Agriculture Reference
In-Depth Information
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The Consumption Choice of Organics:
Store Formats, Prices, and Quality Perception -
A Case of Dairy Products in the United States
Ming-Feng Hsieh and Kyle W. Stiegert
University of Wisconsin-Madison
USA
1. Introduction
Consumers choose to purchase organic foods for a variety of reasons. Some of the commonly
cited perceptions among consumers are that a) organic foods are grown without pesticides or
other toxic chemicals and so they are healthier for them and their families, b) organic farming
relies on more sustainable natural biological systems, which are better for the environment, c)
practices and standards have evolved in the U.S. to improve the treatment of organically
raised livestock. However, cropping and livestock systems used in organic farming tend to
have higher costs per unit of output than in conventional farming. When these costs are
successfully passed downstream, it ultimately means higher retail prices for those products
that use the organic label. The price of organic food is typically 30-40%, and sometimes over
100%, more than conventional (non-organic) alternatives. The hefty price premium of organic
food has been one of the major reasons for consumers to choose conventional over organic
foods (Kavilanz, 2008). Wal-Mart in 2006 launched an aggressive "going green and organic"
campaign that would greatly increase the number of organic products they offered with a
price target of only 10% above the price for conventional counterparts. This market expansion
and low pricing strategy has not only enhanced competition among food retailers in the
United States but also encouraged consumers to rethink whether and where to buy organic
foods: i.e. the choice of product type, organic or conventional, and the format of store in which
the products were purchased.
Much research focuses on the rationales of how consumers make their store format choice
(Bell et al., 1998; Bell & Lattin, 1998; Bhatnagar & Ratchford, 2004; Briesch et al., 2010; Ho et
al., 1998; Hsieh, 2009; Hsieh & Stiegert, 2012; Messinger & Narasimhan, 1997; Tang et al.,
2001). The studies show that the consumption in some product categories has stronger
impacts on certain store format than the others when they are searching where to buy. In
this research, we center our analysis on the other side of the question, that is, whether and
how households patronizing different store formats would have different price sensitivities
in making decision between organic and conventional alternatives for two dairy-case
products. In particular, we examine the role of store format choice in households'
consumption choice between organic and conventional alternatives for milk and eggs, two
products that are purchased frequently by a large share of households and regarded as
gateway goods for grocery retailers to attract consumers into stores.
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