“Made in Malta" : the effect of a label on consumer willingness to pay

Abstract

The aim of this study is to determine how individuals’ willingness to pay for handmade souvenirs is affected by information provided on the label displayed on the product. We attempted to answer this question through a field experiment in a souvenir shop, making use of contingent valuation and direct surveys. Participants were randomly selected to reveal their WTP for the product in question. Some were presented with a souvenir that had a ‘Made in Malta’ label, whilst others were presented with the exact same product except that it had a ‘Made in China’ label. Since it was only the label that was changing, we could capture the “true” effect of the treatment, i.e. differences in WTP were only a result of the change in the label, and not due to differences in the product’s aesthetics or features.

Results obtained from the experiment indicate a sample mean WTP of €5.12. In line with expectations, the mean WTP for souvenirs with a ‘Made in Malta’ label, €6.74, was fairly higher than that of ‘Made in China’, €3.06. When the individual was questioned inside the workshop, where one could witness all the manufacturing process, the average WTP increased to €7.59, meeting our a priori expectations. To test the robustness of these results, we carried out a regression analysis that controls for the differences in the characteristics of the two groups. The label effect remained significant throughout all regression specifications.

In line with existing findings, our analysis also suggests a discrepancy between genders, with males being willing to pay slightly more than females. To capture the income effect, we have created a proxy; the number of trips per year. Throughout, it is being assumed that the more frequent an individual travels, the higher is his/her income. Our findings show that as the number of trips increases from 1-2 per year to 3-5 or more, the mean WTP increases as well. Once we controlled for these variables, as well age and nationality, we were then in a position that allowed us to compare the scenarios relatively clearly. Based on these findings, this study can be developed further and also provides useful insights for any future analysis.