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How GMO labels affect customer decision making with food purchases

This research reveals that GM labels add an important product feature for consumers to evaluate. The labels draw attention away from factors such as price, allowing firms to charge a premium for non-GM products.

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Photo by Markus Spiske from Unsplash.com

Researchers from Neoma Business School, Concordia University, and University of Wisconsin-Madison published a new paper in the Journal of Marketing that examines how the GMO labeling that policymakers implement affects consumer choice.

The study, forthcoming in the Journal of Marketing, is titled “GMO Labeling Policy and Consumer Choice” and is authored by Youngju Kim, SunAh Kim, and Neeraj Arora.

Genetically modified (GM) foods are widespread worldwide, but they are also controversial and subject to regulatory oversight. For example, in the United States, all GM foods will be required to display a “Bioengineered” label by 2022, a policy decision that is heavily debated. Most scientists claim that genetically modified organisms (GMOs) in foods are safe for human consumption and offer societal benefits such as better nutritional content. In contrast, many consumers have an overall negative attitude toward GMOs. These conflicting views create a fundamental tension for policymakers in how GM-foods should be labeled.

To reconcile the diverging views that scientists and consumers have on GMOs, policymakers all over the world adopt either a voluntary or a mandatory GMO labeling policy. In a voluntary labeling regime, food producers who make non-GM products disclose such information through a “non-GMO” label. Conversely, in a mandatory labeling regime, food manufacturers are required to include labels such as “contains GMO” when their foods are genetically modified.

To understand how GMO labeling policies impact consumer choice, this research team conducted four studies.

Study 1 examines whether consumer choice depends on the GMO labeling regime. The results show that each labeling regime greatly affects consumers’ demand for GM foods. Labels such as “non-GMO” (absence labeling) and “contains GMO” (presence labeling) serve as negative signals for GM foods and tend to shrink their market share. The market share shrinkage effect is stronger under the mandatory policy (presence labeling) than under voluntary policy (absence labeling).
 
Study 2 examines the impact of GMO labeling (absence vs. presence) on consumers’ sensitivity to the GMO attribute, price, and category purchase. The results show that presence-focused labeling (“contains GMO”) makes consumers more sensitive toward the GMO attribute, less sensitive toward price information, and more reluctant to make a purchase in a category. Why? Presence-focused labeling enhances consumers’ concerns about GMOs, encourages them to pay greater attention to GMO information, and makes their choice more difficult. 
 
Study 3 finds that the increased preference for non-GM products is amplified when both “non-GMO” and “contains GMO” labels are displayed on the products.
 
Study 4 shows that the signal policymakers decide to send via the GM label (e.g., a green logo may be viewed as an endorsement and a yellow logo as a cautionary signal) significantly affects consumer choice. To be more specific, participants exposed to positive GMO labels tend to be less negative toward GMOs than those exposed to neutral GMO labels. A GMO label format has a greater impact on consumers who have no strong opinions about GMOs, suggesting that preference for GM foods is highly pliable for a large segment of consumers. 
 
Consumers’ willingness to pay (WTP) for non-GM products critically depends on the policy regimes and the label policymakers adopt. Consumers have higher WTP for non-GM products in the mandatory (vs. voluntary) regime and when the adopted GMO label signals a less positive image. Across studies, both the voluntary and mandatory labeling regimes create incentives for firms to add premium-priced, non-GM products to their portfolio of offerings. These incentives are substantially greater in the mandatory labeling regime than in the voluntary regime. 
 
The research teams says that “Our findings provide a clear understanding of how the GMO labeling that policymakers implement affects consumer choice. Any form of GMO labeling has significant externalities.” GMO labeling reduces the demand for GM foods. The signal contained in the GMO label also affects consumer choice. Even a neutral GMO label may lead consumers to focus on the negative aspects of GMOs, pay less attention to price information, and become more reluctant to make a purchase in the product category. Unlike the positive “Bioengineered” logo that the Unites States adopted, the label in Brazil is a yellow triangle resembling a caution sign. Therefore, the externalities of GMO labeling noted in this study will be larger in Brazil.
 
What are the takeaways for marketers? This research reveals that GM labels add an important product feature for consumers to evaluate. The labels draw attention away from factors such as price, allowing firms to charge a premium for non-GM products. GM manufacturers inevitably lose market share when presence-focused labeling is enforced. They face both reduced brand share and reduced category demand. Because mandatory presence-focused labeling makes consumers less price-sensitive, GM food manufacturers may attempt to compensate for their sales loss by considering promotions other than price cuts.

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E-commerce retailers can save money by considering pick failures at stores

While warehouses are built for efficiency in picking, packing, and shipping items, pick failures are much higher in physical stores that are not designed for these purposes for several reasons (e.g., customers moving inventory without tracking, delivery receiving and recording errors, issues with labeling, theft).

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The share of e-commerce retail sales has grown steadily over the last decade. This trend has been driven by retailers with traditional brick-and-mortar stores adopting online channels to connect to customers. In a new study, researchers explored the world of omnichannel retailing — the merging of in-store and online channels in which customers can select from a combination of online and physical channels to place and receive orders.

The study examined top U.S. retailers’ use of omnichannel ship-from-store programs in which retailers use store inventory to deliver orders to homes instead of using a dedicated warehouse or fulfillment center. For the first time, the study incorporated the possibility of fulfillment attempts at stores to fail and identified how such retailers can adopt a policy that leads to significant savings when these effects are considered.

Conducted by researchers at Carnegie Mellon University (CMU) and Onera, Inc., the study is published in Manufacturing & Service Operations Management.

“The rising trend in e-commerce has been accelerated by the COVID-19 pandemic, with online sales jumping from 11.8 percent in the first quarter of 2020 to 16.1 percent in the second quarter,” says Sagnik Das, a former Ph.D. Candidate in Operations Research at CMU’s Tepper School of Business, who led the study. “In omnichannel fulfillment, retailers attempt to minimize costs while fulfilling orders within acceptable time periods.”

Das and his colleagues focused on single-item orders. Typically, online orders are sent to a favorable sequence of locations to be filled in order. Failed trials (i.e., when orders are not filled) are sent to stores later in the order for further attempts until the process reaches a time limit.

“The problem of multistage order fulfillment is an interplay of pick failure — that is, the likelihood that orders will not be filled due to unavailability — at the stores where they may be shipped from, walk-in demand at the stores, and associated shipping costs,” explains R. Ravi, Andris A. Zoltners Professor of Business, and of Operations Research and Computer Science, at CMU’s Tepper School of Business, who co-authored the study.

As stores become an integral part of retailers’ fulfillment strategy in omnichannel ship-from-store programs, the high rate of pick failures at stores becomes a considerable factor in fulfillment costs. While warehouses are built for efficiency in picking, packing, and shipping items, pick failures are much higher in physical stores that are not designed for these purposes for several reasons (e.g., customers moving inventory without tracking, delivery receiving and recording errors, issues with labeling, theft).

Researchers modeled the problem as one of sequencing the stores from which an attempt is made to pick based on anticipated pick failure and ship an order in the most cost-effective way over several stages. To identify the best solution to the fulfillment problem, they modeled pick-failure probabilities as a function of current inventory positions and the result of other online order fulfillment trials.

The study used data on actual orders from several top U.S. retailers that worked with an e-commerce solutions provider to optimize their fulfillment strategies. Researchers proposed three order fulfillment models: one in which physical and online demand were both sparse, another in which physical demand was dense, and another in which both demands were dense. They extended the third model to also incorporate order acceptance decisions along with sequencing the stores from where they are filled once accepted.

By enabling retailers to incorporate the probability of pick failure in their order management systems for ship-from-store programs, the study’s proposed online order-acceptance policies saved omnichannel retailers as much as 22 percent. Specifically, they identified the optimal sequence of stores to try the accepted orders to minimize costs; one of the policies also uses these downstream costs to determine when to shut off the online channel for selling certain items based on current inventory availability levels.

“Our study demonstrates that modeling pick failures along with their interaction with selecting and shipping costs is an important component in optimizing ship-from-store fulfillment costs for large retailers,” says Srinath Sridhar, Chief Technology Officer at Onera, Inc., who co-authored the study.

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Choosing a lucky CEO means bad luck for the hiring company

Sometimes CEOs happen to attain outstanding performance thanks to events beyond their control. Firms that subsequently hire them pay them more and experience declining results, according to a study.

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Seneca, the Roman stoic philosopher, wrote that “luck does not exist.” Modern managerial studies take the liberty of disagreeing. Luck exists in the form of events that are beyond the control of CEOs and firms alike. Movements in oil prices and the business cycle (e.g., variations in GDP growth, and employment rate) that boost the market value of firms are a couple of examples.

A recent study by Mario Daniele Amore (Bocconi University, Milan) and Sebastian Schwenen (Technical University of Munich) found that choosing a lucky CEO means bad luck for the hiring company.

Good luck allows CEOs to “shine” in the labor market, making them more likely to leave their firm. “The hiring companies, though, are not perfectly able to separate out luck from task performance in their candidate pool,” Prof. Amore explained. “Therefore, lucky CEOs are likely to possess greater bargaining power vis-a-vis new firms’ shareholders, and thus gain benefits in the form of higher compensation and more attractive job assignments.”

Using a sample of S&P 1,500 US firms from 1992 to 2018, the authors found a positive association between a CEO’s luck at the departing firm and the level of pay at the new firm. Specifically, this larger pay is mostly made of non-cash compensation items like stocks awards and options, rather than salary and bonus. More interestingly, lucky CEOs were observed to move more swiftly to new firms and to have a shorter time-spell between CEO jobs.

Authors also observed that the increase in lucky CEOs’ bargaining power especially occurs in less competitive industries.

Unfortunately, incoming CEOs’ luck is also associated with a subsequent decline in the performance of the hiring firms. In particular, the performance of firms that hired low-luck CEOs gradually improves, whereas the performance of firms that hired high-luck CEOs experiences a moderate decline.

What is worse, luck may induce an attribution bias: high-luck CEOs, or the boards that hire them, misattribute luck-driven performance to observed individual actions, with the consequence that lucky CEOs will likely implement at the hiring firm the same corporate investment policies they implemented in their former companies, irrespective of their real effectiveness.

“Luck increases the attractiveness of CEOs in the managerial labor market of less competitive industries, bringing about higher bargaining power of lucky CEOs to transit swiftly and earn more. Nevertheless, appointing a lucky CEO is associated with poorer company performance and slower growth,” Professor Amore concluded.

Mario Daniele Amore and Sebastian Schwenen wrote “Hiring Lucky CEOs”, which was published in The Journal of Law, Economics, and Organization.

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Purpose beyond profit: How brands can benefit consumer well-being

I a brand adequately addresses moderating factors, the potential benefits to consumers and marketers are considerable. These factors include consumer trust, brand authenticity, brand credibility, commitment to purpose, consumer-value congruence, and brand-purpose proximity.

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Researchers from The Wharton School of the University of Pennsylvania and the Owen Graduate School of Management at Vanderbilt University published a new paper in the Journal of Consumer Psychology that offers fresh insights into “brand purpose” and its potential benefits to consumers.

The article, “Conceptualizing brand purpose and considering its implications for consumer eudaimonic well-being,” is authored by Patti Williams, Jennifer Edson Escalas, and Andrew Morningstar.

In response to industry reports, apparent consumer demand, and high-profile calls from top executives including BlackRock Chairman and CEO Larry Fink, brands have publicly begun pursuing purpose beyond profit. Brands in a wide variety of categories have sought to define, articulate, communicate, and act according to their “brand purpose.” 

The authors define brand purpose as a brand’s long-term aim central to “identity, meaning structure and strategy” that leads to productive engagement with some aspect of the world beyond profit.  

This research team explores the different types of well-being consumers may experience by engaging with brands they believe reflect their own values. Specifically, they focus on eudaimonia, a feeling of fulfillment resulting from living a meaningful life, contributing meaningfully to society, and acting in alignment with moral virtues.

Their framework cites five mediating factors that affect the relationship between brand purpose and consumer well-being: consumer purpose, meaning and significance, self-acceptance/achievement of true self, positive relationships, and other-praising emotions.  

The article suggests that, if a brand adequately addresses moderating factors, the potential benefits to consumers and marketers are considerable. These factors include consumer trust, brand authenticity, brand credibility, commitment to purpose, consumer-value congruence, and brand-purpose proximity.

While consumers may gain a vital sense of well-being; marketers, may secure positive brand judgements, brand loyalty, and brand evangelism.

“The ultimate goal of our review,” the authors write, “is to guide future consumer psychology research into brand purpose, a concept that we believe may have a transformative impact on business, consumers, and society.

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