Effect of organic labeling on private label food products : how does the presence of an organic label affect the purchase intention of private label food products, taking perceived quality, perceived risk and familiarit

Effect of Organic Labeling on

Private Label Food Products

How does the presence of an organic label affect the purchase intention of private label food products, taking perceived quality, perceived risk and familiarity into account?

Master Thesis MSc. Business Administration

Marketing Track

University of Amsterdam

Frederique Claessens

11239581

Date: 23-06-2017 Topic: Retailing Words: 13319 First supervisor: Soulimane Yajjou Second supervisor: Jonne Guyt

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Statement of Originality

This document is written by Student Frederique Claessens who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Table of Contents

Abstract 9 Chapter 1| Introduction 11 1.1 Problem Background 11 1.2 Review of Key Concepts 13 1.3 Research Questions 15 1.4 Intended Contribution 16 1.4.1 Academic Relevance 16 1.4.2 Managerial Relevance 16 1.5 Thesis Overview 17 Chapter 2| Literature Review 19 2.1 Organic Food 19 2.1.1 Organic food & claim 19 2.1.2 Trends in organic market 20 2.1.3 Motives & barriers 21 2.2 Private Labels 22 2.3 Private Label Organic Food Products 23 2.4 Perceived Quality 24 2.4.1 Perceived quality private labels 25 2.5 Perceived Risk 26 2.6 Familiarity 28 2.7 Purchase Intention 28 2.8 Conceptual Framework 29 Chapter 3| Research Method 31 3.1 Respondents and design 31 3.2 Stimulus materials 32 3.2.1 Product and brand 32 3.2.2 Organic label 32 3.2.3 Final Stimulus 33

6 3.3 Procedure 33 3.4 Variables 34 3.4.1 Perceived Quality 34 3.4.2 Perceived Risk 35 3.4.3 Familiarity 36 3.4.4 Purchase Intention 36 3.5 Methodology 37 3.5.1 Mediation Analysis of Hayes 38 Chapter 4| Results 41 4.1 Participants and Other Checks 41 4.2 Hypotheses Testing 42 4.2.1 H1: Organic label has a positive effect on the perceived quality 42 of private labels 4.2.2 H2: Perceived quality has a positive effect on the purchase intention 43 of private labels 4.2.3 H3: The relationship between organic label and purchase intention 44 is mediated by perceived quality 4.2.4 H4: Organic label has a negative effect on the perceived risk 46 of private labels 4.2.5 H5: Perceived risk has a negative effect on the purchase intention 47 of private labels 4.2.6 H6: The relationship between organic label and purchase intention 48 is mediated by the perceived risk 4.2.7 H5: Familiarity has a positive effect on the purchase intention 50 of private labels 4.3 Additional Analyses 52 Chapter 5| Discussion and Conclusion 55 5.1 Introduction 55 5.2 Answers to sub-research questions 56 5.3 Answer to central research question 58 5.4 Implications of Findings 59 5.4.1 Theoretical implications 59

7 5.4.2 Practical implications 60 5.5 Limitations and Future Research 61 References 63 Appendix 1 – Survey 69 Appendix 2 – Products 71 Appendix 3 - Data Tables 73 Part A Participants and other checks 73 Part B Hypotheses Testing 77 Part C Additional Analyses 85

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Abstract

This study investigates the effect of the presence of an organic label on the purchase intention of private label food products. More specifically, it takes perceived quality, perceived risk and familiarity into account when defining this relationship. Previous research showed effects of perceived quality, perceived risk and familiarity on the purchase intention in the context of private labels. Furthermore, other studies have identified links between the use of an organic label and the higher perceived quality and the lower perceived risk. By combining these concepts, this study seeks to define a new model in the context of private labels: the effect of organic label on the purchase intention of private label food products, mediated by perceived quality and perceived risk, and effected by familiarity.

From this study, it can be concluded that the presence of an organic label on the product package of a private label enhances the perceived quality and therefore also the purchase intention. Furthermore, there is no significant effect found between the organic label and purchase intention mediated by perceived risk. Finally, familiarity showed an effect on purchase intention which was completely mediated through perceived quality. It can be concluded that an organic label is a good way to improve the perceived quality of private labels and to increase the purchase intention.

These findings are relevant for retailers struggling with the vast competition of strong national brands. Nowadays they compete on low pricing, however these low prices signal a lower quality. By offering organic private label products, the perceived quality will increase and therewith the purchase intention and the market share will increase.

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Chapter 1| Introduction

1.1 Problem Background

Everybody is familiar with attempts of trying to eat healthy; walking the aisles of the supermarket looking for fresh vegetables, fruits and lean products. These days one term will not remain unnoticed while engaging in this shopping activity and that is the term organic. More and more products contain the term organic in their product name or show an organic claim on the product package. But what does this claim mean and how does this affect the buying behavior of the customers?

Our country is not the only place where the popularity of organic food is increasing; the purchase of organic products is constantly growing worldwide at an average of 9 percent per year (Pellegrini & Farinello, 2009). This increase can be explained by the growing trend among young adults of choosing a lifestyle based upon an organic diet (Von Essen & Englander, 2013). These days, people are more concerned with their health; the popularity of eating well and taking care of your own body is increasing (Pellegrini & Farinello, 2009). Recent research mentions reasons for the decision to purchase and eat organic food. First, people are motivated to eat organic because it is perceived as being less damaging to the environment. Second, eating organic is related to a better personal health. Finally, people state that the taste and the quality of organic products are better than those of conventional products (Schifferstein & Oude Ophuis 1998; Magnusson, Arvola, Hursti, Aberg & Sjoden 2001; Zanoli & Naspetti, 2002; Hughner, McDonagh, Prothero, Shultz & Stanton, 2007; Mondelaers, Verbeke & Van Huylenbroeck, 2009).

Last year, the turnover rate of organic food retail in the Netherlands increased to more than 17.3% compared to 2015. The Bionext report of 2015-2016 states that this

12 increase is seen in all product categories, but the fastest growing category is the one of pre-packed foods; juices, breakfast cereals, coffee/tea and snacks, which increased by 32.6 percent last year. More Dutch grocery stores are introducing their own organic private label product lines, for example AH Biologisch and Jumbo Biologisch. They tremendously increased and broadened the number of organic products offered and together they count for almost 60 percent of the total market share of the organic retail in the Netherlands (Bionext Trendrapport Biologisch, 2015-2016). This increasing amount of organic private label food products is a way by which retailers try to differentiate their own brands from their competitors (Reinders & Bartels, 2017).

Previous research has been focused on altruistic and egoistic motives to buy organic food and their influence on the purchase intention (Schifferstein & Oude Ophuis 1998; Magnusson, et al., 2001; Zanoli & Naspetti, 2002; Hughner et al. 2007; Mondelaers, et al., 2009). Other studies elaborated explicitly on the greater perceived quality of organic food, due to the signaling effect of the label, and the relationship with purchase intention (Vukasovic, 2016; Zepeda & Deal, 2009; Hemmerling, Obermowe, Canavari, Sidali, Stolz & Spiller, 2013). Furthermore, a lot of research has been done on private label food products. Factors as perceived quality, perceived risk and familiarity and their relationship to purchase intention are measured (Dick, Jain & Richardson, 1995; Richardson, Dick & Jain, 1996; Grewal, Krishnan, Baker & Borin, 1998; Bao, Bao & Sheng, 2011; Dursun, Kabadayi, Alan & Sezen, 2011; Jaafar, Lalp & Naba, 2012; Beneke, Flynn, Greig & Mukaiwa, 2013; Vo & Nguyen 2015). However, the combination of an organic label on private label food products has often been neglected in previous research. As organic private label products are taking over the shelves in Dutch supermarkets, it is an interesting trend to investigate. Therefore, the aim of this study is to figure out how the organic claim affects private label food products and to

13 understand how this process works. Through combining different streams in existing literature and performing empirical research, the effect of organic labeling on purchase intention will be investigated. By taking perceived quality, perceived risk, and familiarity into account, a more extensive model will be created.

1.2 Review of Key Concepts

As mentioned above, previous research has already focused on the effects of perceived quality, perceived risk and familiarity on purchase intention in the context of private labels (Dick et al., 1995; Richardson, et al, 1996; Grewal, et al, 1998; Bao et al., 2011; Dursun, et al. 2011; Jaafar et al., 2012; Beneke, et al., 2013; Vo & Nguyen 2015). Other research mentioned a positive relationship between the presence of an organic label and the perceived quality of products (Vukasovic, 2016; Zepeda & Deal, 2009; Hemmerling, et al., 2013) and a negative relationship between the presence of an organic label and the perceived risk felt (Williams & Hammitt, 2000). These key concepts, found in the existing literature, will now be reviewed briefly.

A first connection which is often made is the effect of perceived quality on the purchase intention of private label products. Perceived quality is one of the most important benchmarks for product assessments; it has a great influence on the purchasing decisions and behavior and therefore influences the purchase intentions (Cronin, Brady & Hult, 2000). A positive relationship is found between these two concepts. When people perceive a product as being of high quality, the intention to purchase this product increases (Richardson, et al. 1996; Grewal et al. 1998; Bao et al., 2011; Jaafar et al. 2012; Beneke et al. 2013;). However, the perceived quality of private label products is often considered as relatively lower than national brands, which results in low purchase intentions of private labels (Bao, et al., 2011).

14 Several researchers also found a relationship between perceived risk and the purchase intention in the context of private label products. Risk arises when people feel uncertain about their buying decision. A negative relationship is found between the degree of risk felt and the purchase intention of private label products. In general, people consider private labels as being riskier than national brands, which results in lower purchase intentions of private labels (Richardson et al. 1996; Jaafar et al. 2011; Dursun, et al., 2011). The effect of familiarity on the purchase intention of private labels is investigated by multiple researches (Dick, et al., 1995; Richardson et al., 1996; Dursun, et al., 2011; Vo & Nguyen, 2015). These studies provide evidence for a strong direct effect of familiarity on the purchase intention. Familiarity considers the amount of product or brand related experiences the customer has faced. These experiences with the brand or product influence the purchase intention of the consumer. Dursun et al. (2011) state that familiarity is even the most important factor in the consumers’ purchase intention of private label products.

These days, retailers are expanding their assortments largely with organic products. Earlier research shows that organic food is perceived to be healthier and of higher quality than conventional food. The organic label is an extrinsic quality cue, positively influencing the consumer buying decision. The organic label enhances the perceived quality of a product (Zepeda & Deal, 2009; Hemmerling, et al., 2013; Vukasovic, 2016). Furthermore, Williams and Hammit (2000) found a negative effect of the presence of an organic label on the perceived risk. They state that the presence of an organic label decreases the risk felt among the consumer.

In summary, the purchase intention of private label products is related to the perceived quality, perceived risk and familiarity. Second, a positive relationship is found

15 between organic label, the perceived quality and the purchase intention. Furthermore, a negative relationship is found between organic label, perceived risk and purchase intention. So, when connecting these concepts, it can be suspected that adding an organic label on a private label product increases the perceived quality, reduces the risk and increases the purchase intention. This can be an interesting finding for retailers. 1.3 Research Questions The main research question of this study is: “How does the presence of an organic label affect the purchase intention of private label food products, mediated by perceived quality and perceived risk? And what is the effect of familiarity on the purchase intention?” This study aims to answer the main research question by answering the following sub-questions: 1. What is the effect of the presence of an organic label on the perceived quality of private label food products?

2. What is the effect of perceived quality on the purchase intention of (organic) private label food products?

3. What is the effect of the presence of an organic label on the purchase intention of private label food products, mediated by perceived quality?

4. What is the effect of the presence of an organic label on the perceived risk of private label food products?

5. What is the effect of perceived risk on the purchase intention of (organic) private label food products?

6. What is the effect of the presence of an organic label on the purchase intention of private label food products, mediated by the perceived risk?

7. What is the effect of familiarity on the purchase intention of (organic) private label food products?

16 1.4 Intended Contribution

1.4.1 Academic Relevance

Although a great amount of earlier research has already focused on the factors influencing the purchase intention of private labels, the role of organic labeling is being neglected in these models. Dursun et al. (2011) state that the global emergence of private label brands is increasing and with that, the amount of researches on private labels in the marketing literature is expanding as well. Especially the factors influencing the purchase intention of private labels are of great importance to understand the growing success of private label strategies.

By taking this importance into account, this study will provide an increased understanding of the factors determining private label purchase intention by looking at the trend of organic labels. This process is explained by combining two streams of existing literature: one stream that investigated indicators of purchase intention of private labels and another stream which investigated the effect of organic label on purchase intention. The theoretical model created and tested in this research will serve as an addition to and extension of current existing literature.

1.4.2 Managerial Relevance

The findings of this study will be of considerable importance, especially for retailers who are trying to stand out and differentiate their private label products. As the competition in the retailing market these days is high, companies need strong strategies to differentiate their products from their competitors. It is important to attain loyalty from customers and therefore gain long-term profit (Vo & Nguyen, 2015). An important element in the marketing strategy of retailers is competing with national brands and out form them by creating great quality at a lower price and so enhance the perceived value

17 offered. Adding an organic label is a way of signaling quality towards the consumers and with that a differentiated positioning of the private label can be created.

It is of great importance for retailers to follow the trend of the increasing popularity of organic products. Therefore, it is crucial to understand which effect the presence of an organic label can have on private label food products. In this research effects of perceived quality, perceived risk and familiarity are being analyzed, compared between private label products with and without an organic label. If this study shows any significant effects, these results can guide retailers in defining the positioning and strategies for their private labels to keep up with the trends and the sophisticated needs of the consumers these days.

1.5 Thesis Overview

The upcoming chapters of this study will mainly focus on answering the research question. First, the second chapter will elaborate on the existing literature. The key concepts mentioned above will be discussed in a more detailed way to support the study. After reviewing this existing literature, hypothesis will be created to reject or confirm certain findings. In the third chapter the research method will be explained. Participants will answer questions about the perceived quality, perceived risk, familiarity and purchase intention of a private label product. Two versions of the survey will be distributed, respondents will be randomly assigned to the organic or non-organic condition. The items to measure the variables are based on former research by Dodds, Monroe and Grewal (1991), Jaafar et al., (2012), Grewal et al. (1998), Keller and Aaker (1992), Mieres, Martin and Gutierrez (2006), Stone and Grønhaug (1993) and Dick et al. (1995). These items will be measured on a 7-point Likert scale. After this research is conducted, the results will be explained in the fourth chapter. Based on these

18 findings the hypotheses will be either confirmed or rejected. Finally, in the last chapter the results of this research will be discussed and concluded. Furthermore, some recommendations will be made for future research and for managers in the retailing industry.

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Chapter 2 | Literature Review

2.1 Organic Food 2.1.1 Organic food & claim Defining organic food can sometimes be a little confusing. In retailing various terms are used to refer to the healthy source of the food. You can often find terms as ecological, natural, biological or environment-friendly, which are stated on product packages. However, the term organic is set to be the official term that should be used according to European guidelines. In the production of organic food, no synthetic chemicals like fertilizers and pesticides are used, in contrast with the production of conventional food. Furthermore, animals are not given any antibiotics to avoid getting them infected with diseases (Schifferstein & Oude Ophuis, 1998). So, organic food is produced in a certain way to guarantee the welfare of human, animals and nature (Koopmans, Van Veluw & Wijnands, 2011). In the Netherlands, a lot of products contain the term organic in the name on the package. However, an official mark is used to prove that the product is officially recognized as organic, according to the general guidelines. This mark is also known as the EKO-mark or the green leaf logo, which people can find on multiple food packages (Figure 1). These products are produced under circumstances that follow the requirements for sustainable production (Monitor duurzaam voedsel, 2012). Figure 1: Official organic logo

20 2.1.2 Trends in organic market

In the past decade, the world food market is developing rapidly and encountered some complex and sudden changes. The dynamic environment of this industry, characterized by the changing needs of consumers, creates a demand for responding and adjusting continuously (Vukasovič, 2016). A notable development is the recent rise of the organic food market. In the total global food market, organic food has been the fastest growing category every year. In many countries, the organic food market is even growing considerably faster than domestic production and supply (Willer & Schaack, 2015).

In the late nineties, when the organic sector started rising, only specific specialty stores were selling organic food products. However, after a certain time, the popularity of organic products increased tremendously. Consumers started to pay more attention to the health, the quality and the nutrition of the food they ate (Gil, Gracia & Sanchez, 2000). Since the growing popularity of organic food in the last decade, more companies worldwide are trying to benefit from this trend by also starting to offer organic food (Bauer, Heinrich & Schäfer, 2013). Organic Monitor (2006) states that this trend is also seen in Europe, as European supermarkets are expanding their assortment with organic products. Furthermore, many supermarkets also started offering a range of private label food products with an organic label, to stand out from the rest (Bakker, 2008; Organic Monitor 2006). Looking specifically at the Dutch organic market, the increase in organic production is clearly visible as well. The Netherlands is following the international growth trend in the development of organic farming and nutrition. In 2016, a very strong increase is seen in the number of farmers switching their farming operations to being entirely organic. Furthermore, the Dutch supermarkets have shown 18.7% more profit on organic products in 2015, then they did the year before. And this growth carried on with

21 a rate of 17.3 percent in 2016. It is stated that the organic sector in The Netherlands is growing much stronger than the sector of conventional products (Bionext, 2016). 2.1.3 Motives & barriers A lot of research has been done to determine consumers’ attitudes towards organic food products and the aspects influencing the purchase intention. These studies suggest that the determining factors can be divided in altruistic and egoistic motives. Altruistic motives are humanitarian concerns which benefit the society. These are for example concerns about the environment and animal welfare. Egoistic motives focus on the own wellbeing of the consumer and benefits the individual and his/her family. These motives include beliefs that organic food is tastier, healthier, safer and of better quality. All these motives are found to influence the purchase intention of organic food products (Schifferstein & Oude Ophuis 1998; Magnusson, et al., 2001; Zanoli & Naspetti, 2002; Honkanen, Verplanken & Olsen, 2006; Mondelaers, et al., 2009).

One specific motive for purchasing organic food products is the great perceived quality of these products. The organic certification on a product is often used as a cue to make assumptions about the quality of the product in the buying process (Zepeda & Deal, 2009; Hemmerling, et al., 2013; Vukasovic, 2016; Thøgerson, Pedersen, Paternoga, Schwendel & Aschemann-Witzel, 2017;). Yiridoe, Bonti-Ankomah and Martin (2005) also state that the presence of an organic label on products is a quality signal for the buyers and an essential tool to support the purchase intention of organic products. The organic label functions as a search attribute in the buying process.

On the other hand, an important barrier which often withholds people of purchasing organic food is the price premium they need to pay (Thøgerson, et al., 2017). The price of organic products is relatively higher than the price of similar conventional products

22 and is a great obstacle in the purchase decision process (Hughner et al. 2007). However, according to Völckner and Hofmann (2007), the high price of products is used as an indicator of the quality of the product. They state that people perceive products with a higher price as having a better quality. Furthermore, the lack of availability of organic food products and the suspicion of the organic label also turn out to be barriers of buying organic food products (Padel & Foster, 2005).

2.2 Private Labels

Private labels, or store brands, are brands developed by retailers themselves. The traditional definition of a private label is “one which owned and controlled by an organization whose primary economic commitment is distribution” (Schutte, 1969). These private label products often have the name of the retailer on the package and can only be bought at the retailer supermarkets (Hoch, 1996). The past decade these private labels are growing fast, increasing their competitive advantage towards national brands (Ailawadi & Keller, 2004). Retailers create private labels to differentiate themselves from their rivals. Consequently, the market shares of private label brands are increasing in practically all US and European markets (Reinders & Bartels, 2017).

A lot of research has been done on multiple areas of private labels. Richardson et al. (1996) concluded that the private label buyer is a price sensitive person who is not sensitive to brand image, educated and has a middle level income. Furthermore, Sethuraman and Cole (1999) concluded that, besides consumer specific characteristics, the purchase of private labels also depends on the product category. They found that consumers rather buy private label products in categories they frequently buy and which do not have high emotional value. However, the main factors which influence the purchase intention of private label products are perceived quality, perceived risk and

23 familiarity (Dick, et al., 1995; Richardson, et al., 1996; Grewal, et al., 1998; Bao et al., 2011; Dursun, et al., 2011; Jaafar et al., 2012; Beneke, et al., 2013; Vo & Nguyen, 2015).

Earlier research done by Richardson et al. (1996) investigated the role of factors as perceived quality variation, perceived risk and familiarity with the store brand, on the purchase intention of private labels. Many customers believe that private labels offer inferior quality compared to national brands. They assume that these products are less reliable and contain lower nutritional value. Furthermore, the lower prices of the private labels may have a negative effect on the shopper. Richardson et al. (1996) found that people view the relative low prices of private labels as an indicator that these products are of inferior quality. Finally, many consumers perceive a higher risk when purchasing private label products. They are uncertain about the product performance and they believe that the purchase of private label products will result in financial loss. So, both perceived quality and perceived risk are great influencers of the consumers’ purchase intention. Furthermore, familiarity with the store brand has a strong direct effect on the purchase intention of private labels (Dursun et al., 2011). These three concepts will be extensively discussed in the following paragraphs.

2.3 Private Label Organic Food Products

Retailers these days are trying to stand out by increasing the quality of their own private label products. They are innovating their private label brands and therefore enhancing the actual quality. Furthermore, retailers are strongly integrating social and environmental issues in their private labels, to signal the higher quality of these products (Reinders & Bartels, 2017). Adding an organic label to private label brands is a common used way by retailers of enhancing the perceived quality (Bauer, et al., 2013).

24 products in supermarkets is growing tremendously. More farmers are switching to organic farming which makes it favorable for supermarkets to increase their organic product offerings (Bionext Trendrapport, 2015-2016). Besides the fact that supermarkets offer a great amount of organic national brands, strong players as Albert Heijn and Jumbo are significantly expanding their own assortments of organic private labels as well (Monitor Duurzaam Voedsel, 2012). Organic private label brands have become an effective way by which retailers differentiate themselves. People perceived organic private label food products as good quality products and this enhances the brand image of the retailer (Jonas & Roosen, 2005).

2.4 Perceived Quality

Aaker (1991) defines the term perceived quality as: “the customer’s perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives.” Yee and San (2011) state that one of the most critical elements in the decision-making process of a consumer is the perceived quality. Often people relate the perceived quality to the reputation of the manufacturers or retailers of the product. Furthermore, it is said that the perceived quality has nothing to do with the actual quality of the product. Perceived quality are the judgements of the consumers about the total excellence and condition of the product of service (Aaker, 1991; Zeithaml, 1988). When consumers are deciding which product to buy, they will compare the quality of different products based on a variety of cues associated with the product. By means of these cues the consumers create more abstract ideas about the quality of the product. These quality cues can be extrinsic or intrinsic. Extrinsic quality cues are the attributes which are external to the product itself, like the brand name, company reputation, country of origin, retail store image, labeling and price. On the other hand,

25 intrinsic quality cues are cues regarding the physical characteristics of the product. For example; features, durability, conformance, performance and reliability (Oude Ophuis & Van Trijp, 1991; Aaker, 1991). When there is a lack of information concerning intrinsic quality, the extrinsic quality cues function as the main indicators of quality. People will then immediately consider the packing, labels, price and brand names, because these cues are easily accessible and interpreted (Zeithaml, 1988).

2.4.1 Perceived quality private labels

The fact that people easily rely on extrinsic quality cues is not very beneficial for retailers and their private label brands. The results of research by Richardson et al. (1996) show that the brand name is the most important cue people use in the quality assessment. However, private label products often have less attributes which signal good quality compared to national brands. National brands have a strong brand name, a good brand image and a favorable reputation. Whereas private labels have a lack of a good reputation and quality attributes. It is important for retailers to focus on these extrinsic cues and improve them, because they have a large disadvantage towards national brands when people are relying on extrinsic quality cues solely (Zeithaml, 1988). So, the perceived quality of private label products is inferior compared to national branded products. Private label products do not have a strong brand name, brand image or other quality cues, which define the perceived quality of the product. However, the organic label is an important cue for signaling the quality of a product. Therefore, it can be predicted that when adding an organic label to a private label product, the perceived quality of that product will strongly increase. This leads to the following hypothesis:

26 Furthermore, Richardson et al. (1996) found that perceived quality strongly relates to the purchase intention of private labels and states that it is a more important factor than the value. Following the path of the conceptual framework (Figure 2) this leads to the initiation of the second hypothesis:

H2: Perceived quality has a positive effect on the purchase intention of (organic) private labels When combining both streams in the literature: one of the effect of organic label on the perceived quality and another of the perceived quality on the purchase intention, it can be assumed that there is a positive relationship between the organic label and the purchase intention. This relationship is mediated by the variable perceived quality. The organic label is an extrinsic cue to signal quality and the higher the perceived quality, the more likely consumers would choose the product. This leads to the following hypothesis:

H3: The relationship between organic label and purchase intention is mediated by perceived quality

2.5 Perceived Risk

Besides perceived quality there is another factor which has a major influence on the purchase intention of private label products, and that is the perceived risk (Zeithaml, 1988; Stone & Grønhaug, 1993; Dursun, et al. 2011; Vo & Nguyen, 2015). Perceived risk is the uncertainty felt when consumers engage in situations of buying a new product, which could have both favorable and unfavorable outcomes. When people feel a high level of uncertainty, they feel that the product is risky and the purchase intention of this person will decrease (Stone & Grønhaug, 1993). This uncertainty consumers deal with arises because they cannot predict the consequences of their purchase (Batra & Sihna,

27 2000; Yee & San, 2011).

According to William s and Hammitt (2000), consumers perceive a lower risk when buying organic food products compared to buying conventional food products. They found a significant reduction in the amount of risk felt when consumers buy and consume organic products. Furthermore, they found evidence for the fact that people are willing to pay more for organic products due to this risk reduction. These findings lead to the fourth hypothesis:

H4: Organic label has a negative effect on the perceived risk of private labels

Furthermore, the risk people experience is influenced by the product category. People experience a higher risk when buying products from categories in which they are more afraid to make a mistake, for example baby foods. In general, perceived risk affects the early stage of the buying process, it takes place in the grocery store and strongly influences the intention to purchase the product (Yee & San, 2011). According to multiple studies evidences are found, indicating that perceived risk decreases the purchase intention of private labels (Dick et al., 1995; Richardson et al., 1996; Batra & Sinha, 2000). Therefore, the fifth hypothesis is initiated:

H5: Perceived risk has a negative effect on the purchase intention of private labels.

By combining these two streams in the literature: on the one hand the effect of organic label on the perceived risk and on the other hand the effect of the perceived risk on the purchase intention, it is predicted that the relationship between organic label and the purchase intention is mediated by the perceived risk. The organic label reduces the perceived risk and the lower the perceived risk, the more likely consumers would purchase the product. This leads to the initiation of the sixth hypothesis:

H6: The relationship between organic label and purchase intention is mediated by perceived risk

28 2.6 Familiarity Familiarity can be defined as “the number of product related experiences that have been accumulated by the consumer” (Alba & Hutchinson, 1987). It is stated that people are more likely to buy a brand or product when they are experienced with it and they know that the product will have a satisfactory outcome.

Multiple studies point out that familiarity plays an important role in the determination of the purchase behavior towards private label products (Zeithaml, 1988; Richardson et al. 1996; Baltas, 1997). If people are familiar with the private label brand, they will have a lot of information about the products and the perceived risk will decrease. Furthermore, according to the results of Richardson (1996) consumers who are familiar with the private label brand rely less on the extrinsic cues when deciding on the quality of the product. So, he states that familiarity with the private label brand is critical, because people who are familiar with these brands perceive the products as to be of higher quality and lower risk. Consumers who do not have any experience with the private label brands, view these brands as risky and of low quality (Richardsson et al. 1996). Therefore, the factor of familiarity should also be considered when measuring the purchase intention of private labels. Based on these findings the final hypothesis is initiated: H7: Familiarity has a positive effect on the purchase intention of private labels 2.7 Purchase Intention It can be stated that a product or brand is successful when the purchase intentions of consumers are strong. This purchase intention is determined by positive perceptions consumers have about the brand. Looking at the context of private label brands, Richardson et al. (1996) named multiple factors influencing the purchase intention of

29 private label brands. Besides demographic and individual characteristics, other factors as perceived quality, perceived risk and familiarity play an important role in determining the purchase intention of the consumer. In this study, the purchase intention is defined as the degree to which consumers would like to purchase the (organic) private label food product (Laroche, Kim & Zhou, 1996). The variables perceived quality, perceived risk and familiarity will be the main principles determining the purchase intention. 2.8 Conceptual Framework Figure 2: Conceptual Model

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Chapter 3 | Research Method

In this chapter, the research method will be explained. Firstly, the design and respondents will be described to provide a better understanding of the survey and the people participating in this study. Furthermore, the stimulus materials will be explained. The reasons for choosing the product and the brand will be clarified and the final stimulus is described. Thereafter, in the third paragraph the research procedure is explained. Then, the variables perceived quality, perceived risk, familiarity and purchase intention, which are measured in this study, are elaborated on in the fourth paragraph. The scales are provided to measure the constructs of the theoretical framework. Finally, an overview of the methodology is provided in the fifth paragraph, before proceeding to the fourth chapter in which the results are demonstrated.

3.1 Respondents and design

The objective of this study is to investigate the relationship between the presence of an organic label and the purchase intention of private label food products and to investigate whether this relationship is mediated by the variables perceived quality and perceived risk. Furthermore, the effect of familiarity on purchase intention is considered as well. To reach this main objective, quantitative descriptive data was collected through an anonymous online consumer survey during one week in May 2017. The respondents were mainly a sample of Dutch people and a few Belgian people living in The Netherlands. The main reason for choosing this sample is the fact that these people all know the private label of Albert Heijn, which is researched in this study. Furthermore, this sample is also chosen due to convenience as the study was done in the Netherlands. All the respondents were recruited through social media as the study was conducted through an online link. The survey was created with the program

32 Qualtrics. In this program participants were restricted to fill out every question to minimize the amount of missing data. The items in the survey were measured with reliable scales, taken from earlier research. These items are further explained in the fourth paragraph of this chapter. 3.2 Stimulus Materials 3.2.1 Product and Brand Firstly, one product was selected as subject of this study. This had to be a product which everybody in the Netherlands would be familiar with. The product chosen was a jar of peanut butter from the private label Albert Heijn. This type of product is a typical Dutch food product which everybody knows. Furthermore, the Bionext report 2015-2016 states that the category of pre-packed foods is the strongest growing category in the organic market (Bionext Trendrapport Biologisch, 2015-2016), which makes peanut butter an interesting subject for analysis.

The brand chosen for this study is the private label brand of Albert Heijn. As Albert Heijn is strongly developing and broadening its assortment with innovations on private label organic products, it is of great interest to analyze the development of this tendency. Furthermore, Albert Heijn is the market leader in the Dutch retail market. 3.2.2 Organic label The two conditions of the research were separated by the presence of an organic label on the private label product. One condition was shown with an organic label and one without. By assigning participants to only one of the two conditions, they are unaware of the main purpose of this study and they will not be biased. The green leaf logo is the official organic label used in the Netherlands to determine the organic origin of the

33 ingredients. The presence of an organic label enhances the perceived quality and lowers the perceived risk associated with the product (Yiridoe, Bonti-Ankomah & Martin, 2005). The pictures of the Albert Heijn peanut butter, besides the presence of the organic label, were the same in both conditions. Therefore, no additional factors could have influenced the respondents.

3.2.3 Final Stimulus

Considering all stimuli, two conditions were created (Figures 3a and 3b). Both conditions showed the same product; peanut butter of the Albert Heijn brand. The conditions were distinguished by the organic label: one with label and one without. 3.3 Procedure Because the study has been conducted online, all the respondents accessed the survey through a link on a social media page. When this link was accessed a short introduction was shown. Thereafter, the respondents were asked to fill out some general questions about their age, gender and nationality. This information was not essential for this study, but it might form an interesting extension for further research.

Figure 3b: With Organic Label

34 On the second page the respondents got to see one of the two versions of the peanut butter, which they could observe as long as they wanted. After taking a close look at the picture the respondents were asked to answer the questions below the picture. These questions were related to scales about perceived quality used and tested in the study of Bao, Bao and Sheng (2011), perceived risk and familiarity both used by Dursun, et al. (2011) and finally a few questions on the purchase intention which were also used in earlier research by Bao, Bao and Sheng (2011). See Appendix 1 for the full survey. 3.4 Variables

In the conceptual model of this study, it depends on the relationship tested, which function the variables have.

3.4.1 Perceived Quality

The perceived quality of the respondents was measured after seeing the (organic) product. The perceived quality was tested using existing scales on perceived quality from earlier research by Bao, Bao and Sheng (2011). They combined items from research by Grewal et al. (1998) and Keller and Aaker (1992) and applied these items to the private label context. The Cronbach α of these items was .95 in the research of Bao et al. (2011). This scale contained four questions in the line of: “This product is of high quality” and “This product is very reliable”. Respondents had to answer these questions on a 7-point Likert scale ranging from “Totally Disagree” to “Totally Agree”. In this way, the exact ratings for the perceived quality were found.

To answer the first research question on the effect of organic label on the perceived quality, the perceived quality variable functions as the dependent variable. Furthermore, when moving on to research question two, where the effect of perceived

35 quality on the purchase intention is measured, perceived quality serves as an independent variable, as the perceived quality is the cause of this effect. Finally, when conducting tests on the third research question, perceived quality functions as the mediating variable. In this relationship, the effect of organic label on the purchase intention is measured, mediated by the perceived quality of the product.

3.4.2 Perceived Risk

The respondents’ perceived risk was also measured after seeing the (organic) product in the survey. The perceived risk was measured using scales from earlier research by Dursun et al. (2011) with a Cronbach α of .90. Originally these items were developed by Stone and Grønhaug (1993) and Dursun et al (2011) applied them to the context of private labels. This scale contained items in the line of: “I think I would be making a mistake if I bought this product” and “I feel that the purchase of this product poses problems for me that I don’t need”. Respondents were asked to answer these questions on a 7-point Likert scale ranging from “Totally Disagree” to “Totally Agree”. By asking three items about perceived risk, the total perceived risk was found.

To answer the fourth research question, about the effect of organic label on perceived risk, the perceived risk functions as the dependent variable. Furthermore, when testing the fifth research question, the perceived risk takes the function of an independent variable. The relationship of perceived risk on the purchase intention is measured in this question. Finally, to get a complete insight on the conceptual model, perceived risk also functions as a mediating variable. In the sixth research question, the total effect of organic label on purchase intention is measured, mediated through the variable perceived risk.

36 3.4.3 Familiarity

The effect of familiarity on purchase intention will be measured to answer the seventh research question. This variable is an independent variable and is tested using scales from earlier research by Dursun et al. (2011) which were originally taken from research by Kent and Allen (1994) and applied to the context of private labels. In the study of Dursun et al. (2011) this scale had a Cronbach α of .78. This scale contained of three items to measure the familiarity and contained questions such as: “I am experienced with products of Albert Heijn” and “I have knowledge about products of Albert Heijn. These questions were answered on a 7-point Likert scale ranging from “Totally Disagree” to “Totally Agree”.

3.4.4 Purchase Intention

The main research question of this study is about the effect of the presence of an organic label on the purchase intention of private label food products. Therefore, the purchase intention functions as the main dependent variable. Multiple effects and relationships are tested on this dependent variable. The scale to measure the purchase intention was taken from earlier research by Bao et al. (2011) and had a Cronbach α .98 which is very reliable. Bao et al. (2011) constructed these items which were developed in earlier research by Grewal et al (1998) and Dodds et al. (1991) and applied them to the context of private labels. This scale contained of three questions in line with: “The likelihood of me purchasing this product is very high” and “The probability that I would try this product is very high”. These questions were answered on a 7-point Likert scale ranging from “Totally Disagree” to “Totally Agree”.

37 3.5 Methodology

The data had been collected through Qualtrics and the dataset was exported to SPSS for further analysis. First, a check of frequencies had been made to see if there were errors in the dataset. The full dataset consisted of 366 respondents which contained 67 missing values. These were excluded from the set list wise. This resulted in a complete dataset of 299 respondents.

The variable perceived quality contained of four different items, of which one was a counter-indicative item. The variable purchase intention contained of three items, of which one was also counter-indicative. Both these counter-indicative items were recoded. After recoding these variables, the database was sorted on condition and the new variable named condition was created with 0= non-organic and 1= organic.

Thereafter, the reliability of the scales was tested. The reliability shows the internal consistency of the measurements. The scales were expected to be reliable, as they were taken from earlier research. However, to confirm this, the reliability of the scales was tested again. All scales turned oud to be reliable with a Cronbach’s alpha >0.7, which confirms that all the items in one scale measure the same (see paragraph 4.1 for detailed outcomes).

To test the hypothesis, new variables were created. The items of each scale were taken together and the mean was calculated to describe to the total variable. The four items of perceived quality were taken together and the new variable PQ was generated. The same was done for the other scales which measured perceived risk, familiarity and purchase intention. This resulted in the new variables PR, FA and PI. The mean and SD of all variables are shown in Appendix 3 table B5. A correlation matrix was conducted as an indication of the existing relations among the variables (Appendix 3, table B5). Furthermore, an independent sample t-test and a

38 bar chart were created to see the differences in means of perceived quality and perceived risk among the two conditions (Appendix 3, tables B1-B4). These first tests function as an indication of the existing effects in the model, but they should be tested further using additional methods.

The PROCESS analysis of Hayes Model 4 is used to analyze the relationship between the presence of an organic label and the purchase intention. For the first analysis, the variable condition was entered as the independent variable, perceived quality as the mediating variable and purchase intention as the dependent variable. The output of Hayes shows results for the first three research questions (Appendix 3, table B6). Second, the relationship between organic label, perceived risk and purchase intention was measured with the PROCESS analysis of Hayes Model 4. This output shows results for the fourth, fifth and sixth research questions (Appendix 3, table B8). Finally, the relationship between familiarity and purchase intention was measured. First, a multiple linear regression was executed with independent variables PQ, PR and FA on the dependent variable PI. Furthermore, in a single linear regression the effect of FA on PI was examined to test multicollinearity among the independent variables. Finally, the PROCESS analysis of Hayes Model 4 was used to show an existing mediating effect of perceived quality on the relationship between familiarity and purchase intention.

3.5.1 Mediation analysis of Hayes

The primary goal of this study is to investigate the relationship between the presence of an organic label and the purchase intention of private label products and whether the influence of perceived quality and perceived risk functions as a mediator on this relationship. The expected effects of these mediating variables are stated in hypotheses three and six. As displayed in figures 4a and 4b the conceptual diagram and the

39 statistical model of Hayes (2012) have been used to study the mediating effects. The mediating variable tend to explain why condition and purchase intention are related. The PROCESS model of Hayes is used to understand the mechanisms by which the independent variable causally influences the dependent variable. The model is based on OLS, which stands for ordinary least squares, and is a framework which shows direct and indirect effects in mediator models. The regressions conducted in this study are of a linear form, which makes this model suitable to estimate the coefficients of the independent variables and test the significance. Figure 4a: Conceptual diagram for mediating effect Figure 4b: Statistical equation for mediating effect

40

41

Chapter 4 | Results

4.1 Participants and Other Checks For this study, the respondents were recruited through social media to voluntarily fill out the online survey. After screening the data and removing participants with missing values, the dataset consisted of 299 respondents with a mean age of 29.80 and a SD of 12.22 (Appendix 3, table A1). Looking at the gender of these respondents, 46.2% was male and 53.8% was female (Appendix 3, table A2). To guarantee the validity of this study, it is of great importance that the participants were randomly assigned to the two conditions. This was automatically done by Qualtrics. However, after removing the missing values, the dataset resulted in 144 respondents for the non-organic condition (48.2%) and 155 respondents for the organic condition (51.8%) (Appendix 3, table A3). Furthermore, the mean age of the participants did not significantly differ across both conditions, t(297)= 0.382, p = .703 (Appendix 3, tables A4 & A5). Finally, looking at the gender division among conditions, the proportion of males did not vary across the conditions, |Z| = 0.121 (Appendix 3, table A6 & equation A7).

Lastly, the reliability of the scales used in this study was tested. All the scales were taken from earlier research, so they were expected to be reliable. The two counter-indicative items, one in the perceived quality scale and one in the purchase intention scale, were both recoded. The reliability tests showed that all four scales were indeed reliable. The perceived quality scale had a Cronbach α of .840 (Appendix 3, table A8), which is viewed as good. Second, the perceived risk scale had a Cronbach α of .833 (Appendix 3, table A10), which is reliable. Furthermore, the familiarity scale was good as well and had a Cronbach α of .781 (Appendix 3, table A12). This could be increased to

42 .784 by dropping the second item (Appendix 3, table A13), but it seemed better to keep all three items as the increase was relatively small. Finally, the reliability of the purchase intention scale was tested and this scale was reliable with a Cronbach α of .947 (Appendix 3, table A14). Therefore, it can be concluded that all scales used in this study were reliable. 4.2 Hypothesis Testing 4.2.1 H1: Organic label has a positive effect on the perceived quality of private labels It was expected that the presence of an organic label would have a positive effect on the perceived quality of private label products. So, it is expected that people rate the perceived quality of the peanut butter without an organic label lower than the peanut butter jar with an organic label.

To gain first insight into the relationship between the presence of an organic label and the perceived quality a bar chart was created (Figure 5). On the x-axis the two conditions are specified. On the y-axis the mean score of the variable perceived quality is displayed. This score ranged from 1 until 7 as the questions are rated on a 7-point Likert scale. The mean of the non-organic group had a value of µ = 4.177 and the mean of the organic group was µ = 4.636. The means of both groups are significantly different with p=.042 (Appendix3, B1 & B2)

43

Figure 5: bar chart PQ specified for both conditions

Furthermore, the relationship between condition and purchase intention, mediated by perceived quality, is tested further using PROCESS Analysis of Hayes Model 4. See table 1 at the end of the third paragraph and the output in Appendix 3 table B6. The effect of condition on perceived quality a1=.458 means that the presence of an organic

label is estimated to differ by 0.458 units on perceived quality. The value of a1 is

positive, meaning that this relationship is positive and that the product with an organic label is perceived as being of significant higher quality than the non-organic product. So, hypothesis 1 can be accepted b=.458, t(297) =3.562, p=.0004. This proves that the organic label has a significant positive effect on perceived quality (PQ) with p<.01. 4.2.2 H2: Perceived quality has a positive effect on purchase intention of private labels From the theory it is expected that the higher the quality the respondents perceive, the higher their purchase intention would be. Organic private label products are perceived as being of higher quality. Therefore, it is expected that the purchase intention of these private label products will be high as well. The correlation matrix (Appendix 3, table B5) shows that the relationship between perceived quality and purchase intention is significant r=.580, p=<.001. According to

4 4,1 4,2 4,3 4,4 4,5 4,6 4,7 4,8 4,95 Non-Organic Organic

Perceived Quality

44 this matrix there is an indication of an effect of perceived quality on the purchase intention which will be validated with the model of Hayes.

The relationship between condition and purchase intention, mediated by perceived quality, is tested using PROCESS Analysis of Hayes Model 4. See table 1 at the end of the third paragraph and the output table in Appendix 3 table B6. The effect of perceived quality on purchase intention b1=.884 indicates that the two conditions which differ by

one unit in their level of perceived quality are estimated to differ by 0.884 units in the intention to purchase the product. The sign of b1 is positive, meaning that a higher

perceived quality leads to a higher purchase intention. This effect is a significant positive effect on purchase intention with p<.05. This means that the second hypothesis can be accepted b=.884, t(296) =11.996, p=<.001. 4.2.3 H3: The relationship between organic label and purchase intention is mediated by perceived quality Findings in this study show a significant positive relationship between the presence of an organic label and the perceived quality. Furthermore, a significant positive effect is found of perceived quality on the purchase intention. Based on these findings it is interesting to test the relationship between organic label and purchase intention, mediated by the variable perceived quality.

First, the correlation matrix (Appendix 3, table B5) shows a statistical significant positive relationship between condition and purchase intention with r=.121, p<.05. This relationship explains the total direct relationship between the organic label and the purchase intention, without taking the mediating variable perceived quality into account.

45 With the PROCESS analysis of Hayes Model 4 the mediating effect of perceived quality on the relationship between condition and purchase intention is examined further. Hayes shows the result of an indirect relationship (Appendix 3, table B6 & B7), where the correlation matrix only shows the direct relationship. Looking at table 1 at the end of this paragraph, the indirect effect a1b1=.405 shows that two conditions are estimated to differ by 0.405 units in their purchase intention because of the perceived quality. This indirect effect is statistically different from zero, as revealed by a 95% BC bootstrap confidence interval, which lies completely above zero with Boot LLCI 0.185 to Boot ULCI 0.648. It can be concluded that perceived quality indeed functions as a mediating variable in the relationship between organic label and purchase intention. Finally, the total effect of the relationship, c1=.417 with t=2.094, p=.037, or between 0.025 and 0.808 with 95% confidence, shows the significant relationship between condition and PI. The direct effect of condition on purchase intention, c1’=.011 is also tested with this model. However, looking at table 1, there is no significant direct effect of presence of organic label on purchase intention, as p=.946. So, when the relationship between condition and PI is corrected for PQ, the total effect is gone c1’=.011, t=0.068, p=.946. If this occurs an effect of full mediation can be concluded. So, the relationship between the presence of an organic label and the purchase intention is fully mediated by the perceived quality of the product. The effect is statistically proven with Sobells Normality Test Z=3.404, p=.0007 (Appendix 2, table B6). Therefore, hypothesis three can be accepted and it can be concluded that people who viewed the organic condition, perceived a significant higher quality, which resulted in a significant higher purchase intention.

46 Table 1: Mediation Analysis COàPQàPI

Consequent

PQ (M) PI (Y)

Antecedent Coeff. SE p Coeff. SE p

Condition (X) a1 .458 .129 <.001 c1 .011 .167 .946 PQ (M) --- --- --- b1 .884 .074 <.001 constant _i1 4.177 .093 <.001 i2 -.335 .330 .310 R2=.041 R2=.337 F(1,297) = 12.685, p<0.001 F(2,296) = 75.204, p<.001

Effect SE p LLCI ULCI

Direct effect c1’ .011 .167 .946 -.317 .340

Total effect c1 .417 .199 .037 .025 .808

Boot SE Boot LLCI BOOT ULCI

Indirect effect a1 b1 .405 .116 .185 .648

4.2.4 H4: Organic label has a negative effect on the perceived risk of private labels

It was expected that the presence of an organic label would have a negative effect on the perceived risk. So, it was predicted that the respondents who viewed the peanut butter with an organic label would have a lower perception of risk, compared to the respondents who viewed the product without an organic label.

To gain first insight into the relationship between the presence of an organic label and the perceived risk a bar chart is created (Figure 6). On the x-axis the two conditions are specified. On the y-axis the mean score of the variable perceived risk is displayed. This score ranged from 1 until 7 as the questions are rated on a 7-point Likert scale. The mean of the non-organic group had a value of µ = 2.951 and the mean of the organic group was µ = 2.654. The means of both groups did not differ significantly with p=.059 at a condfidence level of 95% (Appendix 3, B3 & B4)