Agriculture Reference
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on loyalty are a) higher in the latter period compared to the former and b) statistically
significant. This result seems to suggest a pattern of increasing acceptance among loyal
shoppers that previously may not have sought out organics in the high-end stores.
Additionally, increased loyalty in milk purchases in high-end store was highly associated
with increased organic purchase in the early period while highly associated with decreased
organic milk purchases in the latter period. This result suggests that shoppers loyal to high-
end stores are either increasing the purchase of non-organic milk in the latter period or have
shifted organic milk purchases to different formats.
As a second finding, we observe a differential pattern associated with the impact of price
premiums that interact with loyalty. As the price premium for organic eggs rise, it
significantly mitigates the impact of loyalty on purchases in the value-oriented format.
However, we observe the exact opposite pattern on the impact of loyalty within the
supermarket format: higher price premium correlate to an enhanced impact of loyalty on the
likelihood of purchasing organic. The results suggest strongly the presence of quite different
consumer attitudes about organic eggs across formats. In the value-oriented stores, loyalty
and price consciousness seem to go “hand-in-hand” whereas in supermarkets, loyal
consumers appear to have “switched” to perceive premiums as a measure of egg quality
and are willing to pay the extra funds to obtain the brands with highest actual or perceived
qualities. A similar pattern is noted for milk but the switch now occurs between the
supermarket and the high-end store format: price premiums in the value-oriented and
supermarket (high-end) formats mitigate (enhance) the impact of loyalty on the likelihood
of purchases. Note, however, that this switching pattern tends to disappear in the latter
period for milk while it is only present in eggs during the latter period. These different
patterns are reflective of the rapid changes occurring in organic offerings and in the various
rates of acceptance about organics across the entire food-at-home market.
Figure 3 and table 8 provide some examples to demonstrate the differences in fixed
tendency (constant term) and in price sensitivity among households with different format
loyalty tendency. Among the extreme cases of (A, B, C), i.e. households with 100% loyalty to
single store format, A(value-oriented) is most price sensitive, while C(high-end) is least
price sensitive. Type D(value-oriented+supermarkets) households feature negative price
sensitivity for both milk and eggs in both periods, while other combinations do not
necessarily yield negative price sensitivity. Using the mean values of format loyalty from
our 2005-06 (H1) and 2007-08 (H2) samples, we find that the average household's fixed
tendency (constant term) to purchase organic over conventional milk was -1.90 in 2005-06
and -2.03 in 2007-08, implying conventional milk was the dominant choice with about 7.389
odds ratio versus organic alternative.
1
This average household has negative price sensitivity
-12.12 in 2005-06 and -2.67 in 2007-08, meaning that a unit of price premium increase would
reduce the odds ratio of organic over conventional by a larger amount in 2005-06 than that
in 2007-08. For this average household, we however find a positive price coefficient in the
case of eggs consumption, suggesting the higher price premium, the more likely the
household would purchase organic eggs. This may be a result of differentiated perceived
product quality. As already discussed, consumers may see the higher price of organic eggs
as an indicator of better quality (i.e. Cadillac pricing).
1
The odds ratio of organic over conventional milk is about exp(-2)=0.1353, of which the inverse ratio is
7.389.
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