Chapter I Introduction
1.3 Research significance
There are many determinants that influence product quality assessment, for example price, advertisement, communication messages, or brand image and personality. Companies use branding in order to provide consumers with quality, value, and credibility cues on the product. This way helps them to make purchase decision. One of the factors determining perception about the products and brands is the place where the product was made. This
correlation is referred as country of origin effect (Kalicharan, 2014). The aim of this study is to analyze the importance of country of origin on products' evaluation. The research will focus on wine purchase behavior of Millennials (Gen. Y) in Taiwan. In brief, the research will examine country of origin effect through testing whether young consumers take country of origin cue into account when buying alcoholic beverages, and therefore if foreign companies can still use it in their marketing strategies (Zdravkovic, 2013).
The reason why wine was chosen as a product category for the analysis is due to the fact, that the global wine market is very revolutionary. In recent years both new wine consumers and producers have been emerging (Felzensztein, 2011). Although traditional wine producers, such as France, Spain, or Italy, are still the world’s largest suppliers, Chile, Australia and South Africa arose as new wine exporters. They sell abroad over 50% of their total production volumes. Among largest wine producers they are in 6th, 7th and 8th place respectively (Felzensztein, 2011;Organisation Internationale de la Vigne et du Vin, 2015).
Furthermore, new trends in wine consumption have been appearing. One of them is the arrival of new consumers from emerging countries, such as Brazil, Russia, India and China, also known as BRICs countries (Felzensztein, 2011). Moreover, in the past the biggest wine consumer countries (European) were the same countries as the largest producers. Now, however, the consumption of wine in Europe is decreasing, as people are becoming more concern with their health. On the other hand, United States became the biggest wine country consumer (McMillan, 2016). achieved living standard equivalent to Western countries (Veillette, 2016). Furthermore, with the increasing number of foreign investments and popular cultural texts Taiwanese culture, people and food consumption have been westernized. During the last seven years, Taiwan has become an opportunity for foreign wine producers to find new wine consumers. During that time the consumption of wine has grown by 8.6% annually, and is now still increasing (Veillette, 2016). As the Global Wine &Spirits—2016 Market study stresses, since the Economic Cooperation Framework Agreement signed by Taiwan and China in 2010, “Taiwan
has become a strategic springboard for foreign producers who would like to do business in China or the wider Asia-Pacific region”(Veillette, 2016, p. 2).
Furthermore, when listing importing opportunities for wine producers, Global Wine &
Spirits—2016 Market research stresses the importance of targeting young people who play a crucial role in Taiwanese wine market (Veillette, 2016). According to the 2014 Health Promotion Administration Ministry of Health and Welfare report, in Taiwan people of 18-29 years old constitute 67.4% of all wine consumers. The second biggest age group to consume wine are people of 30-39 years old with 65.7 % of wine consumption. According to the same report conducted in 2005 the biggest age group to drink wine were people of 30-39 years old where 55.1 % of the population drank wine. The second largest group were Taiwanese of 18-29 years old with 52.7 % of the group consuming wine. These numbers exhibit that with time more and more young people have started to drink wine, and they have started to drink bigger quantities (Health Promotion Administration Ministry of Health and Welfare Report, 2005; Health Promotion Administration Ministry of Health and Welfare Report, 2014).
CHAPTER 2 LITERATURE REVIEW
This chapter will present thorough literature review on country of origin. It will cover information on the concept’s definitions, and later introduce the idea of country of origin image, and effect. The chapter will also review the literature on the potential moderating variables of country of origin, namely product knowledge, consumer ethnocentrism, and consumption occasion. The relationship between the moderators and reliance on country of origin will be presented as well.
2.1 Country of origin
At the beginning of country of origin research, the concept has been understood as country where a product is manufactured (Papadopoulos & Heslop, 2003; Zolfagharian, 2014).
However, later on with the increasing globalization, the definition of country of origin must have been widened (Chao, 2001; Hamzaoui & Merunka, 2006). Thus scholars started to include country of assembly or country of design into the concept. Now country of origin may also mean country where company’s headquarters is located (Sae-Jiu, 2007), country of brand (Degoma & Shetemam, 2014; Pharr, 2005), country of corporate ownership (Thakor &
Lavack, 2003), or product’s geographical origin (Daga, 2007; Degoma & Shetemam, 2014;
Lopez- Lamelas, 2011).
2.1.1 Country of origin image
Similarly to creating brand images for products, consumers also form images for particular countries and thus developing countries’ brand image. These consist of stereotypical beliefs consumers hold. One of the first concepts of the country of origin—
country image perception image, was presented by Nagashima (Degoma & Shetemam, 2014).
Nagashima (1970) in his survey of U.S. and Japanese businessmen Nagashima defined the country of origin image, as “the picture, the reputation, the stereotype that businessmen and consumers attach to products of a specific country” (Nagashima, 1970, p. 68). The researcher emphasized that this perception of a country of origin is the make-up of changeables, such as typical products, national characteristics, economic and political background, history, and traditions (Nagashima, 1970).
The image of the country of origin also refers to the consumers’ comprehensive perceptions regarding the quality of products made in a certain country (Bilkey & Nes, 1982;
Han, 1989).
In 1992, Roth and Romeo conceptualized the country image as a sum of perceptions of products from a given country, that is formed by consumers, based on their previous evaluation of the country’s production and its marketing strengths and weaknesses (Roth &
Romeo, 1992).
Country of origin image is also understood as a generic construct, where not only the country’s products, but also a great variety of factors, such as political, economical, and technical, determine country image (Martin & Eroglu, 1993). Country image is comprehended as a cognitive structure, where scholars such as Martin and Eroglu (1993) as well as Gertner and Kotler (1993) see it as an autonomous entity that has no connection to the image of the country’s products. Country image is identified with a set of ideas, beliefs and impressions, people have about a certain country (Martin & Eroglu, 1993). It is important to add that not all people have the identical image of the same country. The perception of a place may vary depending on a person (Gertner & Kotler, 2004).
Another approach to the country of origin concept includes scholars that present country image and product image as related but independent elements of the theory. Which means that although the image of the country of origin and the image of a product are strictly connected, it is possible to distinguish the two of them and analyze the relationship with each other (Han, 1989; Lopez- Lamelas, 2011). The academics underline the importance of capturing both country image and product assessment facets in order to broaden the previous narrowly depicted country of origin concept (Häubl, 1996; Papadopoulos, Heslop & Bsmossy, 1990). Thus, for example, Knight and Calantone (2000) conceptualize country image as “a consumer’s perceptions about the quality of products made in a particular country and the nature of people from that country”( p.127).
2.1.2 Country of origin effect
Kabadayi and Lerman (2011) in their study stated that for the past fifty years the country of origin effect on consumers’ intentions, perceptions and product evaluation, has been most researched subject in various fields, such as: marketing, business and consumer behavior. According to Papadopoulos and Heslop (2002), for the period of 1952-2001, the
research on the subject consisted of more than 750 publications, such as journal articles in the proposed by Bilkey and Nes (1982) and Samiee (1994), where country of origin effect is seen as positive or negative images of the country of origin influencing consumers’ buying behavior, decision making process and attitudes towards a product (Bilkey & Nes, 1982;
Elliott & Cameron, 1994, Samiee, 1994). Therefore country of origin effect can be generally understood “as any influence that the country of origin has on a consumer’s positive or negative perception of a product” (Degoma & Shetemam, 2014, p. 2). These perceptions are based on consumer’s previous contact with a certain location and its products, for example trips made to certain countries. It has to be noted that the images of country of origin arise not only from consumers’ own impressions regarding the quality of the product, but also have their source in personal beliefs, brand image, and country’s service (Han & Terpstra, 1988;
Lopez-Lamelas, 2011). Thus, the country of origin effect is a multi- dimensional construct as it integrates both general opinion about a given country and also the country’s products evaluation (Pisharodi & Parameswaran, 1994).
2.1.3 Chronological literature review on country of origin effect
Usunier (2006) proposes a chronological literature review on country of origin subject, dividing it into three periods. The first one covers findings from mid 1960’s to 1982. The literature gathered at that time considered only country of origin variable when examining product evaluation, what automatically led to exaggeration of this determinant.
Schooler (1965) was the first one to explain the significance of country of origin, on the example of fruit juices. In his study, Guatemalan students evaluated juices coming from different countries, namely: El Salvador, Cost Rica, Mexico, and Guatemala. Although the beverages were identical, the students’ evaluation of the product varied, depending on their origin. The author of the study concluded, that the participants preferred juices from Mexico
and Guatemala because they exhibited unfavorable attitude towards the people from El Salvador and Costa Rica as they were influenced by negative stereotypes towards them.
Another study was conducted in 1968, and aimed to measure the effect of country of origin effect. The subjects in the research were to evaluate two identical glass, with one written “Made in USA” on it and the other “Made in Japan” (Schooler & Wildt, 1968). The authors found that the differences in products assessment were due to prejudice against the country where the glasses were made.
In the meantime, further research on the topic started to appear, such as these of Nagashima in 1970 and 1977. The scholar did two research on participants from United States, France Germany, England, and Japan. The main finding was that Japanese businessman value French products more favorably as they perceived France to be one of the kind, beautiful, affluent, and luxurious (Nagashima, 1977). His work gained recognition and until this day has been referred to. The reason for that is that Nagashima created a product measurement scale with twenty items and five dimensions which was used to examine country of origin image of a product and brand (Nagashima, 1970, 1977). The listed dimensions are: service and engineering, price and value, advertising and reputation, design and style, and lastly consumer’s profile.
The second period is marked by years 1980’s to early 1990’s and is the beginning of country of origin research using multiple co- variables. Since Schooler and Wildt’s (1968) study Bilkey and Nes (1982) were the first one to expand the literature on the topic. They legitimated the importance of country of origin influence on product assessment and on various product categories (Bilkey & Nes, 1982; Nagashima, 1977).
On the other hand, however, the authors exhibited negative attitude towards previous studies’ results because the research looked at country of origin as an isolated variable. The construct was seen as the only factor that had an impact on product evaluation. Thus, the level of influence on purchase intentions was overestimated (Bilkey & Nes, 1982; Lopez- Lamelas, 2011).Bilkey and Nes (1982) stressed that other determinants must be taken into account, such as intrinsic (e.g., packaging, performance) and extrinsic cues (e.g., price) which will be further explained in this study. In addition, other moderators of evaluation of product originating from different countries started to appear in the literature. For example, socio-demographics, like age, began to be examined by scholars. Also, next to country of origin, studies started to take product knowledge into account (Han & Terpstra, 1988)
Although country of origin research started to consider new attributes, at that time scholars were unable to confirm whether country of origin was losing its importance when measuring it along with other variables. Thus, during the second period the research on the topic became more complex and new scholars within the field of study emerged (Pecotich &
Ward, 2007).
The third period, starting from the 1990’s and lasting until today, is characterized by meta- analysis, and vast number of research on the topic of country of origin. Some of the worth mentioning studies are, for example, those of Samiee (1994). The author created a model, integrating both country stereotypes and history. Also, nowadays more and more scholars study the impact of the region of origin image in order to better understand purchase intentions of regional products. Moreover, consumer ethnocentrism was found to be influential when it comes to the usage of country of origin cue while evaluating products(Brodowsky, 1998; Gürhan-Canli & Maheswaran, 2000).
Recently the country of origin relevance has been measured considering internationalization. In accordance with 2006 Usunier’s study, the importance of country of origin effect might have been diminished. The reason standing behind it is increasing globalization with which multinational production has increased as companies try to use all the opportunities to gain advantage and transfer their production into multiple countries with cheaper manufacturing costs. With the companies de- emphasizing the origin of their products and the consumers inability to detect the origin of purchased goods, country of origin effect might be losing its relevance (Usunier, 2006).
2.2 The role and importance of country of origin in product evaluation
According to Lantz and Loeb (1996), country of origin exhibits one of the strongest levels of importance in product evaluation right next to determinants like price, or brand. Wall, Liefeld, Heslop, (1991) pointed out that the country of origin influenced by stereotypes is more powerful when it comes to the purchase decisions than price and brand. When consumers assess different products, country of origin acts as a cue. For many it is a strong predictor of product’s excellence (Verlegh & Steenkamp, 1999). There are certain groups of products where country of origin confers on them a specific value. For example, Swiss watches, Italian fashion, French perfume, or Scotch whisky embody a strong match between a product and its country of origin. The stronger the “fit” between a country and a product is observed, the better the overall consumers’ evaluation (Dinnie, 2015). Country of origin
stereotype is often used by consumers for products’ evaluation, for instance German cars must be excellent, Japanese electronics reliable, but also Chinese commodities are thought to be of poor quality. Depending on the image of the country and the ”fit” between its product, the
“Made in” label tells customers if the commodity is either superior or inferior (Degoma &
Shetemam, 2014). Therefore, based on the above literature review, we can say that there is a strong correlation between country of origin and product evaluation (Degoma & Shetemam, 2014; Gurhan-Canli & Maheswaran, 2000; Yasin, Nasser, & Mohmad, 2007). However, with the progressing globalization, the way in which consumers evaluate a product became very concept that cannot be characterized easily. Quality is not understood in the same manner by all people as everyone plays a different role in the society, trade and economic relations. It could be defined as a degree of excellence, performance, and satisfaction of consumers’ needs (Chandrupatla, 2009). It is also regarded as all of the product’s and service’s characteristics that have an effect upon their ability to meet stated or implied needs (Vowotor, 2002).
Perceived quality is one of the most important constructs in consumer behavior. It can highlight the differentiation of products and services and thus, one of them can become choice of brand for a buyer. After Aaker (1991) and Zeithaml (1988) there could be stated that perceived quality is not the actual quality of a product or service but rather an attitude towards overall product’s excellence, merits and quality “with respect to its intended purpose, relative to alternatives” (Zeithamal, 1988, p. 5). It also refers to the general preference and superiority (Shirouyehzad, Hosseinzadeh- Lotfi, Shahin, Aryanezhad, & Dabestani,, 2012). Furthermore, perceived quality is a “perception about the product in the mind of the customers”
(Shirouyehzad, et al., 2012, p. 879) formed based on the sum of product’s features and advantages.
Perceived quality is in opposition to real, objective quality. It balances between objective product features and consumers’ inclinations. That is why scholars make a distinction between perceived and objective quality (Aaker, 1991; Vowotor, 2012). Perceived
quality is seen as subjective evaluation of certain products done by consumers. When consumers evaluate a given product they take quantity of usage and subjective judgment and feeling towards the excellence into account (Vowotor, 2012). On the other hand, however, when it comes to objective quality the construct refers to testable and provable advantages of previously set technical standards (Aaker, 1991).
To fully understand the concept of product quality, it is crucial to explain extrinsic and intrinsic cues of a product that directly affect quality perception, and serve as purchase criteria.
Intrinsic cues strictly relate to the product and it is not possible to modify them without changing the product. Each product has its own intrinsic cues. On the example of wine, the cues would be wine sweetness, color, or alcohol content (Hall & Jones, 2010). As for extrinsic cues they are not product specific, they signal quality across different brands and product categories. Extrinsic cues are one of the elements of overall product image and a criteria buyers follows while making a purchase (Shirouyehzad et al., 2012). Although consumers generally prefer to follow intrinsic cues, it is often difficult to gain access to them.
That is why, when evaluating a product, consumers depend on extrinsic cues which are believed to be consistent and credible predictors of quality (Bredahl, 2004). When intrinsic cues are hard to acquire, extrinsic ones provide a “cognitive shortcut” (Zdravkovic, 2013, p.
90).
Country of origin serves as an extrinsic cue and thus has a direct impact on consumers’
perception about the product quality and further can be exploited without necessity of changing the commodity. It has a symbolic and emotional significance because it is understood as an appropriate manner of doing (Zeithaml, 1998). Country of origin as extrinsic cue is a strong and reliable signal and determinant of product quality and performance. As it has an influence on detectable characteristics of a product at the same time it affects product assessment. Country of origin image of a product is a base for the tight interrelation between features of the product and its country of origin (Vantamay, 2007). Country of origin is a substitute measure of quality, durability, and reliability, particularly when other intrinsic and extrinsic cues cannot be found and used.
2.4 Product knowledge
Product knowledge is a crucial variable influencing consumer behavior, and thus it is a subject of various research in this field of studies. The amount of knowledge consumers possess influences not only information search process but also decision-making process, thus
product assessment and purchase intentions (Shirin & Kambiz, 2011). Furthermore, consumers’ level of knowledge about a product influences signals needed for quality evaluation of given goods (Ghalandari & Norouzi, 2012). According to Brucks (1985), product knowledge rest on information accessed from previous encounters with a product stored in one’s mind or consumer’s possessed knowledge. As stated by Lin and Zhen (2005) product knowledge is based on consumer’s understanding or awareness of a product and also
product assessment and purchase intentions (Shirin & Kambiz, 2011). Furthermore, consumers’ level of knowledge about a product influences signals needed for quality evaluation of given goods (Ghalandari & Norouzi, 2012). According to Brucks (1985), product knowledge rest on information accessed from previous encounters with a product stored in one’s mind or consumer’s possessed knowledge. As stated by Lin and Zhen (2005) product knowledge is based on consumer’s understanding or awareness of a product and also