Open Access
Publication ahead of print
Journal
OCL
Section Oil & protein crops: differentiation through a quality approach / Oléoprotéagineux : se démarquer par une démarche qualité
DOI https://doi.org/10.1051/ocl/2018009
Published online 07 February 2018

© S. Monier-Dilhan, Published by EDP Sciences, 2018

Licence Creative Commons
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

1 Introduction

There is a large product differentiation in most sectors of the economy. Faced with this situation, consumers need information in order to choose the product that best matches their expectations. The need for information depends on the kind of quality attribute the consumer looks for. For search attributes, consumers can determine the product’s quality before they buy it by examining the product (e.g., wine colour), in which case, a label is useless; for experience attributes, consumers cannot determine a product’s quality until they use it (gustative attribute); for credence attributes, consumers cannot determine a product’s quality even after consuming it (sustainable production), in which case, information is essential. In the presence of imperfect information, economic agents look for corrections tools. Labelling plays a growing role along the gradient from search attributes to credence attributes (Caswell and Modjuszka, 1996). The EU promotes four types of food quality labels, namely, Protected Designation of Origin, Protected Geographical Indications, Traditional Speciality Guaranteed and organic farming, which typically inform on credence attribute (the geographical origin of food production, production based on a tradition or on a method of production). In France, there is also the official quality certification `Label rouge'. Consumer concerns are not confined to geographical indications or high quality. Buying decisions are driven by food safety concerns, health motivations, fair trade, environmental impact, animal welfare, and the absence of genetically modified organisms. For these credence attributes, the consumer’s confidence in the certifying organization plays an essential role. Teisl and Roe (1998) point out the importance of a clear and standardized labelling policy.

The use of credible labels allows firms to signal the presence of specific attributes and create the potential for premiums based on this signal. Many articles have studied the effects of label information on consumers’ willingness to pay for food attributes (Fair Trade characteristics by Vlaeminck and Vranken, 2015; Sustainability by Grunert et al., 2014; eco-labels, GM food labels, U.S. state agricultural product labels and European Protected Geographical Indication labels by McCluskey and Loureiro, 2003). Another facet of the literature addresses the profile of buyers of organic products. We illustrate these two issues with recent results from the economic literature: the effect of having multiple labels on the same product on the consumer’s willingness to pay and the growing importance of organic food products.

2 Willingness to pay

Among the proliferation of private brands, retailers’ brands (brand sold under a retailer’s brand) have experienced strong growth, with a market value share approximately 30% in 2014.1 Competition between these brands and the national brands (sale to the consumer through multiple retailers) is often through public quality labels. What is the impact of the overlay of two quality labels on the same product in terms of willingness to pay? To answer this question, we consider the addition of a store brand/national brand (low quality/high quality) to products carrying a public quality label (sign of high quality). This coexistence creates a double vertical2 differentiation: a differentiation between national brands (associated with high quality) and store brands (associated with low quality) and a differentiation based on the presence or absence of a public quality label. How do store brands exploit public quality labels to compete with national brands? When public quality labels coexist with a signal of low quality, how do they remain attractive to consumers? In order to answer this question, we adopt a hedonic approach to estimating consumers’ willingness to pay. We measure the implicit prices of public quality labels and those of brands (national and store brands) as well as the interactions between the two. See Hassan and Monier-Dilhan (2006) for a complete presentation of the model and data used.

The products we examine are milk, yogurt, eggs and cooked ham, camembert cheese and dry cured ham. The products selected reflect the diversity of public quality labels: Protected Designation of Origin (PDO) and Protected Geographical Indication (PGI), the organic label and the Label Rouge. PDO and PGI inform the consumer about the product’s origin and guarantee that the product has certain characteristics. The organic label guarantees that the product is made under strict production standards – in particular, that certain pesticides and artificial fertilisers are not used in the production process and that certain practices, such as food ionization, are excluded. The Label Rouge concerns the intrinsic quality of the products. We use Kantar WordPanel database for the year 2000. Table 1 gives a description of the sample.

Results show that leading national brands are, without exception, better valorized than store brands. Except for eggs, the willingness to pay for the public label is higher for store brand products than for national brand products. These results hold when considering two kinds of national brands; leader national brands and secondary national brands. In terms of brand (national brand/store brand), the willingness to pay decreases when we move from leader national brand to secondary national brand then to store brand. In terms of public label, the willingness to pay for a given label is always weaker on the leading national brand than on the other two types of brands. The comparison between secondary national brands and store brands concerning the value of public quality labels does not reveal any hierarchy. This result reflects the diversity of secondary national brands, which may have different levels of reputation.

The selling products carrying a public quality label under a store brand does not lead to a devaluation of the public label: producers’ reluctance to commercialize public quality label products under a store brand is not justified. Another interpretation of the result is that the use of these signals by retail firms is a strategy that enables them to compete successfully against national brands. Indeed, this strategy enables store brands to improve their perceived quality. Such a strategy helps retailers build a positive reputation that will enable them to win the loyalty of consumers, a crucial element in the power balance between producers and retailers.

The rationale behind the reduction in WTP when there is a multiplicity of labels on one same product could be interpreted as decreasing returns to scale of quality labels. It also could be seen as an illustration of dilution effect (Hotaling et al., 2015) according to which consumers have difficulty managing multiple pieces of information affecting the value assigned to labels.

In the context of the expanding market for organic food products, a recurring question in the literature concerns the reasons behind consumers’ (un)willingness to pay for organic food.

We address this question by some examples in the next section.

Table 1

Sample description.

3 Consumers considering organic food

Although organic food sales still account for a small percentage of the overall food market, the organic sector is one of the fastest growing food markets in developed countries. In France, the sale of organic products, which have doubled between 2010 and 2016, generate 3% of the turnover for food products.3

Empirical researchers have approached many questions related to the consumption of organic food products, including consumer valuation of organic food and developing a statistical “profile” of a typical organic food consumer in terms of motivations as well as in terms of socio-demographic characteristics. The more consistent result is that consumers with higher levels of education are more likely to purchase organic products (O’Donovan and McCarthy, 2002; Magnusson et al., 2003; Wier et al., 2008; Monier-Dilhan et al., 2009; Dettmann and Dimitri, 2010; Dimitri and Dettmann, 2012). There is no consensus about the impact of other households’ socio-economic characteristics. Wier et al. (2008) and Loureiro et al. (2001) conclude that the propensity to purchase organic products tends to increase with the presence of young children in a household. Durham (2007) finds that such a presence has no impact, whereas Zepeda and Li (2007) come to the conclusion that the presence of young children reduces the probability of buying organic food. Income similarly yields mixed findings. Higher income households are more likely to purchase organic produce (Loureiro et al., 2001), but others find that income is unrelated to the likelihood of buying organic food (Durham, 2007; Monier-Dilhan et al., 2009).

According to consumer surveys, price is the most common barrier to purchasing organic products in Europe and in the U.S. From empirical studies, Thompson and Kidwell (1998), Bunte et al. (2007) and Monier-Dilhan et al. (2009) find that marginal variations in the price difference between organic and conventional items have only a weak effect on the probability of buying organic.

The empirical literature addresses a major concern, namely, the motivations of buyers of organic products. A literature review by Hughner et al. (2007) examines 33 studies, all published between 1990 and 2004, on organic purchasing behaviour in the US and various European countries. The researchers find that considerations related to health, product quality and environmental protection constitute the three main reasons for buying organic products. However, there is no consensus on the ranking of these reasons.

More recently, Mondelaers et al. (2009), Griffith and Nesheim (2013), and Kriwy and Mecking (2011) consider health to be the main reason. Abrams et al. (2010) illustrate that consumers associate the organic label with high quality. In contrast, studies by Durham (2007) and Monier-Dilhan and Bergès (2016) indicate that consumers of organic products are primarily preoccupied with environmental considerations. In addition, Monier-Dilhan and Bergès (2016) emphasize that socio-economic characteristics can modify the ranking between motivations related to health and product quality.

4 Conclusion

Overall, in recent years, we see the growth of labels in the field of health, the environmentally friendly and so-called ’agro-ecological’ products. The emerging markets for ’agro-ecological’ products are still limited to niche markets. We can mention two labels related to this concern: “Haute valeur environnementale”, a public environmental certification of farms and products from these farms, and “Bleu, Blanc, Coeur” (BBC), a private label based on a change in practices of animal feeding to improve the health value of products (Magrini et al., 2014; Schmitt et al., 2017).

As we conducted an analysis in the case of public labels according to the type of brands (national brands or store brand) on which they are affixed, it would be informative to carry out the same analysis in a private label framework. A label such as BBC would be an interesting subject of study in terms of willingness to pay and purchasing motivations. Indeed, this private label is affixed to staple products (dairy products, animal products) on national brands, stores brands and local brands. The willingness to pay for the private BBC label, according to these various supports, would give elements of an answer as to the informative function of the label.

Driven by increasing consumer demand for healthier, safer, and more environmentally friendly food products, the use of food labelling has become increasingly important in recent years. The aim of food labels is to provide information to consumers; nevertheless, the proliferation of labels on a same product reduces this effect and may confuse consumers.

Acknowledgements

The French National Research Agency [grant ANR-15-CE21-0006 ’Institutionnalisations des agroécologies’], and the French Occitanie Region and INRA [PSDR4 Program] are gratefully acknowledged for their respective financial support.

References

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2

Two products are vertically differentiated when all consumers would prefer one to the other if they were sold at same price, whereas they are horizontally differentiated when at the same price some consumers will buy one and some will buy the other, depending on their pReferences

Cite this article as: Monier-Dilhan S. 2018. Food labels: consumer’s information or consumer’s confusion. OCL, https://doi.org/10.1051/ocl/2018009

All Tables

Table 1

Sample description.

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