How Does Local–Global Identity Affect Price Sensitivity?

Huachao Gao, Yinlong Zhang and Vikas Mittal
Article Snapshot
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Key Takeaways

What? The Local Farms, Food and Jobs Act, sponsored by Senator Sherrod Brown of Ohio and Representative Chellie Pingree of Maine, invests approximately $200 million to help local farmers.

So What? While such efforts may fulfill many objectives, they are perhaps misguided in affecting customers’ price sensitivity.

Now What? In addition to extolling the virtues of buying local, communication efforts should try to activate consumers’ local identity. This will enable local producers to compete without having to lower their price.

Full Article

​Article Snapshot: Executive Summaries from the Journal of Marketing

This research examines consumers' price sensitivity due to their local vs. global identity, by finding consumers with an accessible local (vs. global) identity are less price sensitive and more tolerant of price increase for not only local products, but also products with ambiguous origin.


CMOs (Chief Marketing Officers) do not always need to local production to gain the benefit of lowered price sensitivity among consumers with a local identity.

A broader approach rooted in behavioral-mind-set theory shows price sensitivity decreases for all products—regardless of local origin—as a result of a sacrifice mind-set.


Research Question

Many companies struggle with price increases, which typically engender negative responses from customers. Rather than relying on product benefits, this research focuses on consumers' identity--local or global--to show local (vs. global) identity consumers are less price senstivity or of higher tolerence to price increases. This addresses a major knowledge gap--how can firms gain pricing advantage without relying on the traditional aspects of value.

Methods

We conducted 6 studies as reported in the paper (8 additional studies not reported in the paper, but summarized in table 1). These studies encompass over 5,000 consumers who participated in surveys, randomized-field studies, and online experiments. Participants include consumers from U.S. and Chinese, and college students from U.S.

Findings

Whereas previous research indicates consumers with accessible local (vs. global) identity only prefer local products, this research, building on the behavioral mind-set theory, finds that local (vs. global) identity consumers tend to show lower price sensitivity even for products with ambiguous origin, i.e., not necessarily local. Thus, this research goes beyond the identity consistency argument and identifies sacrifice mind-set as a broader explanation for the effect of local identity on price sensitivity.

Implications

Most people believe that those with a local identity may pay more for locally produced products. Instead, we show that localists are willing to pay more even when the product origin in unknown or ambigusous. This means, firms no longer have to be locally embedded--e.g., through local production--to reduce price sensitivity among local-identity consumers. Firms can gain even more pricing advantage when they can message that the price increase will benefit local causes.

Questions for the Classroom

  • How can global companies reduce consumer price sensitivity without having to resort to local production in different countries? 

  • How can global companies reduce consumer price sensitivity without having to resort to local production in different countries? 

  • What communication messages can a company use to ensure consumers will be more receptive to a price increase?


Article Citation: Huachao Gao, Yinlong Zhang, and Vikas Mittal (2017) How Does Local–Global Identity Affect Price Sensitivity?. Journal of Marketing: May 2017, Vol. 81, No. 3, pp. 62-79.

doi: http://dx.doi.org/10.1509/jm.15.0206



Author Bio:

 
Huachao Gao, Yinlong Zhang and Vikas Mittal
Huachao Gao is Assistant Professor of Marketing, Peter B. Gustavson School of Business, University of Victoria (e-mail: hcgao@uvic.ca). Yinlong Zhang is Professor of Marketing, University of Texas at San Antonio (e-mail: yinlong.zhang@utsa.edu). Vikas Mittal is J. Hugh Liedtke Professor of Marketing, Rice University (e-mail: vmittal@rice.edu).
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