Values and worth of organic products: A consumer perspective

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A presentation on consumers and organic food
• What is customer value?
• How can value be defined and measured?
• Value, Worth, Willingness-to-pay
• How can customer value be managed?

Published in: Marketing
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Values and worth of organic products: A consumer perspective

  1. 1. Raffaele Zanoli Values and worth of organic products: A consumer perspective Values Willingness-to-pay Product positioning
  2. 2. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Agenda •  What is customer value? •  How can value be defined and measured? •  Value, Worth, Willingness-to-pay •  How can customer value be managed?
  3. 3. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Where do customers stand? •  Customers are Value – Maximizers •  They form an expectation of value and act on it, which affects both satisfaction and repurchase probability •  Customer value from a Marketer point of view is the customer’s economic value to the company
  4. 4. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Fundamentals of Customer Value •  Customers define Value (in terms of Benefits NOT product/service attributes) •  Though based on their fundamental Needs, Value is Opaque even to customers •  Value is Multidimensional (Economic, Emotional, Ethical) •  Value is Contextual (End User, Use Situation, Environment) •  Economic Value (Worth) emerges from a Trade-off Between Benefits and Cost •  Value is a Mindset Value-based Marketing
  5. 5. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Value-based Marketing Concept •  Three major components: – All company activities should be based on the recognition of a fundamental customer need, forming the base of customer value. – Delivering customer value should permeate all the functional areas of the firm: production, finance, R&D, sales & marketing. – Customer (Value) Satisfaction viewed as the means to long-term profitability goals.
  6. 6. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 The Customer’s Perspective •  Based on two main dimensions: •  1. WHAT your company does for them. (The “Problem Solving” dimension). 2. HOW it does it. (The “Relationship Experience” dimension).
  7. 7. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Definition of Economic Value (Worth) •  The  perceived  worth  of  the  set  of  benefits   received  by  a  customer  in  exchange  for  the   total  cost  of  the  offering,  taking  into   consideration  available  competitive  offerings   and  pricings   •  EV=  PB/PC   –  PB  =  perceived  benefits   –  PC  =  perceived  costs
  8. 8. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Willingness To Pay •  Willingness To Pay (WTP) is a monetary measure of economic value •  Measures of WTP: – Survey-data based (contingent valuation, conjoint, choice experiment) – Scanner-data based (hedonic price model)
  9. 9. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 WTP Models •  Basically they all posit that a product price is the sum of monetary valuation of each of its attributes •  Price of organic food bundles payments for –  Health (e.g. nutritional content, lack of unwanted substances) –  Brand/certification (e.g. Rapunzel, Demeter) –  Taste/Quality cues (e.g. fat content, sugar content, colour, visible fat) –  Other attributes (e.g. convenience, close-to- home, animal welfare, fair-to-producers, gentle processed)
  10. 10. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Managing Customer Value •  Customer value can be managed by Product Positioning: – forming a particular product image in the mind of the consumer. •  In traditional marketing terms, positioning consists of highlighting some characteristics of the product in order to differentiate it from its competitors and to acquire competitive advantages in the competitive arena.
  11. 11. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Current organic positioning •  Current positioning is mainly based on some attributes of the products, often Negative: –  produced without chemicals, GMO free, with no added artificial flavouring, preservatives, etc. •  The “organic” attribute appears as a further element of differentiation  all organic products have a common positioning in the mind of consumers.
  12. 12. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Glenisk’s Dairy: TMP Worldwide
  13. 13. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Ja Natürlich, Austria
  14. 14. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 A way forward: value-based approach to positioning •  Consumers exert a behaviour as a mean to reach an objective or an end. •  Therefore, consumer see most product attributes as a mean to some end: –  attain benefits / avoid risks (conscious level) –  subsequently attain values, that is “preferred end states of being and preferred modes of behaviour” (latent, unconscious level)
  15. 15. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Value-based approach to positioning •  Organic products are highly-symbolic: consumers perceive them mainly on the basis of “credence” attributes like the (organic) label. •  Organic products are generally considered safe(r) and sometimes of higher quality. •  If organic products are positioned in terms of terminal values, consumer research has shown that this produces a strong emotional involvement with the product.
  16. 16. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Organic Customer Values •  Most organic products are always associated: •  with the instrumental value Health, •  with the terminal value Well- being/Quality-of-life, which subsumes also all the hedonistic values associated with personal gratification.
  17. 17. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Values and organic products •  Health claims cannot (yet) be explicitly used in positioning organic food due to insufficient evidence of positive health effects of an organic diet – Only NEGATIVE communication is possible: risk of conventional food •  Among values, Environmental protection may be used in organic positioning, but there is increasing competitions from other eco-labels.
  18. 18. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 La Buena Tierra organic food restaurant : Saatchi & Saatchi Mexico
  19. 19. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Importance of health at point of purchase and after consumption Source: MAPP
  20. 20. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Values beyond health •  Health is a major element of the perceived quality of organic food •  But health is not top of mind in everyday food purchasing and handling •  Many consumers believe that their diet is pretty healthy as it is •  Health carries no reinforcement, and insofar can be communicated only with negative comparative communication •  Concept of well-being positioning need to be explored
  21. 21. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Wellness, well-being positioning •  The wellbeing concept combines both the safety & quality issues in one word, and is less semantically connected to the idea of disease. –  Well-being = quality of life –  Wellness= wellbeing + fitness •  Consumers will not make compromises with quality of life –  “If you had a life with enjoyment, if that’s steak and red wine, then you probably had a good life” •  Organic marketers need to focus on a wellness/ well-being positioning.
  22. 22. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 ECHT BIO Bioladen: Toralf Richter – Bio Plus, Switzerland
  23. 23. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 From well-being to benefits & attributes •  Taste is in absolute terms the most relevant food attribute for all consumers. •  Organic food should not dissatisfy taste expectations, which is often the case. •  Taste is associated with pleasure and enjoyment, and therefore to well-being. •  Other important benefits need to be directly linked to well-being: e.g. local food, fair to farmers, careful/gentle processing, etc.
  24. 24. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Sensory ratings 0 1 2 3 4 5 6 7 8 9 Blind Expected Organic Conventional c b d a
  25. 25. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 NaturaSì Bioladen: Ogilvy, Italy
  26. 26. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 How much organic food is worth? •  To answer this one must distinguish between: –  Regular, Occasional, New, Non-users –  Usage situations (home/out-of-home, special occasions, for babies/children, etc.) •  In theory, “stated” WTP should be higher than “actual” WTP. •  However, many studies reported that organic consumers’ WTP is lower than current organic prices. Why?
  27. 27. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Measures of WTP for organic products •  Established organic consumers have higher WTP than new/non users and •  Some studies report that regular consumer has slightly higher WTP than occasional consumers, but this is found often statistically not significant: –  Regular user are more price elastic (i.e. search more) •  Some recent studies suggest that in choice experiments, some organic consumer do not look at all at price (price non attendance) – other heuristic strategies
  28. 28. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Are all Values Worth the same? •  Values are hierarchical: e.g. food enjoyment and health are both instrumental to well-being •  This hierarchy is reflected in the WTP for the attributes related to the values •  Identifying the “extra” values to be targeted will increase the overall WTP for your organic brand
  29. 29. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Unmet or Underserved Values/Needs •  How close is the actual organic customer experience to the ideal? •  Identify the functional and emotional components of the ideal experience the customer wishes to receive. •  Will customers pay for added value?
  30. 30. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 Other WTP results •  Many studies – recent and less recent – show that the “local origin” attribute is often associated with similar or even higher WTP than organic: this result applies mainly to unprocessed products, but a US study has identified a similar pattern for breakfast cereals. •  Other “ethical” attributes are increasingly relevant for consumers: e.g. some studies report that “fair- trade” have higher WTP than “organic” coffee. This result appear product specific, since other results do not show this for other goods.
  31. 31. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010 A Word of Caution •  To increase revenues, organic companies often focus their efforts on the acquisition of new customers. In some cases they overlook and fail to realise the potential value of existing customers. •  Do existing organic customers’ values match with new customers’ ones? – “Conventionalisation” of the organic market

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