The Influence of Eco-Labelling on Consumer Behaviour

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Paper accepted for publication in Business Strategy & the Environment (forthcoming). Version: Sept. 1, 2005

The Influence of Eco-Labelling on Consumer Behaviour – Results of a Discrete Choice Analysis Katharina Sammer and Rolf Wüstenhagen* Institute for Economy and the Environment (IWOe-HSG), University of St. Gallen, Switzerland

Abstract Eco-labelling is an important tool to overcome market failure due to information asymmetries for environmental products. While previous research has discussed the importance of labelling, this paper provides empirical data on the influence of eco-labels on consumer behaviour for household appliances. It reports on the results of a survey involving a total of 300 choice-based conjoint interviews conducted in Switzerland in Spring 2004. Choice-based conjoint analysis (also known as Discrete Choice) has been applied to reveal the relative importance of various product attributes for consumers. The EU Energy label is used for the two product categories in our survey, light bulbs and washing machines, and we investigate the relative importance of this eco-label compared to other product features (like brand name) in consumers’ purchasing decisions. We discuss differences between the two product categories, and draw conclusions for sustainability marketing and policy.

Keywords: Information asymmetry, consumer behaviour, eco-labelling, choice-based conjoint analysis, discrete choice, household appliances, EU energy label, sustainability marketing. * Correspondence to: Rolf Wüstenhagen, Institute for Economy and the Environment, Tigerbergstrasse 2, CH-9000 St. Gallen, Switzerland. E-mail: rolf.wuestenhagen@unisg.ch, www.iwoe.unisg.ch.

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Introduction

Consumers are interested in goods as a bundle of different product characteristics (Lancaster, 1966) that can be distinguished by search, experience and credence characteristics. While search characteristics can be identified by consumers prior to purchase, e.g. price, colour, size, etc., experience characteristics can only be determined after purchase (Nelson, 1970). Finally, credence characteristics cannot be checked before or after purchase (Darby and Karni, 1973). Knowledge about these product characteristics is asymmetrically allocated between buyers and sellers. This information asymmetry can be overcome in different ways. Markets for products with search attributes are able to produce this information relatively easily, while goods with credence attributes need reputable information to be credible for consumers. This study focuses on intangible product characteristics which especially depend on appropriate product information (signals like brands, labels). Brands and labels fulfil two main functions for consumers: they inform them about intangible product characteristics (information function, e.g. quality) and provide a value in themselves (value function, e.g. prestige). This paper addresses the relevance of the EU Energy label as a buying decision criterion compared to other product characteristics like brands. The EU Energy label transforms the credence attribute 'energy consumption' into a search attribute by third-party certification, which guides consumers’ buying decisions. Activities of firms and/or institutions to provide consumers with information about product characteristics are termed ‘signalling’ in new institutional economics, while the activity of consumers to search and check out the product characteristics of a product is called ‘screening’ (Goebel 2002). After realising that a problem exists in obtaining information about different product characteristics, the question is: In which types of product characteristics is the consumer interested, depending on different product groups? On the basis of a discrete choice analysis with 300 interviews conducted in Switzerland in Spring 2004 this research question will be analysed, focussing on two products: washing machines and light bulbs. Page 2 of...
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