Translating Country-of-origin effects into prices

1. Translating Country-of-origin effects into prices Ronald Drozdenko (Western CT State University) & Marlene Jensen (Lock Haven University of PA)

2. The questions • What’s in a country name – and how does that affect the prices a country can command for its products? • Can we quantify a negative COO image effects by the price reduction required to compete with products with a positive COO image?

3. Early research on COO effects • Focused on COO effects on product perceptions, especially concerning quality. • Focused on the effects of nationalistic feelings. • Expanded to include stereotyping of countries, specifically: • A positive bias towards products from Germany, Japan, the U.K. and the U.S • A negative bias towards products from India and Russia.

4. Country stereotyping found to vary significantly due to the following • Ethnocentrism of the consumer • 10-item CETscale to measure ethnocentrism • Developed by Shimp & Sharma 1987 • Validated by numerous additional studies • Product category • Example: Positive findings for clothing from Italy and the U.S., negative from South Korea, China and Costa Rica • Degree of industrialization in a country • A number of studies have found a direct correlation between willingness to purchase products from a country and its degree of industrialization

5. Previous research on pricing as it relates to COO effects • All but 3 studies analyzed pricing as a competing variable to COO effects in predicting product quality perceptions. • Schooler & Wildt (1968) found country stereotyping effects to be strong enough to prevail in the face of price reductions. • Becker (1986) found a positive image of products made in Japan persisted even when priced lower than U.S. products. • Wall & Heslop (1986) found Canadians willing to pay more to purchase Canadian products – as long as the quality was equal.

6. Methodology • Countries selected: • U.S. and Germany selected due to: • High levels of industrialization • Potentially positive COO image • India and China selected due to: • Both somewhat less industrialized • The substantial negative publicity received by China for various products it exported • India as a similarly industrialized country – without the negative product publicity

7. methodology • Subjects were a convenience sample of: • 460 consumers in Fairfield County, CT • 307 consumers in Clinton County, PA • Instruments: • Web-based questionnaire • 2 versions (randomly assigned) • CETscale before price questions • CETscale after price questions • 10-item CETscale to measure ethnocentrism • High & low news exposure division • Respondents were divided into high and low negative Chinese media exposure groups after they indicated how often in the last 3 months they had heard or read about dangerous or defective products from each of the 4 studied countries.

8. methodology • 11 Product categories • Some high in negative news for China (toys, toothpaste, pet food) • Some with no negative news for China • Products with different perceived risk levels* • Tires & ingested products – high in physical risk • MP3 players, athletic shoes and HDTVs high in performance risk • Shampoo, toothpaste, and shirt/blouse – high in social risk. *Based on previous studies by Drozdenko & Jensen

9. Example of Price Questions • Note: • Choices in the drop-down menus for each country included: • I’d buy the $10 bag with Chinese ingredients • $11, $12, $13, $14…. (up to $30 in $1 increments) • More than $30

10. Figure 1. Percentage Willing to Pay For U.S., German and Indian Products Above Chinese Products 120% 105% All percentages are US 100% significant statistically German 89% at the P<.001 level. Indian 80% 66% 61% 59% 54% 60% 49% 48% 46% 45% 43% 42% 40% 37% 36% 36% 40% 26% 26% 25% 25% 24% 24% 33% 29% 20% 21% 20% 19% 16% 15% 15% 14% 14% 13% 0% Toothpst Drink Shamp Toy Tire PetFood MP3 Cell Shirt TV Shoe ResultsAmount U.S. consumers willing to pay to avoid chinese-made products

11. ResultsThe mean higher price U.S. consumers would pay for U.S.-made products over those from China

12. Figure 2. Percentage Willing to Pay More For U.S., German and Indian Products Above Chinese Products for Younger and Older Age Groups 120% US Y Germ Y India Y US O Germ O India O 100% 80% 60% 40% 20% 0% Toothpaste Shampoo Drink Toy Tire MP3 Shirt Pet Cell HDTV Shoe RESULTSEFFECT OF AGE ON WILLINGNESS TO PAY A COO PRICE PREMIUM

13. Resultscet score effect on the size of price premium the consumer is willing to pay

14. Resultsnegative publicity effect on willingness to pay a price premium based on coo

15. Limitations • Convenience sample • A relatively young age of the respondents (about ½ are in their 20s) • Consumers based solely in western Connecticut and central Pennsylvania • Kaynak & Cavusgil (1983) suggest that COO effects are stronger when consumers have little or no other information available from which to make their decision, as is the case in this study.

16. Managerial Application • If a dollar value can be put on COO effects in specific product categories… • Managers will have better intelligence when considering whether to launch a domestically-produced product which must compete with imports. • Example: consumers will pay 37% more for a U.S.-produced athletic shoe over a Chinese-sourced one. But… • Would the costs eat up this advantage? • What would be the premium to outsource it to a different country? • Managers will have better intelligence for developing home-sourced products for niche markets of high ethnocentric consumers

17. Managerial Application (Continued) • Government managers may be able to quantify the cost of bad press regarding their products – by product category. • The cost of adding regulation to better insure product safety may be weighed against the increased margin their products could command with a better COO image.