Effects of Country-of-Origin on Consumer Willingness to Pay More - Term Paper Example

 International Marketing Determining the effects of country-of-origin on willingness by consumers to pay more for a favorable country image Introduction The equity theory was utilized by Koschate-Fischer, Diamantopoulos, and Oldenkotte who sought to investigate the means by which products ultimately affect the prices that the end consumer is willing to pay. In this way, the authors presented a situation which of course focused upon the price related consequence of country of origin. Ultimately, the impact of the COO upon the way in which the consumer reacts to, identifies, and evaluates their purchase intent was found to be profound. Moreover, the authors also seek to draw a level of inference with regards to the overall impact that brand familiarity has upon the relationship. As a means of performing such a level of inference into these determinants, the authors set out to perform three separate yet complementary experiments in order to test the hypothesized relationship in a setting of low and high involvement. Ultimately, what can be said concerning this understanding is that consumers are oftentimes willing to pay a premium for commodity prices from a nation that had a favorable country image as compared to one that had a lower level of favorability. In such a way, the reader can see that brand familiarity does not heavily impact upon the COO effect. Conversely, it can and should be understood that the COO effect impacts heavily upon the WTP; especially when the consumer is not aware of or familiar with the product. (Howard 2009). Focusing on actual behavior provides fresh insight more than the previous research examining buyers’ intentions and attitudes because it demonstrates the impact of the COO cue on buyer’s actions. The take away from all of this leads the reader/researcher to draw several managerial implications with respect to the price setting structure and origin of goods as have been described. Firstly, the outcome of the studies helps to confirm that the origin of the good has a vital role in informing a sense and appreciation of WTP within the mind of the end consumer. Moreover, the findings also provide information on how the COO influences buyer’s WTP pertaining to the level of consumer involvement as reflected in the category of the product at hand. This is particularly useful for decisions about pricing and/or communication strategy (e.g. price differentiation) and is also of great concern to the organization considering the transfer of production facilities. Theoretical and hypothetical background of International Marketing In the Journal of Marketing research, Schooler (1965) gave way to several definitions of a products’ country-of-origin and determined that reputation also a product’s nationality bias. About five years later, Akria Nagashima gave a definition which was widely accepted. He commented that the “Made In” image concocted the mental picture, stereotype, and the reputation that businessmen and consumers connected to products of a country. The product image provided variables like representative products, economic and political background, national features, traditions, and history that impacted heavily upon image as well. He asserted that this has a significant influence on the behavior of consumers in the international market; which is connected to views of national opinion leaders, mass communication, and personal experience. This was in agreement to a previous research by Granzin and Olsen (1974); which showed that the image attached to the country of origin played a huge role in consumers' product perception. It is agreed that country of origin is the signal that enables consumers to arrive at instant decision. From the above proposition, it can be learned that consumers relies on signals when more consistent research is unavailable. In another divergent view, Reierson (1966) proffered in the Journal of Retailing that foreign products were ultimately national stereotypes; however, as globalization advanced, the notion changed since traded goods became an integral part of the typical consumer's life. This conventional wisdom still holds today. A related study was done by Howard (2009) who underscored that American consumers' images of foreign products determined how "made-in" stereotypes were created. His conclusion of consumers' attitudes with regard to the quality of a vehicle manufactured in a country gave a "halo effect" for all products emanating from the country. The same effect was seen when examining the significance of country image on consumers' preferences for automobiles and television sets. A similar study by Strutton and Pelton investigated how Southeast Asian consumers perceived the American and Japanese Imports. They used discriminate analysis to establish that consumers had different perceptions Japanese imports and U.S imports. In contrast, Lourero and Umberger (2003) made arguments against country-of-origin labeling by highlighting the concern that the label was a pointless trade barrier. Other opponents believed that a country-of-origin labeling program was hard to carry out, since many beef products are processed through a combination of beef sourced from various countries. More recently, the U.S. Congress determined that the possible costs linked to execution of a country-of-origin labeling system was bound to outweigh the prospective benefits since about 15% of the beef sold in the U.S are imported (Nagashima 2000). To reinforce this study, Yi Cai of Nankai University in China, brought an experimental design study in 1994. It regarded the country of origin as a single product attribute and not simply a quality signal. It sought to answer the question with regards to product information and whether or not a country of origin label can still influence consumers' purchasing decisions (Yi Cai 1994). This study was a success since it tested the impact of labels of origin on consumers' decision making. The effect of a products’ country of origin was established in the experimental setting for a tangible product and associated product information provided. In a micro-economic dimension Becker (2006) held other attributes of the product constant and sought to draw inference on the buying intentions of products from less-developed countries. In this way, a level of understanding was drawn with regards to every price level and a comparison to prior buying intentions, by aid of the theory of economics of discrimination, was performed. In his theory, he affirms that a consumer, encountering a unit price of p for an item “generated” by a given factor, arrives at a decision so that the net price is p(1+dk), provided dk represents the coefficient of consumer taste for prejudice against this factor. The theory allowed for the use of discrimination as a coefficient permitting comparison of respondents’ purchase intentions at given prices for products manufactured from a range of countries. From this assessment, it can be established that consumers have a taste for discrimination in terms of the country of origin. They act as if willing to pay the amount of money to be connected to productions from countries of origins and not from others. Hence, a price reduction for products from countries of origins fails to induce the consumer to these product purchase decisions. It was in this experiment that multiple price levels were used to establish the equivalent in monetary terms of consumers’ biases against or preferences for the country of origin (Howard 2009). The original glassware studies by Schooler and Wildt (1968) made an important contribution to the literature as a function of the fact that few researchers had ventured into the effects of country-of-origin images previously. As such, the study went alongside the products' prices with regards to a consumers' decision making. This was further developed by Nebenzahl and Jaffe (2003) in which they hypothesized concerning automobiles in their studies. Up until this point, no one had used diverse product levels in item analysis as a means of comparing the price elasticity at the same time. It theoretically suggested that the responses of consumers to price differentials varied with product categories. According to Bryant (2003) price elasticities for two diverse products originated from a certain country hypothesized that the response of consumers were more intensive to the non-durable goods price change than to the durable goods price change. A more recent contribution was from Koschate-Fischer, Diamantopoulos, and Oldenkotte (2012) who contributed in the Journal of International Marketing. They drew from the equity theory that investigated the possibility of the product Country-of-Origin (COO) affected the willingness to pay among consumers. These authors focused on effects relating to price of the country in which the goods derived and gave balancing insights to the literature on the weight of country-of-origin on consumers’ buying intentions and product evaluation. The missing link was in examining the potential of brand familiarity having negative moderating effect on the COO–WTP relationship (Diamantopoulos, Koschate-Fischer and Oldenkotte 2012). The authors succeeded in conducting some follow-up studies and matching experiments that tested the relation that occurred in a variety of settings. They managed to explore the magnitude of symmetry between country f brand origin and the country-of-origin affecting consumers’ WTP (Mann & St. George 2008). Surprisingly, the results showed that consumers are agreeable oftentimes paying a somewhat more expensive amount for a product originating from a country with a more positive country reputation than from one with a less agreeable country reputation (Gaedeke 2003). Brand familiarity has no influence on the country-of-origin in a low-involvement circumstance. However, the country-of-origin affects consumers’ WTP; especially when unfamiliar with the brand given a high-involvement situation. It is apparent in these two experiments that the authors determined WTP by aid of the BDM approach. In this approach, participants who might buy the product are evaluated to see if their actual behavior gave new insights over and above prior research by drawing inference upon the attitude and intent that consumers so often exhibit. This demonstrates the effect of the country-of-origin cue on consumers’ intentions. There are managerial implications that can be pieced from the study’s results; however naturally more so in relation to price management (Bannister & Saunders 2008). The results show the way in which products integrate with the consumer’s willingness to pay. The findings give insights into how the country-of-origin affects the consumer’s willingness to pay as something that is dependent upon the category of consumer association as seen in the product in question. This is specifically critical for decisions regarding pricing and communication strategy such as price differentiation (Erickson, Johansson & Chao 2008). It is also worth noting that relocation of facilities and the means of production is oftentimes informed by such approaches. A separate development came from Lutz Kaufmann, Jan-Frederik Roesch (2012) in the Journal of consumer affairs regarding price-related consequences of the country-of-origin (COO). In their findings, the authors drew again from cue utilization theory and equity theory. They succeeded in establishing whether a brand's country-of-origin determined a consumer's willingness to pay and the magnitude to which the familiarity of the consumer to the brand moderated their relationship. The findings of the three corresponding experimental studies by Bryant (2003), Oldenkotte (2012), and Jan-Frederik Roesch (2012) showed that country-of-origin had a positive effect on willingness to pay. Besides, the authors found a negative moderating effect on brand familiarity on the country-of-origin effect. The authors elaborated the managerial and theoretical implications of the results and also gave directions for future research. Another article by Loureiro and Umberger (2002) estimated the willingness-to-pay by consumer for beef products on country of-origin-labels. It informed the U.S. Senate into considering as an alternative country-of-origin labeling. Research is still required to establish the attributes valued by consumers in domestic and imported beef. They quantified the value that consumers have on country-of-origin labels. Preliminary findings indicated that U.S. consumers had a perception of domestic beef as safer than imported beef, and thus willing to pay a premium to get U.S. certified beef. Conclusion The significance of country reputation is in signalling consumers’ performance or quality perception as recognized by researchers. It might not have a straight bearing on the product’s performance; however, extrinsic cues are a portion of the product’s total reputation and thus can affect consumers’ perceptions. The authors have established that consumers simplified their decision making process based on brand quality judgment. As such, this would likely be based on attributes and not product attribute information. The ‘five star’ mark demonstrates a restaurant in which consumers perception refers to higher quality without comparing the operation (Han 2009). Researchers have succeeded in examining the influence of consumers’ evaluations by products’ warranty and established that warranties signals product quality. Furthermore, the research has demonstrated that country of origin signifies product performance and quality. The models developed by Erickson, Johansson and Chao (2008) involved country of origin and other product attributes like quality and performance. The “halo effect” of the country of origin is established to comprise country image, beliefs regarding tangible product attributes, and influences the overall evaluation. In another development, the findings of Han (2009) established that consumers unfamiliar with a country's product infer product information into the country reputation. These in turn influence the consumers’ attitudes with regard to other attributes. Most studies in this area regard the country of origin as multidimensional construct that elicits varied product-attribute-related responses. In this case the studies above have demonstrated that country of origin is in the strict sense a cognitive cue. In conclusion, consumer attitudes regarding a country as a producer, have a strong influence on their products preference. Authors like Obermiller and Spangenberg (2009) have noted this in the light of Arab-Americans who hold negative attitude with regard to Israeli optical products; despite the consumer acknowledging the superior quality of Israeli products. On the contrary others like Fournier (2005) made detailed description of Italian-American women of second-generation that strongly associate Italian products not by quality, but by the country of origin. It is now clear that to most consumers, country of origin serves as an affective reputation attribute which connects a product with status, exoticness and authenticity (Jaffe & Carlos 1995). Making purchase decisions demands that consumers connect to the country of origin to individual memories, to feelings of “pride” and national identities connected to production of products from specific countries. The willingness to pay is the "proud to own" factor as underscored by Jaffe and Carlos (1995). The country of origin is critical where price and other product attributes like safety and reliability are involved. In the nut shell, controlling for perceived performance and quality means that the country of origin affects consumers’ buying decisions and products evaluations (Kaufmann & Roesch 2012). This direct influence explains the country-of-origin attribute is an essential determinant of consumers' tastes for biases or preferences, which has a crucial role in buying behaviors. Reference List Bannister, J P, & Saunders, J A 2008, U. K. consumers' attitudes towards imports: The measurement of national stereotype image. European Journal of Marketing, 12, 562-570. 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