What are consumers willing to pay for branded energy drinks? The eyes have it

New research by Assistant Professor of Agribusiness Carola Grebitus and her co-authors examines the purchasing behavior of energy drink consumers. The results show people are not always willing to pay more for their favorite brands.

In consumer research, says Assistant Professor of Agribusiness Carola Grebitus, a passionate food economist, while a hypothesis might be a reasonable and maybe obvious one, researchers must be willing to accept results they didn’t anticipate.

Such was the case when she and her partners decided to explore whether consumers’ willingness to pay (WTP) for energy drinks was linked to branding and certain cues in packaging.

“We often assume when people are looking at labels that those might determine their perception of quality and how it influences purchasing. But we don’t really know exactly what they’re looking at when they’re standing in the grocery aisle, and how that influences what they buy,” says Grebitus. She earned her PhD in Germany in 2007 and says market research in agribusiness is an exciting field because it informs retailers, policymakers, and farmers.

For marketers, WTP is somewhat implied. Just exactly how much are consumers willing to fork over for a particular item? A form of consumer evaluation, experimental methods are often used to assess WTP for a range of product attributes. Some might hypothesize, as did Grebitus and her team, that considering today’s brand-rabid culture, people would be willing to pay more for brands to which they are loyal.

Not exactly the case, as it turns out.

Sweet on energy drinks: What’s sugar got to do with it?

Curiosity tends to breed research. It all got started with Grebitus’ graduate student, Karen Lewis DeLong. Her primary interest focused on consumer preferences for sugar from the U.S. Together with the help of Rodolfo M. Nayga of the University of Arkansas the trio authored a piece that appeared in The Canadian Journal of Agricultural Economics, “The Impact of Brand and Attention on Consumers’ Willingness to Pay: Evidence from an Eye-Tracking Experiment.”

Sugar itself has endured a sticky public trial of sorts as a more health-conscious population digs deeper into its role in wellness and disease. Currently, food manufacturers are simply required to list “sugar” on food labels, but not the kind of sugar we think. “Sugar actually comes from sugar beets and from sugarcane; and once it’s refined, there is no DNA left — so one cannot tell if it originated from sugar beets or sugarcane,” Grebitus explains.

So, what’s the implication when it comes to labeling, or whether a product is made with high fructose corn syrup [HFCS] or sugar … and what if HFCS was renamed to corn sugar as the Corn Refiners Association (CRA) attempted to do in 2010?

It’s what she values most about research in agribusiness. “When we focus on sweeteners; it’s the same issue — if we refer to dextrose, or if something is sugar-free, how does that affect their WTP?” The findings from the research she conducts in agribusiness, she says, can be applied in business, public policy, and marketing.

“Retailers want to sell for a good price; they want to determine how much they can charge for a product. You can choose a price too low, and customers will buy it, but the retailers lose money,” she explains.

For manufacturers, the question of how to label a sweetened beverage is also important — so much that in 2010, the CRA lobbied the U.S. Food and Drug Administration (FDA) to rename high fructose corn syrup as “corn sugar.” The petition was denied in 2012, however, because the FDA only permits food that is solid, dried, and crystallized to be called sugar, and HFCS is, after all, a syrup.

Verbiage matters. So, they hypothesized, branding does, too. But in market research related to agriculture, WTP studies don’t often include information regarding a product’s brand. And they wanted to test the hypothesis that both branding and packaging attributes related to sweetener labeling would make an impact on WTP.

To identify the correlation, they just needed to land on the right product.

Turns out, energy drinks — perhaps thought of as a cousin to soft drinks, products to which WTP had proven a correlation to packaging that contained sugar attributes — proved formidable candidates. True, they’d also gotten a bad rap among health experts. But the variety in sexy brand packaging, promise of quick energy boosts, and a range of sweeteners including dextrose, HFCS, sugar, and aspartame made them the ideal vehicle to test their hypothesis.

Plus, says, Grebitus, “My students loved them — especially the Cocaine can. We couldn’t have picked another product that resonated as much.”

An eye-tracking experiment, sold

When consumers scan products, where do the eyes truly land, and for how long? It’s part of the challenge — to determine what buyers are actually reading when considering food labeling. So the team turned to a mechanism that’s picked up steam in recent years: eye-tracking devices.

Technological advances have made this option significantly more credible in analyzing fixations to assess the attention spent on a particular area of interest. “We’re showing products on a screen, asking how much participants are willing to pay for each product while tracking their eye movement. This measures their attention unbiased.”

During the 2014 study at ASU’s Polytechnic campus, 104 qualified participants took part in their study. They were each paid $25 and represented a cross-section of ages who consumed energy drinks a few times a year and chose sugar as their preferred sweetener. The sample’s familiarity with brands varied, with the highest for sugar-free Red Bull and the lowest for Cocaine.

Researchers combined the eye tracking device with a hypothetical second price Vickrey auction, in which the highest bidder “wins” the auction but pays the second-highest bid. To measure the impact of brand and sweetener information on consumer WTP, participants viewed options including: branded energy drinks such as Cocaine, Red Bull, and AMP, which included sweetener labeling; unbranded options labeled with different sweeteners including corn sugar, dextrose, high fructose corn syrup (HFCS), sugar and aspartame; and unbranded drinks (including a control product) labeled with sugar.

Proving their hypotheses, however, revealed mixed results.

Surprise ending

According to Grebitus, the team expected to find a significant link between branding and willingness to pay for energy drinks. Since the influence of branding is often left out of the equation in agricultural economics literature but proven to be effective in other markets, they expected to find a more robust effect of branding on WTP for energy drinks. And as they surmised, those who enjoyed energy drinks more frequently bid higher than less frequent energy drinkers. Also as expected, the favorability of the sweetener also influenced WTP.

It was the negative effect of branding on energy drinks the team found most jolting. “We found the brand was only meaningful for one product — the Cocaine can, and it was negative.” Specifically, consumers discounted the Cocaine brand. However, attention to branding, labeling, and product information did make an impact on WTP in certain instances. It was notable that attention to labeling attributes such as “high caffeine” and “boost original” had positive effects on bidding behavior.

Essentially they found, energy drinks that are branded — or not — can impact WTP. Plus, evidence reveals that it’s the variation in sweeteners that makes a more profound impact on WTP. In terms of the CRA’s appeal to the FDA to rename HFCS as corn sugar, the study found that consumers did not like the term corn sugar any better than HFCS.

As is often the case, peering deeply into a vexing question seems to call for further research. All in a day’s work for Grebitus, who says her life’s mission studying and teaching agribusiness revolves around finding “sustainable ways to feed a growing population.”

Sweet.