Product Differentiation and Market Segmentation in Applesauce

Topics: Organic food, Product differentiation, Local food Pages: 29 (9029 words) Published: March 2, 2011
Product Differentiation and Market Segmentation in Applesauce: Using a Choice Experiment to Assess the Value of Organic, Local, and Nutrition Attributes

Jennifer S. James, Bradley J. Rickard, William J. Rossman
Recently, there has been much interest among horticultural producers concerning the marketing of organic and locally produced food. A consumer survey was administered that asked respondents to choose an applesauce product from a list of products differentiated by price, and by labels that described fat content, nutrition content, and whether the product was grown organically and/or locally. Our analysis indicates that consumers were willing to pay more for locally grown applesauce compared to applesauce that was labeled USDA Organic, Low Fat, or No Sugar Added. Furthermore, we find evidence that increased knowledge of agriculture decreases the willingness to pay for organic and locally grown applesauce. Key Words: applesauce, choice experiment, consumer demand, fruit and vegetable markets, local food, multinomial logit model, organic, Pennsylvania, willingness to pay.

Labels continue to be a key strategy for differentiating products in food markets. In recent years, label usage that promotes product attributes has expanded and become increasingly important for many foods, including fruits and vegetables. Products sold in grocery stores are often differentiated by labels that make reference to health claims, nutrient content, information describing production methods, and geographical indicators. Organic labels are commonly used for both fresh and processed fruits and vegetables. Products that are differentiated as locally produced are more likely Jennifer James is Associate Professor in the Agribusiness Department at California Polytechnic State University in San Luis Obispo, California; Bradley Rickard is Assistant Professor in the Department of Applied Economics and Management at Cornell University in Ithaca, New York; and William Rossman received a Master of Science from the Department of Agricultural Economics and Rural Sociology at The Pennsylvania State University in University Park, Pennsylvania. This article is part of a larger research project funded by the Center for Rural Pennsylvania and led by Al Luloff and Fern Willitts. The authors gratefully acknowledge valuable input provided by two anonymous reviewers, and by Al Luloff, Fern Willits, Edward Jaenicke, Shida Henneberry, and Todd Schmit.

to be fresh fruits and vegetables, while nutrition information is mandated for processed fruits and vegetables. However, in some cases there may be opportunities to market processed fruits and vegetables that are locally produced or to include nutrition information on fresh fruits and vegetables. Geographical indicators are traditionally important for wine, meat, and, in some cases, dairy products. However, given the expansion of promotional efforts by many states, geographical information that describes where food is produced appears to be increasingly important for marketing fruit and vegetable products. Given the variety of labeling options, consumer response to label information may have important implications for product differentiation strategies. We developed a choice experiment to examine consumers’ willingness to pay (WTP) for selected attributes in a processed fruit product, namely applesauce. Applesauce is an interesting product to examine here because it can include a variety of

Agricultural and Resource Economics Review 38/3 (December 2009) 357–370 Copyright 2009 Northeastern Agricultural and Resource Economics Association


labels. Furthermore, the per capita consumption levels of processed fruit products declined during the period from 1998 to 2007 (USDA-NASS 2008), and there is much interest in ways to increase sales in this category. As part of a survey that was conducted in Pennsylvania (PA) and that included several questions regarding food and agriculture, respondents were...

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