit the authenticity of those products, a factor that could perform more in marketing switching strategies, in order consumers change their habits and beliefs towards local food products. Concluding, local food products constitute a niche market in Europe around 7-9% of overall food consumption (Giraud, 2003). Our findings support this theory as the category under investigation showed characteristics of niche market. There are markets with low shares, which appeal to a small group of consumers but are not chosen exceptionally often by their buyers. To such a niche markets, specific marketing strategies need to be adapted not to increase the market share but mostly to increase the behavioural loyalty of their consumers. After all, as Jacoby & Chestnut (1978) have stated, The success of a brand on the long term is not based on the number of consumers that buy it once, but on the number of consumers who become regular buyers of the brand. This is in accordance to Giraud (2003) who stated that for local food products it will be very difficult to increase the consumption of current consumers and strategies should emphasise on their customers loyalty. 6

8 Table 1 Description of products studied Product Brand Type Designation of Origin APPENDIX Price Category Average price ( ) Total products bought Total number of buyers Ham_2 Distributor Without DO Medium , Ham_3 Distributor DO High Ham_4 Commercial Without DO High Ham_6 Distributor Without DO Medium Ham_5 Commercial Without DO High Ham_8 Commercial Without DO High Ham_7 Distributor Without DO Medium Ham_1 Lowest Price Without DO Low Ham_9 Commercial DO High Ham_10 Distributor Without DO High

9 Table 2 Observed and Theoretical performance measures % Buying Purchases Per Buyer of the Share of Category Solely Loyal Market Share (%) Penetration (%) Once Five + Brand Category Requirements (%) % Purchases O T O T O T O T O T O T O T O T O T Products 1 Ham_ Ham_ Ham_ Ham_ Ham_ Ham_ Ham_ Ham_ Ham_ Ham_ Average Brand O = Observed measures; T = Theoretical Dirichlet predictions. 8

10 Table 3 S and φ indexes for different product attributes Categories according to S φ Designation Brand Type Price Category All Brands

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