What Drives Household Choice of Organic Products in Grocery Stores?

Abstract

This paper studies how households choose organic products on a given store visit. We develop a three-stage purchase incidence/brand choice/purchase quantity model for organic products. Shared random effects parameters link the three stages of the model. We empirically quantify the effects of category variables, marketing mix, and demographic variables on the purchase of organic products using a unique household panel dataset that includes actual organic purchase data from two markets, by over 4,500 households in 25 stores for the period between January 2004 and June 2009. First, we find that the purchase of organic products is greater among the high income, college educated, and older families as well as among consumers holding high-level occupations. Second, households tend not to purchase organic products when buying in concentrated categories. Third, on average, households tend to buy organic store brands more than the organic national brands. Promotions of organic brands (feature ad and display) are less likely to drive households to buy organic brands and so does the organic brand's distribution breadth. Finally, price has an inverted U-shaped effect. We discuss the implications of these results for retailers, manufacturers and researchers.