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?

1. Raffaele Zanoli
Values and worth of organic products:
A consumer perspective
Values
Willingness-to-pay
Product positioning

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010
Glenisk’s Dairy: TMP Worldwide

13. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010
Ja Natürlich, Austria

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. 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. 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. 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. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010
La Buena Tierra organic food restaurant : Saatchi & Saatchi Mexico

19. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010
Importance of health at point of purchase
and after consumption
Source: MAPP

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. 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. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010
ECHT BIO Bioladen: Toralf Richter – Bio Plus, Switzerland

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. 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. Raffaele Zanoli Die Akademie Fresenius – Feb. 17, 2010
NaturaSì Bioladen: Ogilvy, Italy

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. 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. 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. 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. 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. 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