The Marketing Value of Country Name

ABSTRACT - This study examines the effect of a brand's country name on its market share along with other marketing variables at the aggregate level. This study focuses on measuring the value of a country name in terms of marketing variables of both short-run and long-run. The current theoretical framework is based on the new economic theory of Lancaster (1966, 1971, and 1991) and produces a set of interesting results regarding the tradeoff between a country name and other marketing variables in relation to market share at the aggregate level. Our results could be considered as an interesting starting point in that no existing studies have addressed the marketing value of the country-of-origin or country name for the market sales or market share. Some managerial implications are suggested for a multinational marketing strategy.

Citation:

Jay Y. Chung, Hideo Hayashi, and Chung Koo Kim (1994) ,"The Marketing Value of Country Name", in AP - Asia Pacific Advances in Consumer Research Volume 1, eds. Joseph A. Cote and Siew Meng Leong, Provo, UT : Association for Consumer Research, Pages: 47-51.

Asia Pacific Advances in Consumer Research Volume 1, 1994      Pages 47-51

THE MARKETING VALUE OF COUNTRY NAME

Jay Y. Chung, Sung Kyun Kwan University, Seoul, Korea

Hideo Hayashi, Kansai University, Osaka, Japan

Chung Koo Kim, Concordia University, Montreal, Canada

[The authors would like to thank the three anonymous reviewers for their helpful comments, some of which has been incorporated into this paper.]

ABSTRACT -

This study examines the effect of a brand's country name on its market share along with other marketing variables at the aggregate level. This study focuses on measuring the value of a country name in terms of marketing variables of both short-run and long-run. The current theoretical framework is based on the new economic theory of Lancaster (1966, 1971, and 1991) and produces a set of interesting results regarding the tradeoff between a country name and other marketing variables in relation to market share at the aggregate level. Our results could be considered as an interesting starting point in that no existing studies have addressed the marketing value of the country-of-origin or country name for the market sales or market share. Some managerial implications are suggested for a multinational marketing strategy.

INTRODUCTION

Country-of-origin has been one of the important research topics in the marketing or international marketing area. What the existing studies have been concluding is that country-of-origin biases people's perceptions and evaluations of products. As the global village emerges, these country biases seem to increase in salience (Johansson, Douglas, and Nonaka 1985; Johansson and Nebenzahl 1987). As indicated in Porter (1986), an awareness of country differences becomes heightened as the global interdependence spills over into such factors as the globalization of media, the international mobility of buyers, and the growing number of firms with international production systems. This generalized understanding of other countries is then used as an external cue to evaluate the products from those countries without much specific product information, as indicated in "simplified information processing" or "heuristics" (Hong and Wyer 1989; Howard and Sheth 1969).

Eventually consumer evaluation of products is translated into product sales or shares in a market. As mentioned in Johansson and Nebenzahl (1987), the existing studies of country-of-origin have focused on consumer perception, attitudes, and product evaluation. One exception is the study of Johansson and Nebenzahl (1987) which looked at behavioral intentions in relation to country-of-origin. Few studies examine the construct of country-of-origin along with other marketing variables in the context of market sales or share management.

Building upon the country-of-origin studies, the present study moves beyond attitude, evaluation, or even intention, into the area of real purchase or product sales. This current paper proposes an analytic tool in which the effect of country-of-origin on product sales or share can be assessed along with other marketing variables such as price, advertising, and product attributes, etc. This paper focuses on measuring the value of country-of-origin for product sales or market share in terms of marketing variables. More specifically, trade-offs between country-of-origin and other marketing variables will be formally examined. How much consumers really pay for the value of a country name would be an important question for both academics and practitioners.

In the following sections, the theoretical framework is provided borrowing from an economic concept called "marginal rate of substitution between attribute" from the economic consumer theory of Lancaster (1966, 1971, 1977, and 1991) and Domencich and McFadden (1975). Then an empirical study is performed. Data, measures, and analytic model are presented in detail. Results are then presented and discussed. Finally, the conclusions, limitations, and areas for future research are presented.

THEORETICAL FRAMEWORK

Country-Of-Origin and Consumer Preference or Utility

Several studies of country-of-origin have shown that a certain country image has a set of associations, some of which are favorable, unfavorable, or neutral. Products from developing countries generally tend to have unfavorable or negative association, and hence to be evaluated unfavorably compared with those from industrialized countries. It was also shown, however, that products from a certain developing country were evaluated more highly when presented to consumers with information about its country-of-origin than without country-of-origin data, suggesting that the effect of country-of-origin on consumer attitude is specific to a certain attribute. For example, Swift's canned beef made in Brazil was preferred to the counterpart made in U.S.A. (Gaedeke 1973; Hooley, Shipley, and Krieger 1988). In many ways, the above findings support that country-of-origin affects consumers' utility.

Several studies also indicated that some associations about certain product could be neutral, i.e., neither positive nor negative, for example, "classy," "sporty," etc. A group of certain consumers might have positive utility from the "classy" image while some others have negative utility from the "classy" image. Therefore it is concluded that even neutral images could affect market sales positively or negatively at the aggregate level.

Although several studies examined the importance of country-of-origin relative to other variables such as warranty and price (e.g., Lee, Kim, and Miller 1992), none of them addressed the marketing value of country-of-origin to the market sales or market share. As pointed out by Johansson and Nebenzahl (1987), their dependent measure was consumer evaluation or attitude.

A Consumer Model of Marketing Value of Country Name

As in Horsky and Nelson (1992) and Domencich and McFadden (1975), a consumer's product choice decision may be modeled as the choice of some brand m from a set of M brands which maximizes expected utility. Each of these alternative brands can be thought of as representing a bundle of different attributes (e.g., price, size, milage, etc for cars), as in Lancaster (1971). Consumer utility is affected by not only product attributes but also marketing variables such as price, advertising, etc. As reviewed above, other external cues such as country-of-origin also influence consumer utility. Therefore, the average consumer's utility can be represented as a function of product attributes, marketing variables, and external cues such as country-of-origin, as follows.

U=U(z_m, x_m, s_m, e_m)    (1)

where z_m= (z₁, z₂, ..., z_n) is a vector of product m's attributes, x_m= (x₁, x₂, ..., x_k) is a vector of marketing variables, s_m= (s₁, s₂, ..., s_j) is a vector of external cue variables, and e_m is the error term.

If we assume a linear form for the utility function, as an illustration, we have

U(z_m, x_m, s_m, e)=b₁z₁ + b₂z₂ + ... + b_nz_n  + P_ka_kz_k + P_jg_js_j + e_m    (2)

where the coefficients b₁, b₂, a_k, g_j, and so on, are unknown parameters.

Consumer's utility change as the consumer has a little bit more of attribute 1 is called marginal utility (MU) of attribute 1. From (2), the marginal utility of attribute 1 is dU/dz₁=b₁. Marginal rate of substitution between attributes (MRSA) measures the rate at which the consumer is just on the margin of substituting or not substituting an attribute for the other. Mathematically, MRSA of attribute 1 and attribute 2 is the ratio of MU of attribute 1 (dU/dz₁) over MU of attribute 2 (dU/dz₂). From (2), the MRSA of attribute 1 and attribute 2 is (dU/dz₁)/(dU/dz₂)=b₁/b₂, which is the slope of utility function in z₁-z₂ attribute space. In usual language, MRSA measures the amount of attribute 1 that one is willing to pay for a marginal amount of extra consumption of attribute 2. Since the consumer utility function cannot be observed, we will discuss the concept of MRSA in the context of aggregate market share which is observed in our data.

Assuming that e_m is independently and identically distributed with the Gumbel or Weibull distribution, the probability of choosing m by the average consumer (or market share of m) is equal to:

EQUATION   (3)

Making a standard transformation (Nakanishi and Cooper 1982), we obtain a log-linear dummy regression form as follows.

lns_m=c_o + S_q-1c_qD_q + S_nb_nz_mn + S_ka_kx_mn + S_jg_js_mj + e   (4)

where D_q=a dummy variable, for which D_q=1 if q=t and D_q=0 otherwise, c_q=the regression coefficient for D_q, and others were defined in (2).

Considering data availability and our focus, the vector of marketing variables x_m will include price adjusted with price promotion (P_m), advertising (both manufacturer, A_m, and dealer advertising, DA_m), while the vector of external cue variables include only country name (COO_m). Since country-of-origin is a categorical variable, it is included as a dummy variable in the share model. The vector of product attributes will include all the major dimensions reported in Consumer Reports, which leads to the following market share model.

lns_m=c_o + S_q-1c_qD_q + S_nb_nz_mn +b_pP_m +b_""_m +b_DDA_m + S_jb_jcCOO_j + e    (5)

where b_* is parameters, and b_jc is the parameter for country-of-origin of brand j (b_jc=1 if j=m, and b_jc=0 otherwise).

Measuring Marketing Value of Country Name

As briefly discussed above, the concept of MRSA (marginal rate of substitution) can be used to measure the marketing value of the country name of a brand. For example, the value of Japanese brand (COO_j) relative to U.S. brand in terms of price is determined by dividing MU (marginal utility) of price (dlns/dP) by MU (marginal utility) of country-of-origin (dlns/dCOO), which is b_p/b_jc. The value of Japanese brand in terms of a product attribute, e.g., reliability, is obtained by dividing MU of the product attribute by MU of country-of-origin, which is b_p/b_jc. Whether the sign is positive or negative depends upon the utility of the country-of-origin which is contingent upon the country value in a market, and therefore is an empirical question.

In the same way, the value in terms of advertising is measured as b_"/b_jc. Other tradeoffs between variables, e.g., price and advertising, price and an attribute, etc., can be examined in the same way. Some of those interesting tradeoffs will be discussed in the empirical section. Since few studies have examined these important tradeoffs or MRSA except Sethuraman and Tellis (1991) [A limitation of the study may be that it examines the tradeoff between price and advertising only.], the current analysis is considered to be important.

AN EMPIRICAL ILLUSTRATION

Data, Variables, and Measurement

In order to address the marketing values of country-of-origins, we chose to use the car market not only because data on sales, marketing variables, and product attributes are available, but also because the implication of country-of-origins for sales seem to be significant. More specifically, data on the sixteen subcompact cars being sold in the U.S.A. market during the period of 1982 through 1987 were included for the study. [The car models included were Ford Escort, Chevy Nova, Chevy Chevette, Plymouth Horizon, Dodge Omni, Ford Lynx, Renault Alliance, Pontiac 1000, Plymouth Colt, Toyota Corolla, Toyota Tercel, Nissan Sentra, Honda Civic, Mazda 323, Subaru, and VW Golf.] During the study period, the market was dominated by U.S., Japanese, and German brands.

The major variables, their measures, and data sources are summarized in Table 1. Country-of-origin of brand is defined as the country name of each brand (e.g., Ford Escort is a U.S. brand and Toyota Corolla is a Japanese brand). [Due to the lack of data availability, we could include only the "country name" excluding the "country made-in" for the empirical illustration. It should be noted, however, that the current framework can easily handle both variables and their interactions in relation to market share or sales.] Because the data set is time-series in nature, all the nominal values were deflated by a Price Index.

Since an initial analysis had shown high correlations among the fifteen product attributes, they were factor analyzed to deal with the collinearity problem in estimation. The following three factors were identified as a result of Principal Component Analysis with Varimax Rotation method. The three factors account for 65% of the total variance and named as follows:

Factor 1     Overall Performance

Factor 2     Reliability

Factor 3     Size Economy

The three factors will represent the product quality vector, z_m, in the consumer model equations as specified in Equation (1) through (5).

TABLE 1

VARIABLES, MEASUREMENT, AND DATA SOURCES

Finally, since the country names are categorical variables, they enter our model as dummy variables. Since we are interested in the value of a foreign country name relative to the domestic one (i.e., U.S. brand), we fixed the U.S. brand as a constant in the model. We illustrate how foreign country brand names (i.e., Japanese and German) perform relative to the domestic U.S. brand name in the subcompact car market in the U.S.A. This empirical illustration focuses on the marketing values of the country name.

Major Results

The model was estimated using regression analysis and the result was summarized in Table 2. An examination of Table 2 shows that the estimation results seem to be reasonable and the signs of all the coefficients are in the correct directions. The coefficient of price is significantly larger than those of advertising actions, suggesting that price deals strongly worked in this market. The results also show that the three product attribute factors were also important for sales increases. It turns out that performance and reliability factors affected sales more significantly than the size or fuel efficiency factor. Finally, the results show that, compared with the U.S. name, the Japanese name had a positive influence on the sales at the aggregate level. It means that the Japanese name was more valuable than the U.S. name in the specific market during the study period. On the other hand, the German name was not significantly different from the U.S. name in the market.

The coefficients in Table 2 describe the weight that an average consumer places on the various marketing variables; that is, the marginal utility (MU) of each characteristic. The ratio of one coefficient to another measures the marginal utility of substitution (MRSA) between one variable and another. For example, the ratio of the MU of price to the MU of dealer advertising (i.e., the MRSA between price and dealer advertising) indicates that price has approximately an 11 time bigger effect on market share than dealer advertising. The result means that a price decrease by 1 percent had the same effect on market share as an increase in advertising expenditure by about 11 percent. An examination of the ratio between a short-run marketing variable (e.g., price) and a long-run variable (e.g., reliability) would also be interesting. The MRSA between price and reliability factor indicates that a price decrease by 1 percent has the same effect on market share as product reliability improvement by 6.8 percent. The answer to which option is more profitable depends on the cost of decreasing price or increasing the reliability level.

Marketing Value of Country Name

Marketing values of country-of-origins are measured in terms of the MRSA between country-of-origin (COO_j) and respective marketing variable (X). The MRSA of COO_j is obtained by dividing the coefficient or marginal utility (MU) of each marketing variable X by the coefficient of COO_j. The MRSA of each marketing variable and country-of-origin is calculated as shown in the following table. Since German name was found to be not significantly different from U.S. name in our example, we focus on the value of Japanese name in terms of price and other marketing expenditures. Since the country name of a brand is dichotomous, the marginal increase or decrease of country name is not possible in reality although it is conceptually possible. Only the 100 percent increase, i.e., "being Japanese" relative to "being American," is possible. Technically, as a result, the percent change in the amount of other marketing variables needed for the equivalent effect of a country name (e.g., being Japanese) is compared with the 100 percent change of the country name.

TABLE 2

ESTIMATION RESULTS

TABLE 3

MARKETING VALUE OF COUNTRY NAME

The above results show the marketing value of a country name relative to another country name. Specifically, they show how much value the Japanese name has in terms of marketing variables. For example, the value of MRSA for price (0.15) means that Japanese name relative to American name has the equivalent sales value as the 15 percent price reduction, everything else being equal. As far as advertising is concerned, it turns out that the marginal utility of country name were 2.9 times bigger than that of manufacturer advertising and 1.6 times bigger than that of dealer advertising. In order to compensate for the share loss due to their country name, therefore, U.S. brand should increase their manufacturer advertising by 290 percent while they should increase dealer advertising by 157 percent in average.

In terms of product attribute factors, the marginal utilities of performance and reliability factors (0.146 and 0.164 respectively) is about the same as the marginal utility of country name (0.168), resulting in the MRSA values of 1.15 and 1.02 respectively. As a result, performance and reliability factors for U.S. brands should be enhanced by 115 percent and 102 percent respectively to have the same share increase effect due to the country name. It is also found that U.S. brands should increase their car sizes by 218 percent to compensate for the value of their country name in average in the market segment.

DISCUSSION AND MANAGERIAL IMPLICATION FOR INTERNATIONAL MARKETING

The above results show that a country name of a brand can positively contribute to market sales or shares. The value of the country name can be measured in terms of marketing variables such as price, advertising, and product attributes. One of the important findings is that Japanese name relative to American name has the same sales value as the 15 percent price reduction, everything else being equal. It means that an American brand should decrease its price by 15 percent to have the same share as a Japanese brand, if everything else being equal except the country name. If the price of the American car is $10,000, for example, a $1,500 cash rebate offer or an equivalent low financing offer will give the same utility to buyers as the Japanese car of the exactly same value except for the country name.

It should be mentioned that the value of a country name will be specific to a market. Our results have some important managerial implications for international marketing strategies. A product manager should carefully examine the value of the product's country name when s/he develops a marketing strategy. Our analytic tool can show how much price reduction or advertising increase is needed to achieve a certain sales objective. The methodology is also useful for developing a new product introduction strategy to a foreign market. The information on the values of the country names can be incorporated into the decision on the level of the new product price or advertising expenditure, to achieve a certain sales goal in the foreign market. As a greater number of foreign brands compete in a product market, measuring the value of the country name would become more critical to marketing success.

SUMMARY, CONCLUSION, AND FUTURE DIRECTIONS

Summary and Conclusion

This study examines the effect of a brand's country name on its market share along with other marketing variables at the aggregate level. This study focuses on measuring the value of a country name in terms of marketing variables of both short-run and long-run. The marginal rate of substitution between attribute (MRSA) is used to measure the value of a country name in the context of the consumer utility framework. The current theoretical framework based on the new economic theory of Lancaster (1966, 1971, and 1991) produced a set of interesting results regarding the tradeoff between a country name and other marketing variables in relation to market share at the aggregate level. Our results could be considered as an interesting starting point in that no existing studies have addressed the marketing value of the country-of-origin or country name for the market sales or market share. This framework provides a first step towards the development of a new managerial tool, which has a great deal of potential for marketing planner (especially in a multinational brand market).

Limitation and Future Direction

Although interesting, the current study has some limitations. Conceptually, we assumed a linear utility function and a homogeneous preference across consumers, which may not be true in reality. The assumptions used in our framework were useful for an empirical study like ours considering the nature of our data set. Another limitation of the empirical part is that we consider only the "country name" of a brand (e.g., Japanese car) disregarding another important variable of the "country made-in" (e.g., made in Mexico). The latter might be more important as the world market is more globalized, because it is a controllable or endogenous variable whereas the "country name" is not. Our empirical study could look at only the "country name," simply because only the "country name" is available. It should be noted, however, that the current framework can easily handle the possible interaction of the "country name" and the "country made-in," if the data are available. An interesting future study would be to examine both effects on market shares along with marketing variables using the current framework.

Another interesting future direction would be to apply the current framework to measure the values of a country name (e.g., Korea) for various different product markets in a regional area (e.g., the North American market). Comparing the values of the names of two competing countries across several different product markets would be interesting, especially if products from the two countries appear in those same product markets in the most cases. Since Korean products have been shown to appear in most product markets where Japanese brands are strong competitors, for example, comparing the marketing value of the two countries in those product markets would produce a set of important findings for multinational marketing strategy.

Another extension would be to address the issue of the "country name" and/or the "country made-in" in the context of "agenda theory" (Hauser 1986) or "external constraint theory" (Kahn, Moore, Glazer 1987). For example, if Korean products are perceived to be similar to Japanese products as "foreign Asian brands" compared with American brands, and if the value of Korean name is significantly lower than the value of Japanese name in the U.S. car market, then the Korean products will suffer from their dominated position and need an effectively positioning strategy (Tversky 1977). Relating the value of country-of-origin to the "agenda theory" will produce important results for product positioning for both country products.

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