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Wednesday, May 11, 2011

How Should Beef Be Marketed For Consumers To Pay More For Perceived Value?


The price of beef in the meat case at the grocery store is getting to the level that consumers are asking themselves whether they want to pay the price or opt for a lesser priced cut of meat.  But some consumers have not been rebuffed by higher prices and have been willing to pay premium prices for branded products.  Would you pay more for beef if it were labeled as “all-natural?”  Or would you pay a higher price for beef that was “organic?”  How about “pasture-raised” beef?  Would you pay premiums for “environmentally-friendly” beef or maybe beef that was “raised in humane conditions?”  How important are those attributes to you?

The answer to questions about consumers’ willingness to pay higher prices for a product is a good indication of how products can be marketed.  If they are willing to pay more for a red package than a yellow package, then the marketing team will develop red packaging for a product and raise the price.

It could be the same for beef producers who want to take advantage of consumers’ willingness to pay more for products with certain attributes, some of which can be intermingled.  After all, a consumer would probably consider “all natural” beef to be in the same category as “environmentally-friendly” beef.  Whether that was true was the question in the minds of Kansas State economist Glynn Tonsor, and University of Missouri economists Joe Parcell and Jason Franken.  Their research would provide significant help to many beef producers who want to capture added value for marketing a niche product. 

Their surveys of 406 shoppers in Kansas City and St. Louis identified the attributes the consumers felt were worthwhile when selecting beef in the grocery store.  The survey was taken in November of 2010, which predates the current high prices in the beef market, but still may be a valid indicator of continued market demand for consumers.  The consumers in the survey ranged from 21 to 65 years of age and reported household income from $12,500 to $150,000.  Of the beef products they purchase:
1) 33% purchase “all natural, grass-fed/lean, or locally produced beef.
2) 66% purchased “US-produced” beef.
3) On another question, only 20% purchased organic beef
4) 62% make purchases based on health considerations.
5) Less than 10% purchase beef for environmental or animal welfare reasons.
Regarding the labels, the researchers found only a moderate likelihood that consumers would try to find out about more grassland management and nature friendly beef, or purchase nature-friendly beef.  And while they were uncertain of the meaning they felt the attributes were very important.

The economists say since less than 10% of beef sold is for environmental reasons, it may be worthy of those producers to combine that beef with other attributes for a viable branding strategy.  Over half indicated “US produced” (59%) and “locally” (51%) produced were important and they would be willing to pay more for those attributes.  57% were drawn to “all natural,” and 53% were willing to pay more for “grass-fed/lean” beef.  The consumers said the two traits that best signified “Nature friendly” were “all natural” (30%), and “grass-fed/lean” beef.

The researchers report that beef producers who are selling beef with any of those attributes would be well served to combine several of them to get more benefit from consumers’ willingness to pay.  “This approach suggests two components or possible attribute bundling strategies for branding?one comprised of nature friendly, low carbon footprint, organic, all natural, and grass-fed/lean and a second comprised of locally and U.S. produced and possibly all natural and grass-fed/lean.”  When it comes to how much extra those attributes were worth, “grass-fed/lean,” “organic,” and “all natural” were worth an additional $1 per pound.  Lesser premiums were allowed for “low carbon footprint,”  “US produced” and “locally produced.”

When following the demographics of the consumers, the researchers report, “Generally, those with higher incomes and females are willing to pay significantly more for the selected attributes. Females are willing to pay between $0.25 and $0.60 per pound more, depending on attribute. An additional year younger implies a willingness-to-pay of about $0.01 per pound more for organic steak.”

“These results are consistent with consumers’ responses regarding which attributes (best) complement the nature friendly beef attribute. Hence, one branding strategy may be to combine nature friendly with organic or all natural and possibly grass-fed/lean attributes. It may be easier to certify all natural than organic, so costs and benefits should be weighed between the two alternatives.”

Posted by Stu Ellis on 05/11 at 12:00 AM | Permalink

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