Country of Origin Effects and Consumer Knowledge

Country of Origin Effects and Consumer Knowledge:

A Study of Country of Origin Effects and Consumer Knowledge Amoung Taiwanese Beer Consumers

David Mc Guinness

MBA Student, Management of Science

National Chiao Tung University

Special Topics in Marketing Research

Dr. Charles Trappey

January 4, 2008

Abstract

Country of origin and consumer knowledge has an impact on consumers purchase intentions. This study was conducted to understand how the various dimensions of consumer knowledge relate to country of origin effects and how this impacts a consumers’ use of country of origin cues when evaluating products. The effects of country of origin and consumer knowledge were investigated by gathering and analyzing data collected through questionnaires. From the findings of this study it appears that the various dimensions of consumer knowledge together have a significant effect on the use of the country of origin cue in product evaluations.

Introduction

Brand name and price are factors that generally influence consumers’ evaluation of and purchase intentions towards a product. However, the globalization of production and markets has added another factor to the list as more and more companies shift production to overseas locations where factors of production are superior or less costly, and then market their products to consumers around the world. Consequently, for many international consumers a product’s country of origin (COO) can be an important cue in evaluating both domestic and foreign products. Ahmed et al. (2002).

Studies have proved that consumers around the world use COO as a factor in product evaluation (e.g. Bilkey and Nes, 1982; Hong and Wyer, 1989; Maheswaran, 1994; Okechuku and Onyemah, 1999; Supanvanij and Amine, 2000). As international trade activity is becoming a fundamental part of the world economy, it is even more important to measure consumers’ attitudes towards both domestic and foreign products (Netemeyer et al., 1991). How COO perceptions affect consumers’ evaluation of and intention to purchase products, and the relative strength of COO compared with other informational cues, are of considerable interest to international marketing practitioners and researchers since this information can help them to devise more effective strategies to aid firms in selling their products internationally.

However, most studies of COO effects have focused on high involvement products such as cars and electronic goods for which consumers will usually look beyond cues such as price or design in making their purchase decision. To date, there have been few studies on the impact of consumers’ COO perceptions on low-involvement products; thus, it is not clear what role COO plays in shaping consumers’ preferences and intentions to purchase such goods or whether its effect is the same for low-involvement products as for high-involvement products, Ahmed et al. (2002).

An individual factor which may inhibit reliance on country of origin is consumer knowledge. Consumer knowledge has been mentioned as one such individual factor in various publications. However, relatively few publications have addressed the issue in detail. The purpose of this thesis, therefore, is to explore various dimensions of consumer knowledge as it relates to country of origin effects and then investigate how these dimensions of knowledge affect consumers’ use of country of origin in evaluating a fast consumer product, i.e. beer.

Purpose

The purpose of this study is to explore various dimensions of consumer knowledge as it relates to country of origin effects and then investigate how these dimensions of knowledge affect a consumers’ use of country of origin cues when purchasing beer and to test it with Taiwanese consumers.

Literature Review

Previous literatures on consumer knowledge show that country of origin (COO) effects is a very complex issue. Various factors can influence its extent. One of these factors is consumer knowledge (Maheswaran, 1994; Chiou, 2003). Earlier studies have not illustrated between the different dimensions of consumer knowledge and how these are connected with COE (Scribner and Weun, 2001). In addition, the level of product knowledge will also affect information use since increased familiarity results in better developed knowledge structures or “schema” about the product (Rao and Monroe, 1988). Consumer knowledge certainly plays a role in the acquisition and evaluation of extrinsic cues. For instance, Cordell (1997) has investigated the dimensionality of consumer knowledge and each dimension’s moderating effects on consumer use of extrinsic cues. In his study based on a camera, different cues such as the product’s brand (well-known versus invented) and COO (developed versus developing) are all relevant in consumer evaluation. As such, there is a need to examine the relationship between various dimensions of consumer knowledge and consumers’ use of COO.

There are some inherent gaps in the literature. Previous COO studies mostly used durable, complex and high financial risk products, such as automobiles and electronic appliances. Very few studies investigated solely non-durable, low financial risk fast consuming goods. Second, for such low risk (or considered low-involvement) products, consumers don’t get very involved in the purchase and therefore unlikely to engage in lengthy information search and processing (Hoyer and Mac Innis, 2000). It can be suggested that consumers will rely more on their own knowledge than extrinsic cues.

Introducing country-of-origin effect

As global trade is becoming a fundamental part of the world’s economy, it is becoming increasingly important to understand consumers’ attitudes towards domestic and foreign products (Netemeyer et al., 1991). There are a lot of researchers in this area who have studied COO effects: investigating how consumers see products sourced from certain countries (Roth and Romeo, 1992). The world is often called a global village, despite this, studies continue to imply that national stereotypes have a significant influence on how products are perceived by consumers.

Prior literature reflects that COE is a multifaceted phenomenon and various moderators can influence its magnitude (Maheswaran, 1994; Chiou, 2003). Studies in COO effects go back as far as the 1960s, one of the conceptualizations of COO effects was that of Nagashima (1970). He concluded that consumer’s relate with a given country of origin as, “the picture, the reputation, and the stereotype that business men and consumers attach to products of a specific country. This image is formed by such variables as representative products, national characteristics, economic and political back ground, history, and traditions”. Since then, much literature has been added to the study of COE. Samiee (1994) views COE as any influence or bias that consumers may have, resulting from a products country of origin. The source of the effect may be wide-ranged; some are based on experiences with a product from a certain country, some from personal experiences such as travel, knowledge of a country, political beliefs, ethnocentric tendencies, or even the fear of the unknown.

Knight (1999), comments that Han (1989), Parameswaran and Yaprak (1987) perceive country image as “reflecting consumers’ general perceptions about the quality of products made in a particular country and the nature of people from that country”. Furthermore, according to Han (1988) and Papadopoulos et al. (1990) COO perceptions encompass cognitions, highlighting particular product and marketing attributes and affect, concerning the country’s consumers.

COO effects as a product cue

Consumers make decisions about the quality of products based on a systematic process of acquisition, evaluation and integration of product information or cues. Products have extrinsic and intrinsic cues (Cordel, 1992); intrinsic cues are tangible or physical characteristics, such as design, colour or other graphics and extrinsic cues are intangible product characteristics, such as brand name or fame.

When intrinsic cues are not available or cannot easily be assessed, consumers are inclined to rely more on extrinsic cues, this is frequently the situation for low-involvement products, since the cost and time of searching for intrinsic cues to help consumers in product evaluation is much greater than the benefits. COO has been described as an extrinsic cue that is applied by consumers when assessing a products quality. As a result COO, as an extrinsic cue, has a strong influence on consumer attitudes and can increase the probability of product purchase (Schooler, 1971). COE is also recognised as the “made in” model and has been explained as the favourable or unfavourable influence a product’s country of origin can have on consumers’ mind-sets and decision making. The image created is a general cognitive concept representing a “mental picture” of the qualities of the product.

Maheswaran (1994) suggests that COO is used in product assessment as a stereotyping procedure, consumers expect that a product manufactured in a certain country will have certain characteristics; normally, consumers will assess a product more favorably if it has a favorable COO. This stereotyping method affects product assessment in three ways. First, COO acts as a hint; consumers have prior perceptions of the general quality of products from a particular country, and they use these perceptions to infer the other product cues such as quality and therefore the overall product evaluation.

Second, COO when used with other cues for evaluation can also be an independent cue. Third, COO can be used as a heuristic to simplify the product evaluation process, even though other available product cues may be more useful (Li and Wyer, 1994). This often occurs when there is too much product information, or when consumers are unfamiliar with the product.

Research has proven that COO influences consumer’s decisions to purchase products; consumers from developed countries favour products from developed countries, this preference may include products made in the consumer’s home country instead of products originating in less developed countries. Consumers may favour domestic goods for many reasons including familiarity, and because of the belief that it helps the economy and provide jobs as well as bolstering national pride (Pecotich et al. 2007).

In contrast, the preferences of consumers from less developed countries were towards products from well developed countries so the purchasing preference will also be for products from developed countries, (Bruning, 1997). Pecotich et al. (1996) found that developed countries such as Japan, Germany and the USA are associated with high quality products whereas newly developing nations such as Korea, China and the Philippines are associated with poorer quality products. Countries with the lowest reputation are those about which consumers know very little such as, for example, the Eastern European countries. Research suggests that the reputation of an unknown country may be lower, than that of even a developing nation.

Country of Origin Image

As explained above, the effect of COO information on consumer purchase behavior has created a large amount of studies. Nagashima (1970) first defined country image as the picture, the representation, the stereotype that businessmen and consumers attach to products of a specific country. This image is created by such variables as representation products, national characteristics, economic and political background, history and tradition.

The impact of COO cues on consumption behavior has been related to producing country characteristics. It has been proven that consumers’ willingness to purchase products is related to economic, political, and cultural characteristics of the products COO. The perceptions of sourcing countries are impacted by cognition, affect and conative orientation towards the country’s people. COO effects have also been connected to beliefs about the overall product offerings of a certain country. A consumer’s image of people which they are not familiar with may be formed upon the basis of knowledge about that people’s abilities to produce quality products in general and that belief impacts the evaluation of specific products from that country. Parameswaran (2002) called these components the general country attributes (GCA) and the general product attributes. Consumers purchase intentions and behaviour are impacted by COO effects and by specific product attributes (SPA).

According to Parameswaran’s (2002) theoretical model of country image, the dependent variable, consumer purchase intent and behaviour is directly influenced by the specific product attributes (SPA) of a brand. Consumer purchase intent and behaviour are also influenced by consumers’ general perceptions of a products COO (GPA: general product attributes) as well as perceptions of the COO’s people (GCA general country attributes). The influences of GCA and GPA on intention to purchase (IP) are primarily through their influences on consumers’ perception of the attributes of a particular product or brand (SPA). The model presented in Figure 1.1 introduces COO images and effects.

Source: (Parameswaran 2002)

Papadopoulos (1993) explains that the image of an object results from people’s perceptions of it and the phenomena that surround it. Based on the studies conducted in eight different countries, Papadopoulos et al. were among the first to incorporate distinct country image measures in PCI research (in addition to measures of products simply designated as “made in X”), and the first to attempt to model the relationship between country beliefs, product beliefs, familiarity, and product evaluation and willingness to buy. After further elaborating on their data and other studies, they proposed that consumers’ perceptions of the country of origin of a product comprise (Papadopoulos et al., 1988,1990, 2000): a cognitive component, which includes consumers’ beliefs about the country’s industrial development and technological advancement; an affective component that describes consumers’ affective response to the country’s people; and a conative component, consisting of consumers’ desired level of interaction with the sourcing country. Country image affects product evaluations, its very structure, that is the relative importance attached to its cognitive, affective, and conative components, has a significant impact on the extent of its influence on product evaluations.

The role of country image in product evaluation

According to Hong and Wyer (1989), when consumers are presented with the COO cue together with other cues, such as price and brand, the effects of COO in their cognitive process can be observed in two ways, the Halo Effect and the Summary Construct.

The Halo Effect can serve as a halo to infer beliefs about attributes that make up the attitude towards a product or service, Pecotich et al (2007) explains consumer evaluations of products and services are based on their perception of the country (e.g. overall the Japanese make good quality products, this is a camera from Japan, therefore it must be good quality). Second, it may be used as a means of abstracting previous beliefs about attributes of products and services from a particular country into a chunk of information called the summary construct, which is in turn used to infer product attitudes (e.g. I know, from experience that the Japanese make poor quality wine, this is a wine from Japan, therefore I would expect it to be of poor quality).