THE INFLUENCE OF A DECONSTRUCTED COUNTRY OF ORIGIN ON CONSUMER BEHAVIOR

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THE INFLUENCE OF A DECONSTRUCTED

COUNTRY OF ORIGIN ON CONSUMER BEHAVIOR

A Study of Luxury and Non-luxury Cars

By

Martin Kazimier

Dual Award

MSc. Advanced International Business Management and Marketing

University of Groningen

Faculty of Economics and Business

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LIST OF TABLES

Table 5.1: largest utilities regression analysis, only unstandardized coefficients 27

Table 5.2: eigenvalues and explained variance 28

Table 5.3: pattern matrix 29

Table 5.4: structure matrix 29

Table 5.5: country evaluations 30

Table 5.6: paired samples test 31

Table 5.7: moderated regression analyses, only unstandardized coefficients 32

LIST OF FIGURES

Figure 3.1: conceptual model, hypotheses 1-3 20

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ACKNOWLEDGEMENTS

This is the right time to thank my family, friends and especially

my parents for the support they have provided together with

great memories during my student life.

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iv ABSTRACT

The purpose of the study presented in this paper is to assess the differences in perceived quality and purchase intention of both luxury and non-luxury cars, when the country of origin is

deconstructed. Data were collected through non-probability sampling and analysed through regression analyses and factor analyses with the aim of gaining insight into consumer behaviour and thought patterns. The findings suggest that the reputation of the country of design is most important for both types of cars when consumers assess the perceived quality and purchase intention. A positive reputation results in higher perceived quality and purchase intention than a negative reputation. Furthermore, the results indicate certain thresholds that have to be met before perceived quality and purchase intention are affected by sub-constructs of the country of origin. The study contributes to existing research by providing a holistic approach of the country of origin and through new insights gained on consumer behaviour.

KEYWORDS: country of origin, perceived quality, purchase intention, (non-)luxury products, country reputation

WORD COUNT: 11,287

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ABBREVIATIONS

Country of Origin (COO)

This is the overarching construct that relates to countries which are involved in conceiving a product.

Country of Design (COD)

The country where the product was designed and/or that is usually associated with the product (Hamzaoui & Merunka, 2006)

Country of Assembly (COA)

The country where the final product is assembled or manufactured (Insch & McBride, 2004).

Country of Parts (COP)

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THE INFLUENCE OF A DECONSTRUCTED

COUNTRY OF ORIGIN ON CONSUMER BEHAVIOR

Chapter 1 Background and Context

1.1 Quality and the Country of Origin 1

1.2 Statement of Purpose and Structure of the Paper 5

Chapter 2 Literature Review

2.1 The Country of Origin Defined 6

2.2 The Perception of Quality and Purchase Intention 8

2.3 The Influence of Country Reputation 10

2.4 Luxury versus Non-luxury Products 13

2.5 Closing the Gaps 15

Chapter 3 Research Question and Hypotheses

3.1 Hypotheses for Luxury and Non-luxury Products 16

3.2 Conceptual Models 20

Chapter 4 Research Methods

4.1 Research Design 22

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Chapter 5 Results

5.1 Sample Description 26

5.2 Evaluation of the COD, COA and COP 26

Chapter 6 Discussion

6.1 Interpreting the Differences 34

Chapter 7 Conclusion

7.1 Managerial Implications 41

7.2 Limitations and Directions for Future Research 42

References 44

Appendix I 53

Appendix II 54

Appendix III 55

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1 1. BACKGROUND AND CONTEXT

1.1 Quality and the Country of Origin

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2 A large part of the call backs were due to a problem with a component coming from one manufacturer situated in one country. This signals that any country that participates in the process of creating a car has an influence on the consumer‟s quality perception. Acknowledging that quality perception of cars by consumers can have a huge impact on profits and company reputation it is important to understand how quality perceptions are established by consumers. Especially since the automotive industry is expected to grow 7% on average for the coming five years and there is an even further need by consumers for safe, reliable, fuel-efficient cars (Datamonitor, 2011).

Part of the quality perception of products is related to the country of origin. The country of origin (COO) literature body has grown substantially over the last couple of decades. Most of the literature is devoted to show how the COO affects the quality perception of products by consumers (see, e.g. Chao, 1998; Biswas & Chowdhurry, 2011). Since consumers have different opinions about different countries the labeling of products with a specific COO affects the purchase intention (Wall, Liefeld & Heslop, 1991). This paper will present a research on the perceived quality and purchase intention differentials for luxury and standard cars when the country of origin is different for design, parts and assembly of the car.

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3 stresses the fact the automotive industry is globally diversified. However, it also means that there is not one single country of origin for manufactured cars.

Nowadays the COO construct is made up out of the country of parts (COP), country of assembly (COA), country of manufacturing (COM) and country of design (COD) (Insch & McBride, 2004). The constructs COA and COM are used interchangeably in the literature and represent the country where the product is manufactured or assembled. This study will use the term COA. The COD is the geographic region where the product was designed and/or that is usually associated with the product (Hamzaoui & Merunka, 2006). Other studies have used the proxy country of brand (COB) instead of country of design (see, e.g., Fetscherin & Toncar, 2010). However, since these two constructs were used interchangeably in studies mentioned later on, this paper only uses the term country of design. The country of parts (COP) is defined as the country where the majority of the parts used in the products comes from (Insch & McBride, 2004). Insch (1995) found that a negative image of the country of parts could have a detrimental effect on the overall perceived quality of the products at hand.

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4 suggested that product evaluations were for a large part determined by the fit between COD and COA and the product category. The paper also established that consumers in general pay more attention to the COA than the COD. However, the COD became more important to consumers when the products resembled symbolic signalling of sophistication or wealth, e.g. a car. The main recommendation following their research findings, suggests highlighting specific product or country features related to the development or design of the product. It could also be used by managers as an important variable in deciding where to design or manufacture certain products. An important limitation of the Hamzaoui and Merunka study is the fact that only consumers from a developing country (Tunisia) were asked to participate and it did not include the country of parts. This paper will go beyond the paper of Hamzaoui and Merunka by including the country of parts in the analysis. Furthermore, this research will assess the quality perception and purchase intention of consumers coming from developed countries on specific sets of car brands that can either be classified as luxury or regular based on price, ratings and statements made by the company. Moreover, this paper will not merely focus on the perceived quality, but will also look if the purchase intention is affected due to differences in the country of origin for design, assembly and parts. Therefore, the following general research question has been developed:

How does the consumer’s purchase intention and perception of quality for luxury and non-luxury cars change, when the reputations of the country of assembly, country of design and country of

parts differ?

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5 1.2 Statement of Purpose and Structure of the Paper

Overall the research aims to find guidelines as to how brand equity can be affected by the country of origin. More specifically, the paper assesses if consumers differentiate between the quality of luxury and non-luxury cars taking COD, COA and COP into account and assesses how the latter affects the purchase intention. Furthermore, this research has both theoretical and practical relevance. The theoretical contribution comes from a further extension and knowledge about the country of origin construct and its effects. Furthermore, in practice sales and marketing managers can make better informed decisions in marketing their brands than before.

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6 2. LITERATURE REVIEW

2.1 The Country of Origin Defined

Brand image is an important aspect of a product and is partly responsible for the perceived product quality (Homer, 2008). The country of origin and its several sub-constructs are influencing factors on the brand image and thus the quality perception of products. As aforementioned this research is an extension and deepening of earlier research on breaking down the construct country of origin and related consumer behaviour. Firstly, the country of origin has to be defined. Balabanis and Diamantopoulos (2008) differentiate between the perceived and actual country of origin. Certain products can be assigned to the wrong country of origin by consumers or not assigned at all. This has to do with stereotyping, which stems from the fact that consumers do not possess perfect information (Harbers & Pauwels, 2005). Stereotyping is often used as a shortcut to make decisions and is consequently a predictor of purchase intention and purchase behaviour. However, Harbers and Pauwels (2005) also mention that stereotyping differs per country. They established that consumers from small, internationally oriented countries (e.g. The Netherlands) use stereotyping less than people from more isolated countries. To avoid confusion and since the COD maybe different from the COA and COP, the actual geographic regions for the COD, COA and COP are used in this paper instead of the perceived COO. This will make sure there is no doubt about the country of origin, but still leaves room for consumers to assign different values to countries.

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7 and Merunka (2006) found that for consumers from emerging markets the country of design is more important in assessing product quality when the product has a stylish and symbolic meaning, e.g. a car. For private products (e.g. a television set) these authors concluded that the COA is more important. When the COD was seen as more important for consumers, this was because it conveyed cultural heritage and was a sign of sophistication and performance. The authors also found that for complex products the COD was more important than the COA. The above mentioned findings are limited by the fact that the study was carried out in a developing country. However, in a study by Brodowsky (1998) it was also established that consumers from a developed country who intend to buy a car are more influenced by the country of design than the country of assembly.

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8 literature the country of parts will be included in this study, together with the country of design and country of assembly.

2.2 The Perception of Quality and Purchase Intention

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9 it is not necessarily established through direct interaction with the product. Pecotich and Rosenthal (2001) found that for every product the perceived quality is lower when the country is less developed. With this there is a link with country reputations, which will be discussed later on.

Other research has pointed out that the purchase intention is a relatively good predictor of an actual purchase (Morwitz & Sun, 2010). The validity of this predictor can be questioned due to the fact that intentions might change over time and a systematic bias that is apparent in using this predictor. However, since purchase intentions are used in the mainstream marketing literature, it will also be the concept at hand in this paper for predicting purchase behavior. Spears and Singh (2004: 56) define the purchase intention as “an individual‟s conscious plan to make an effort to purchase a brand”. Earlier research on perceived quality and purchase intention regarded both constructs as to be attitudinal. However, further research found that only perceived quality represents an attitude to a product and that the purchase intention is related to behavioral intent (Spears & Singh, 2004). In general attitudes create behavior through behavioral intent. Therefore, it can be assumed that the perceived quality and purchase intent are two separate constructs that can be affected in different ways by a deconstructed country of origin. Research has indicated that the perceived quality can have a direct and indirect effect on the purchase intention of consumers (Zeithaml, Berry & Parasuraman, 1996; Sweeney, Soutar & Johnson, 1999). Tsiotsou (2006) reports that consumers who perceive the quality of a product to be high, as having a higher purchase intention than consumers who perceive the quality to be low.

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10 on the perceived quality than on purchase intention. They hypothesized that this was due to the fact that the purchase intention requires more commitment since it is linked to behavioral intent and is not solely an attitude. Lee and Lee (2009) performed a research on product evaluations (e.g. quality) and purchase intention, whilst differentiating between objective and subjective product knowledge. Objective knowledge was defined as specific product information, whereas subjective knowledge as related to accumulated knowledge through product experience. They established that in general consumers with low overall product knowledge are influenced by the country of origin. Furthermore, their research found that consumers with high objective product knowledge are less likely to address country of origin effects than consumers with subjective knowledge. The research affirmed that positive country of origin cues were positive indicators of purchase intention, but did not prove that high subjective knowledge consumers use these cues more than low subjective knowledge consumers. The research described in this paper will make objective data about cars available to consumers, to make sure the country of origin effects are not overestimated and to be certain that every consumer has equal information. On the other hand, no country related data will be distributed. In this way the purchase intention can be assessed. Furthermore, following the directions for future research from Peterson and Jolibert (1995), this paper will include quality perception and purchase intention as two separate constructs that can be influenced by the country of origin.

2.3 The Influence of Country Reputation

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11 attitudes and purchase intentions at the macro-level (Kang & Yang, 2010). In their research these authors defined country reputation as the “perceptions of a country, shared by domestic and international publics, on the basis of personal experience and information received” (Kang & Yang, 2010: 53). This definition implies that a country reputation (positive or negative) is not necessarily industry specific and spill-over effects can occur. Laroche, Papadopoulos, Heslop and Mourali (2003) found that country images are formed through cognitive, affective and conative processes. Cognitive and affective processes deal with intelligence and emotions respectively, whilst a conative process explains how a consumer acts with respect to beliefs and emotions. In relation to the COO the conative component of a consumer than refers to the “desired level of interaction with the sourcing country” (Laroche, Papadoupolos, Heslop & Mourali, 2003: 98). This implies that a country reputation can also be established without direct interaction. Consumers can thus assign a reputation to a country without visiting it, but by interactions with other consumers who may or may not have knowledge about the country. A study conducted by Kunczik (1997) confirmed this. One conclusion of earlier mentioned research was that consumers‟ beliefs about a product (e.g. quality and reliability) and country images influenced the perceived quality. This was true for consumer groups who were either highly familiar or unfamiliar of the country‟s general industry. Scholars have also recognized that final products from developing countries are usually lower rated by consumers on innovation, quality and price (see, e.g. Hamzaoui & Merunka, 2006; Laroche, Papadoupolos, Heslop & Mourali, 2003).

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12 Chowdhurry, 2011). Specifically, positive country evaluations are linked to a better product perception. Kang and Yang (2010) found that the purchase intention of products is affected positively when consumers have positive abstract associations with the country reputation where the products are produced. Furthermore, these authors found that the purchase intention was positive when consumers had a positive feeling about the overall corporate image of the company where the product is coming from. Their main conclusion was that the purchase intention of consumers is positively affected when the country has established a reputation in the industry of the product. With this there is a link with earlier work of Pappu (2006) who found that the perceived quality is higher in countries with an established reputation, hence linking perceived quality and purchase intention.

A study conducted by Wang and Yang (2008) found that the country of origin is a positive moderator for brand personality and the purchase intention. More specifically, a positive COO perception enhances the brand personality and the purchase intention of consumers. Another study by Chowdhurry (2009) recognized the fact that countries that already have an established innovative character related to development and manufacturing in the minds of the consumer are expected to transfer those associations to other products coming from that country. However, this study did not pay attention to associations where the country of design and country of assembly differ.

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13 Specifically they found that when a car designed in an emerging market, but manufactured in a developed country will be rated higher on the perceived brand personality and thus quality then when the opposite is true. The country of assembly had thus a larger impact than the country of design. This is in line with earlier research which also found negative associations of manufacturing cars in developing countries (see, e.g., Johansson & Nebenzahl, 1986; Han & Terpstra, 1988).

In relation to the discussed literature above it can be argued that whether a developing country is the COA or COD, it will always be rated less than a developed country (Iyer & Kalita, 1997). This is due to the fact that exporters from developing countries have trouble circumventing stereotypes through the lack of establishing a reputation for certain industries and individual brands which results in unknown product quality by consumers (Kallbasi, 2001). Ulgado and Lee (1993) recognized the unfavorable production location, and the resulting lower perceived quality by consumers, can be overcome by improving intrinsic and extrinsic features of products by which brand equity is established. A study conducted by Ahmed and d‟Astous (1995) confirmed that developing countries were rated poorly as COA and even worse as COD. However, the study did also found that household buyers do not necessarily differentiate between the COD or COA, but that the brand name is most important.

2.4 Luxury versus Non-luxury Products

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15 complex products consumers are expected to be paying more attention to the country of assembly than the country of design, which is the opposite of earlier findings by Hamzoui and Merunka (2006). Therefore, it is inconclusive if consumers pay more attention to the country of assembly or country of design for luxury/complex products.

2.5 Closing the Gaps

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16 3. HYPOTHESES

3.1 Hypotheses for Luxury and Non-luxury Products

In order to come to solid conclusions, the research question will be broken down into separate hypotheses which will be tested. The first hypothesis is related to the COP. The literature review showed that this concept has not been studied thoroughly. The results that were available indicated that the COP had the largest influence on product perception compared to the COD and COA (Insch & McBride, 2004). However, the construct COP was only tested on hypothetical, non-luxury products. To get more insight into the COP construct it is hypothesized that for both luxury and non-luxury products, the COP will have the largest influence on the perception of quality and purchase intention.

H1: The COP will have the largest influence on perceived quality and purchase intention for both luxury and non-luxury products compared to the COD and COA.

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17 COA has more influence. Overall, it can be argued that when luxury products are purchased consumers pay significant attention to the brand name. A brand name is usually associated with the prestige a product conveys and linked to the COD. Since the COD expresses certain abstract aspects of a country, it will influence the overall cognitive, affective and conative ideas about a luxury product. Therefore, the COD is more important to consumers than the COA. The COP is left out of the equation since it already has been hypothesized that this construct will have the biggest influence.

The case for non-luxury products is different. Studies have shown that for non-luxury products consumers do not pay much attention to the country of origin, with the exception of the COP. Furthermore, scholars have established that for private products the COA is more important than the COD. However, it depends on the socio-economic context to classify a car as either a private good or luxury good. Moreover, several studies have come to different conclusions about what construct (COD/COA) is more important for non-luxury products, which can be related to the fact that the reputations of the countries can differ. It can be argued that non-luxury cars are not purchased for social distinctiveness or any other purposes other than regular, basic needs. In that case consumers are not likely to go beyond the COP construct to assess the quality of the car. For these reasons the following hypotheses will be tested:

H2a: The COD will have a larger influence on the perceived quality and purchase intention of luxury products than the COA.

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18 The above mentioned hypotheses do not mention any direction of the relationships between the variables. This is because the relationship can either be positive or negative. Hypothesis three is used to test the direction of the relationships and relates to the reputations that developed and developing countries have for products that are manufactured. From the literature review it can be concluded that developing countries are rated lower on quality because of stereotyping that occurs in the mind of the consumers who do not posses perfect information. Since consumers believe that developing countries do not have an established reputation for this industry the quality is lower and the purchase intention as well. The opposite can also be argued. Since developed countries do have a better overall reputation they are rated higher on quality and purchase intention. Therefore, the following two hypotheses will be tested for both luxury and non-luxury cars:

H3a: Any sub-construct of COO associated with a developing country will have a negative influence on the perceived quality and purchase intention.

H3b: Any sub-construct of COO associated with a developed country will have a positive influence on the perceived quality and purchase intention.

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19 influence than the COA for luxury products. The COD of a product can thus moderate the effects of the COP. For non-luxury cars it was hypothesized that the COA and COD do not have a different influence on the perceived quality and purchase intention. However, this does not mean that the reputations of the COA and COD cannot moderate the effect of the COP.

Furthermore, it has been argued that the country of origin has a larger influence on the perceived quality than on purchase intention. As mentioned earlier, this was related to the fact that purchase intention is linked to behavioral intent and thus requires more commitment than perceived quality which can be described as an attitude to a product. Therefore, it is argued here that any moderating effects will result in a higher perceived quality relative to purchase intention for both luxury and non-luxury cars. This line of reasoning leads to the following group of hypotheses:

H4a: A positive reputation of the COD will have a positive moderating effect on a negative repuation of the COP for luxury cars, which will be expressed through a higher perceived quality relative to purchase intention.

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20 3.2 Conceptual Models

Following from the literature review and the derived hypotheses, two conceptual models were constructed which are shown below. Figure 3.1 is different from figure 3.2 in the sense that it expresses general influences on perceived quality and purchase intention. The second figure will show how the perceived quality and purchase intention are affected separately. The first figure shows the various concepts that are used and how they relate to each other for the first three hypotheses. Firstly, it has been hypothesized that the COP has the largest influence on the perceived quality and purchase. This is illustrated in the model by a larger arrow for COP than any of the other influencing factors. Hence, the COD and COA have smaller arrows.

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21 As is shown in the figure, the arrow for COD on the luxury side is larger than the arrow for COA. This depicts the larger influence of the COD relative to the COA. Following hypothesis 2b, the arrows are of the same size for both the COD and COA on the non-luxury product side. The influences of developed and developing countries (H3a and H3b) are depicted by plus and minus signs.

Figure 3.2 shows the hypotheses that relate to H4a/b. The box for perceived quality

Figure 3.2: conceptual model, hypotheses 4a/b

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22 4. RESEARCH METHODS

4.1 Research Design

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23 detailed description, but they are in line with the aforementioned definition for luxury cars in this paper.

Non-luxury cars are defined as any car with a price under €35,000 with a lack of luxurious technologies that match with the general definition of a luxury car. A list of cars used for this study is provided in appendix I. It must be acknowledged that the boundary between luxury and non-luxury cars is increasingly becoming blurred. This is due to the fact that many standard cars can be upgraded in such a way that they will have luxury aspects. Normally consumers pay a premium price for such an enhanced non-luxury car. In order to circumvent this problem and make the boundary between luxury and non-luxury cars clear, only standard cars were used for this paper.

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24 4.2 Data Collection

The chosen sampling method for this paper was snowball sampling, which is an example of non-probability and convenience sampling. More specifically, exponential non-discriminative snowball sampling was chosen over linear snowball sampling in order to gain more responses. A specific set of individuals was chosen to fill out the survey and forward it to other individuals who they deemed appropriate for the research, creating a snowball effect. This sampling method was chosen due to financial and time constraints of the researcher. This type of sample has certain limitations which will be discussed in the conclusion section of this paper.

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25 consumers are unaware. As aforementioned in the literature review, the brand name and price were included in the survey to make sure that effects originating from the country of origin were not overestimated. This is also in line with the paper written by Ahmed and d‟Astous (1995). Respondents were also asked to rate twelve countries on a nine-point scale to assess their beliefs on the abilities of these countries to design, assemble or provide parts. A list of the countries that were assessed is available in appendix III. Furthermore, the survey contained several open questions to assess the background of the respondents. This data was either nominal or dichotomous data and did not need any statistical calculations to see if the research question could be answered since it was only used for support purposes. The entire survey was administered online. An example of the survey is shown in appendix IV.

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26 5. RESULTS

5.1 Sample Description

Of the 106 returned surveys, 90 proved to be viable for extended research. The mean age of the respondents was 25 years and 93% owned a drivers license. The majority of the respondents was male (73%). A breakdown of the nationalities showed that 72% of the surveys were completed by a Dutch person, 7% by Germans, 7% by US citizens and 6% British. The remaining 8% was made up out of several different nationalities, namely Swahilian, Belgian, Australian, Norwegian, Spanish, Indian and Mexican respondents. No data on income or job descriptions were collected.

5.2 Evaluation of the COD, COA and COP

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27 importance of the utilities gained from the regression analysis was calculated. This was done by first calculating the average utility range for each sub-construct. The calculation was based on significant utilities and non-significant utilities were only assessed if the former were absent. Thereafter, the relative utility importance was calculated as a percentage of the total utility range.

Table 5.1: largest utilities regression analyses, only unstandardized coefficients Notes: * statistically significant at 0.05

** statistically significant at 0.01

Non-luxury cars COD COA COP

Largest utilities for quality

Germany 0.314* Brazil 0.190 0.241* 0.372** 0.354** 0.285** Romania 0.174 0.213

Largest utilities for PI

Germany 0.245 Brazil 0.249* 0.227 0.426** 0.246 0.197 Romania 0.355** 0.112

Luxury cars COD COA COP

Largest utilities for quality

Germany 0.169 Brazil 0.308** 0.194 0.191 0.411** 0.109 Romania 0.355* 0.190

Largest utilities for PI

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28 This showed that the importance of the COD is 54.6%, COA 12.4% and COP 33.0%. Therefore, H1 is not supported since overall the COD is more important than the COP.

In accordance to H2a, the table also suggests that the COD is more important than the COA when consumers assess luxury cars. None of the cases where the COA had a larger impact on the perceived quality and purchase intention were statistically significant. The same seems to hold for H2b, although the COA is significant for non-luxury cars. Calculations for the relative importance of each sub-construct were conducted in the same way as for H1. This showed that for luxury cars the COD is most important with 79.2% and that the COA only accounted for 20.8%. Therefore, H2a is supported. For non-luxury cars the importance of the COD is 67.9% and the COA is 32.1%. H2b is thus not supported, due to the higher importance of the COD.

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29 analysis was run with a direct oblimin rotation, due to the possible correlations between the independent variables. Factors above the Kaiser-criterion of one were retained. The remaining three factors explain 58,128% of the variance, as is shown in table 5.2 on the previous page.

The pattern matrix (table 5.3) and structure matrix (table 5.4) both show the same composition of the factors. They show that in

factor 1 the COA and COP of Romania have the highest loadings. In factor 2, this is true for all sub-constructs of Germany. Finally, factor three is a hybrid of the sub-constructs of Brazil and the COD of Romania. This indicates that the COA and COP of Romania explain 25.4% of the variance, while the other two factors respectively explain 20.0% and 12.7% of the total variance (table 5.2). These finding do not undermine the fact that H2a is supported and H2b is not, but it does show a thought pattern of consumers. Consumers first pay attention to the two sub-constructs of the least developed country (Romania) and then to the most developed

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30 This page presents table 5.5, which shows the evaluations of six developed countries and six developing countries for COD, COA and COP. As can be seen developed countries score consistently higher for the COD, than developing countries. The midpoint is 4.5 since respondents were asked to rate countries on a nine-point scale. The case for the COA is slightly different, with China scoring higher than Canada, South Korea and Italy. The same observation holds for the COP. However, the overall means are higher for developed countries than developing countries. In order to check for normality, Q-Q plots were produced using SPSS. These plots showed that the variables were normally distributed. To check if the mean differences were statistically significant, a paired samples test was conducted, shown in table 5.6.

Table 5.5: country evaluations Note: values range from 1-9

COD COA COP

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Table 5.6: paired samples test Notes: * statistically significant at 0.05

Hypothesis 3a is partly supported since only the COD of developing countries is negative compared to the midpoint of 4.5. The COA and COP of developing countries are rated less positive than those of developing countries, but they are still above the midpoint. The table above shows that differences between the means of developed countries and developing countries are statistically significant. The former are consistently and significantly higher than the latter, thereby supporting hypothesis 3b. Table 5.5 also shows that the overall means for developed countries are rather consistent and do not seem to depend on any sub-construct. Developing countries, on the other hand, show higher values for the COA and COP than for COD. Furthermore, it shows that Germany is rated the highest among all the developed countries and Romania the lowest of all the developing countries.

In order to test H4a and H4b, moderated regression analyses were conducted. Two moderator variables were computed, one for the COD and another for the COA. Table 5.7 shows the unstandardized B and the related significant levels for the moderator variables in different

Paired Differences t df Sig. (2-tailed) Mean diff. Std. Deviation Std. Error Mean 95% Confidence Interval of the Difference Lower Upper

Pair 1 Developed COD mean -

Developing COD mean

2,78833 1,42625 ,58226 1,29158 4,28509 4,789 5 ,005**

Pair 2 Developed COA mean -

Developing COA mean

1,29667 1,03639 ,42310 ,20904 2,38429 3,065 5 ,028*

Pair 3 Developed COP mean

-Developing COP mean

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32 situations. As mentioned before, the standardized Betas were not assessed since this measurement level does not allow comparing variables across equations. As can be seen, H4a is partly supported since the COD does have a positive moderating effect on a negative COP for the purchase intention, but not for the perceived quality of luxury cars.

Luxury cars Unstandardized B Significance

Perceived quality

COD as moderator 0.030 0.428

Purchase intention

COD as moderator 0.124 0.008**

Non-luxury cars Unstandardized B Significance

Perceived Quality COD as moderator 0.065 0.117 COA as moderator -0.025 0.261 Purchase intention COD as moderator 0.065 0.117 COA as moderator -0.022 0.413

Table 5.7: moderated regression analyses, only unstandardized coefficients Notes: * statistically significant at 0.05

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34 6. DISCUSSION

6.1 Interpreting the Differences

As aforementioned, multiple studies have been conducted on the country of origin. In general only one or two sub-constructs were the focal point of those studies. This research has assessed the different influences of the COD, COA and COP on two different product categories, luxury and non-luxury. It was established that the COD has the largest influence on the perceived quality and purchase intention for both luxury and non-luxury products. Therefore, H1 is not supported. This finding contradicts with the results of the study by Insch and McBride (2004) who state that the COP had a significant effect on product evaluation by consumers. This different outcome may be explained by the fact that the products used in their research are not usually described as indicators of social distinctiveness (athletic shoes, a mountain bike and a TV-set). Furthermore, this study was not based on consumer groups coming from developed and developing countries, whilst the study of Insch and McBride (2004) was. However, the finding that the COD is the most important sub-construct is in accordance with the study of Brodowsky (1998). It might be argued that the importance of the COD, COA and COP depends on the degree of functionality of the car. Consumers from a developed country are more likely to buy a car for social stratification and thus pay more attention to the COD. On the other hand, consumers from a developing country might be more interested in the functional capabilities of a car and hence the COA or COP is more important to them.

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35 increases the generalizability of earlier findings by Hamzaoui and Merunka (2006) who established that consumers from emerging markets who intend to buy a car are more influenced by the COD than the COA. Since almost all respondents in this study were nationals of a developed country, Hamzaoui and Merunka„s findings are applicable beyond the context of developing countries. The fact that H2a is supported also provides an extension of work conducted by Piron (2000). In that particular study it was found that the country of origin is an important factor when considering the perceived quality and purchase intention for luxury goods. Due to the results presented in this paper it can be concluded that when the country of origin construct is broken down, the COD is more important for luxury cars than the COA. The higher importance could be attributed to the cultural heritage and sophistication that the COD expresses. This is then rated as more important than the complexity of a car, which is expressed by the COA. Possible explanations are that consumers are not expected to have knowledge about the production capabilities needed to manufacture a complex car or they assume these to be standardized and therefore classify the COA as to be less important. Overall, the COD is associated with the prestige a product conveys and is thus more important for luxury cars since these are bought for social distinction (Douglas & Isherwood, 1979).

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37 This is thereafter exhibited by the more conscious thought pattern that has established the COD as the most important determinant of perceived quality and purchase intention. Another explanation is related to the cognitive, affective and conative ideas about a country (Laroche, Papadopoulos, Heslop & Mourali, 2003) and the consumers‟ limited ability to assess multiple sub-constructs related to several countries at the same time. The COD is then used as a shortcut since consumers are more able to identify with this particular sub-construct. Future research with a focus on structural equation modeling could provide more insight into this phenomenon.

Hypothesis 3a was partly supported, with only the COD being negatively related to developing countries. The sub-constructs COA and COP were not negatively related to developing countries, which is probably due to the fact that consumers are more aware of the manufacturing capabilities of developing countries. Thus it can be argued that developing countries are building a reputation that shows their ability to assemble and manufacture products, but not for designing them. To increase the rating of the COD, developing countries have to show more skills and sophistication rather than being the „workshop‟ of the world. The results do show that these countries have less trouble circumventing negative, stereotypical ideas that were reported by Kallbasi (2001). In the end a more positive country reputation will lead to a higher perceived quality and purchase intention of products (see, e.g. Pappu, 2006; Kang & Yang, 2010).

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38 Furthermore, China was also rated higher than Canada and Italy as the COP. This indicates that although developed countries are rated higher in general, this is not necessarily true for all of them. Specifically for Canada this might be evidence of a deteriorating country image, as reported by Fetscherin (2010). On the other hand, Germany was rated highest on all sub-constructs of all the developing countries. This can be attributed to the fact that consumers probably have more knowledge about this country. Combined with a positive country evaluation this leads to a better product perception (Biswas & Chowdhurry, 2011).

Moderating effects were assessed by H4a and H4b. The analysis showed that a positive COD only moderates a negative COP through the purchase intention of luxury cars. The fact that only the purchase intention is affected strengthens the belief that it is a separate and different construct than perceived quality for luxury cars. However, the finding that the moderating effect is expressed through a higher purchase intention is in contrast to earlier findings of Peterson and Jolibert (1995). They found that the COO had a stronger influence on perceived quality. This could be attributed to the fact that this study used a deconstructed COO perspective, rather than solely the construct COO. For example, a car designed in Italy would be rated higher on the COD than for the COA or COP (table 5.5). Since the COD expresses style and sophistication to certain consumers, adding this variable to the equitation would raise the purchase intention but not the perceived quality. Furthermore, this finding suggests that a highly perceived quality is not necessarily a pre-requisite for a higher purchase intention. This is in contrast to earlier findings (see, e.g. Zeithaml, Berry & Parasuraman, 1996; Sweeney, Soutar & Johnson, 1999) which suggested strong direct and indirect links between perceived quality and purchase intention.

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41 7. CONCLUSION

7.1 Managerial Implications

The value of a brand (brand equity) can be both negatively and positively influenced by the COO. One particular thing managers should keep in mind is that when consumers assess a car, the most important construct is the COD. Therefore, the COD should have a positive reputation. This is likely to enhance the brand value. If the COD is not positively related to the car, than any other positive associations resulting from the COA or COP should be expressed to the consumer. Associations can, for example, be made through slogans. This is what Volkswagen and Opel have started recently by exclaiming their German heritage with respectively „Das Auto‟ and „Wir Leben Autos‟. Furthermore, management should consider which consumer groups relate more to certain COO constructs than other groups. This can enhance the definition of the target market and hence sales.

Moreover, companies should be looking closely from which country they source parts and where to place design and assembly locations since every country has a certain reputation that can impact the brand equity. Although developing countries are building a reputation as being decent manufacturers and producers of parts, their reputation for developing products is still lacking. Furthermore, developed countries are rated higher overall, but certain developing countries have an edge over them as COA or COP. Management should thus keep in mind that a more developed country does not necessarily enhance brand equity.

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42 might argue that manufacturers do not need to raise their levels of sophistication. However, with the ongoing demand for higher quality cars, these companies also need to keep improving their standards in order to not sink below the lower boundary of „adequate sophistication‟.

7.2 Limitations and Directions for Future Research

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43 products might give more insight as to how consumers assess quality and their purchase intention. Moreover, other moderators could be included to see how perceived quality and purchase intention behave under different circumstances. Another interesting subject for future studies is the impact of the financial crisis on the perceived quality and purchase intention in relation to the COO construct. The influence of callbacks on consumer brand perception due to quality issues might also prove to be enhancing the COO literature body. Furthermore, research is needed to further define the thresholds mentioned in the discussion. Finally, structured equation modeling can provide more insight as to which steps consumers take in assessing quality and purchase intention.

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53 APPENDIX

Appendix I – List of cars used in the survey

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54 Appendix II – Full list of factors used

The total amount of profiles to be assessed would be three to the power of five, which results in 243 different profiles. An assessment of all these profiles would be logistically impossible. Through the use of fractional factorial statistics a final list of eight profiles was produced. Due to the sparsity of effects principle the main interactions among the factors are still scientifically sound.

Luxury cars Non-luxury cars

Country of Design Germany Germany

Brazil Brazil

Romania Romania

Country of Assembly Germany Germany

Brazil Brazil

Romania Romania

Country of Parts Germany Germany

Brazil Brazil

Romania Romania

Brand Cadillac Escalade Volkswagen Golf

Mercedes-Benz ML 250 Toyota Yaris

Infiniti FX 50 Ford Focus

Price €70,000 €20,000

€60,000 €16,000

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55 Appendix III – List of countries assessed in the survey

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56 Appendix IV – Example survey

The evaluative beliefs of consumers about automobiles

Currently I‟m working on finishing my Master dissertation and to make that possible I need your help. By filling in this survey you can provide me with the necessary data to make that happen. The survey is about the purchase intention and perceived quality of consumers for automobiles. It contains 32 questions and will take approximately five minutes to fill in. There are no right or wrong answers in this survey since it is entirely about your opinion. The entire survey is anonymous and returned questionnaires will be handled confidentially.

When assessing the quality and purchase intention of a car there are several different factors that have to be included. Firstly, there are several countries involved in producing the final product. The country of design is the geographic region where the car was designed and/or that is usually associated with the product. The country of assembly represents the final country where the car is assembled or manufactured. The country of parts is defined as the country where the majority of the parts used in the car is produced. The following questions are intended to rate your beliefs about certain countries and their capabilities to design a car, assemble a car or manufacture car components. Please rate the questions according to the nine point scale associated with each question.

1. How do you feel about the capabilities of Canada to:

Poor Excellent

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

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57 2. How do you feel about the capabilities of Mexico to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

Produce components: 1 2 3 4 5 6 7 8 9

3. How do you feel about the capabilities of Turkey to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

4. How do you feel about the capabilities of Japan to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

5. How do you feel about the capabilities of Italy to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

6. How do you feel about the capabilities of Romania to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

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58 7. How do you feel about the capabilities of China to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

8. How do you feel about the capabilities of Germany to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

9. How do you feel about the capabilities of the United States to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

10. How do you feel about the capabilities of Brazil to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

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59 11. How do you feel about the capabilities of India to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

12. How do you feel about the capabilities of South Korea to:

Design: 1 2 3 4 5 6 7 8 9

Assemble: 1 2 3 4 5 6 7 8 9

The following questions are related to several different cars and how you would rate their quality and willingness to buy the car under different circumstances. The first eight questions are related to cars priced under €35,000. The questions are rated on a nine-point scale, with 9 meaning a high level of quality/purchase intention and 1 a low level of quality/purchase intention.

13. Please rate your quality expectations and purchase intention for the following car:

Car designed in: Germany Assembled in: Romania

With parts from: Brazil Brand name: Volkswagen Golf

Price: €20,000 Your quality evaluation

Very bad quality 1 2 3 4 5 6 7 8 9 Very good quality

Your purchase evaluation

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60 14. Please rate your quality expectations and purchase intention for the following car:

Car designed in: Romania Assembled in: Germany

With parts from: Brazil Brand name: Ford Focus

Price: €13,000

Your quality evaluation

Very bad buy 1 2 3 4 5 6 7 8 9 Very good buy

Car designed in: Germany Assembled in: Brazil With parts from: Romania Brand name: Toyota Yaris

Price: €16,000

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Car designed in: Brazil Assembled in: Romania With parts from: Germany Brand name: Volkswagen Golf

Price: €20,000

Car designed in: Brazil Assembled in: Germany With parts from: Romania Brand name: Toyota Yaris

Price: €16,000

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Car designed in: Romania Assembled in: Brazil With parts from: Germany

Brand name: Ford Focus Price: €13,000

With parts from: Brazil Brand name: Ford Focus

Price: €13,000

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With parts from: Brazil Brand name: Toyota Yaris

Price: €16,000

The following eight questions are constructed in the same way as above, but now they involve cars priced over €35,000.

With parts from: Brazil Brand name: Infiniti FX 50

Price: €45,000

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With parts from: Brazil Brand name: Mercedes-Benz ML 250

Price: €60,000

Car designed in: Germany Assembled in: Brazil With parts from: Romania Brand name: Cadillac Escalade

Price: €70,000