Does Production Labeling Stigmatize Conventional Milk?
Production labeling may convey positive messages to consumers, but may also stigmatize the product by highlighting potential issues. The net economic effect can be negative for producers since consumers may be less willing to pay for the conventional product that dominates the market, while the new product has a smaller market share. This paper examines the case of milk and how the introduction of rBST-free and organic milk may have affected the overall market by reducing consumer willingness to buy conventional milk.
Traditional market research asks only if participants are willing to purchase hormone-free and/or antibiotic-free milk, but fails to take into account the effects on overall sales of conventional products. This study questioned 148 graduate students and staff at Cornell University, asking them to taste-test conventional, rBST-free, and organic milk, and then bid what they would be willing to pay for a quart of each type of milk. The average willingness to pay was $1.03 for skim milk produced conventionally, $1.06 for skim milk produced without rBST, and $1.40 for skim milk produced organically, but the order in which the milks were presented had significant effects on the results.
For example, presentation of conventional milk as the last alternative led participants to drastically reduce their willingness to pay for conventional milk, from $1.28 when presented first to $0.61 when presented last. Researchers conclude that where consumers are aware of all product choices, they more readily discount some values within the range of choices.