I am extracting the pertinent information on pricing food, from a learned article by two INSEAD researchers called “Does food marketing need to make us fat?” ,.
Most food is still sold as a commodity which has brought with it a steady decline over the past 50 years in the relative cost of food. We spend less on food as a proportion of our income, certainly in North America, than previously. But does price or discounting influence purchasing?
The authors pursue a number of studies on the effect of price on purchase decisions that are important for the savvy businessman.
In the long term.
The average price elasticity of food consumption is low at -.78. We need to eat to survive! But, long term low retail prices for food, especially fast food, have resulted in people consuming more, as measured in the increasing rates of obesity.
But higher prices can lead to reduced consumption. A 10% increase in the price of fast food leads to a statistically correlative reduction in obesity of 0.7%.
Pricing is a stronger motivator in a buying decision than nutritional labelling – a strategy that sometimes backfires because nutritional labelling is often associated with no flavour or just bad taste.
“The only exception to the rule that higher prices reduce consumption comes from a study showing that higher prices at an all-you-can-eat pizza restaurant led to higher consumption of pizza, probably because of the psychology of “sunk costs,” which leads people to try to eat “their money’s worth.”
In the short term
In the short term, significant price reductions can lead to measurable increases in consumption.
“Probably the best evidence of this comes from a randomized controlled field experiment involving 1,104 shoppers. This study found that a 12.5% temporary price discount on healthier foods increased the purchase volume of these foods by 11% among the low-income consumers who received the coupons. The effect persisted even 6 months after the promotion had been stopped. “
This is important because low income shoppers mind their pennies and are motivated to buy as many calories per dollar as they can.
Interestingly, “price deals can influence the speed of consumption even when the food has already been purchased. This should not, in theory, influence consumption because the cost cannot be recovered, no matter when, or how quickly, the food is consumed. Nevertheless, studies have found that people accelerate the consumption of products perceived to have been purchased at a lower price.”
Observation – quantity discounts lead to stockpiling which accelerates consumption. The quantity purchase of some foods displaces the purchase of other foods. Because it occupies shelf space, we eat more of it. This effect also persists even 6 months after the initial discount.
Recommendation – offer “buy 1 get 1 free”
*** However, the discounts on healthy food did not reduce purchases of “vice” or unhealthy food.
So, if you want people to buy healthy foods, do not discount unhealthy foods.
Observation – consumers prefer price discounts to bonus pack on “vice” foods, but prefer bonus packs to price discounts on healthy food.
Recommendation – offer “free quantity” promotions. That means Larger Package size on healthy foods like fruit and vegetables.
The points that are important to food retailers in order to increase sales and profits are:
- Keep the packaging of “vice” foods to smallest sizes and lower the price.
- Package healthy foods in larger quantities and keep the prices higher.
(Nutritional Reviews. 2012 October; 70(10): 571–593. Published online 2012 October 4. doi: 10.1111/j.1753-4887.2012.00518.x PMCID: PMC3495296 Does food marketing need to make us fat? A review and solutions Pierre Chandon and Brian Wansink)