Also related to this week's case. I've attached an article below that describes the "plateauing" of the organic market, which can have a real impact on Whole Foods and other natural food retailers. The article cites price, skepticism, and confusion as the three reasons for the decline in organic consumption.
So much of our class has focused on business incentives, ie are businesses making CSR decisions for economic or altruistic reasons? That same line of thinking extends to consumers. Even the most dedicated consumers have a limit in terms of the premium they are willing to pay for organic food, or other social/environmental positive products. With an increasing uncertainty in the economy and rising commodity prices, consumers are now having to face difficult consumption trade-offs. John Mackey even stated in the case that Americans allocate a much lower percentage of their budget to food, but organic food is worth the premium. As this premium increases it will take an even greater benefit to offset the cost.
Unfortunately, the benefit is not clear to many consumers. Whole Foods has tried to convey information about organic foods along with the products, but the ever changing definition and poor consumer education has only increased confusion. This is despite the government actually creating a standard by the USDA in 2001. If it is still confusing for organic, imagine how bad it must be for "green."
The question is then, will companies make the investment to overcome this skepticism and confusion to illustrate the benefits...and, will consumers be willing to pay even in recessions?
http://money.cnn.com/2008/04/23/news/companies/organics_backlash/index.htm?postversion=2008042314
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2 comments:
Yours is a valid question: How much benefit must consumers perceive from organic foods before they are willing to pay a premium for it, and how much will that premium be?
Companies like Whole Foods have a pretty steep marketing mountain to climb with some consumers. When putting together a conjoint survey for 411B last quarter, I listed one of the product attributes as natural/organic (versus standard ingredients) and intuitively assigned it a value that was ALWAYS higher than a non-organic counterpart. In other words, for the same price, customers will always prefer organic. I was politely corrected by my marketing professor who passionately subscribes to the "better nutrition through science" philosophy. He pointed out that he, and many others like him, not only eschew organic foods, but would actually pay MORE for non-organics.
For my money, I'm sticking with Trader Joe's. I shop there exclusively and save a ton of money over Ralph's, Von's and their ilk. Sure, TJ's doesn't boast Whole Foods' wide aisles, impeccably displayed fruits or varied selection of products. But if you're a starving grad. student looking to save a few shekels while eating healthy, it's the best game in town.
Three cheers for Trader Joes. Over the Summer two are scheduled to open on the West Side. One above the Westwood Ralphs (in the former Longs Drugs Site), and one in the Vicinity of Olympic & Bundy.
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