Article

Downsizing Price Increases: A Greater Sensitivity to Price than Quantity in Consumer Markets

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Abstract

As the cost of goods increase, manufacturers routinely pass these costs on to consumers through higher prices. A less obvious strategy is to maintain price, but to reduce the size of the product. In many ways, this downsizing should mirror a straight price increase when it comes to consumer behavior. Marketplace and experimental data show this is not the case and that consumers are more sensitive to changes in price than to changes in quantity.

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... This is possibly because consumers do not consciously notice decreases in size as much as increases in price (Kachersky 2011). Gourville and Koehler (2004) argue for a greater sensitivity to price than to size and attribute this heightened sensitivity to an anchoring and adjustment process: consumers fully adapt to changes in price but inadequately adapt to changes in size. ...
... As consumers are greatly averse to increases in retail price, this will be a salient cue that activates automatic processing. As a result, consumers are likely to discount the increase in package size-as suggested by Gourville and Koehler (2004)-but they are unlikely to further consciously and effortfully evaluate the actual change in unit price. That is, in assessing simultaneous increases in price and size, consumers rely on their automatic intuition of the increase in retail price to interpret a decrease in value. ...
... Second, we extend the work of Gourville and Koehler (2004) and advance the knowledge about people's greater sensitivity to price changes than to size changes. This sensitivity may manifest when only one attribute changes (i.e., price increases or size decreases) or when there is little effort required to assess the change in value (i.e., when unit prices are provided). ...
Article
To increase the unit price of a product, marketers of packaged groceries generally either raise the retail price or reduce the package size. We describe two unit price increase tactics in which the retail price and package size of a product simultaneously increase or decrease. Five studies, including a field study conducted in a grocery store, show that when unit price information is available, consumer decisions are influenced more by changes in both retail price and unit price than by changes in package size. Consumers thus respond more favorably to simultaneous decreases than to simultaneous increases. We further show that when unit price information is unavailable, consumers focus on the observed retail price increase for simultaneous increases, whereas they tend to estimate the unit price increase for simultaneous decreases. Since both forms of processing result in the cognition of an increase in “price,” consumers respond similarly to the two tactics.
... For theoretical completeness and because extending our investigation into harmful 66 / Journal of Marketing, July 2012 When More Is Less / 67 price and quantity changes makes it possible to distinguish our explanation from the mental accounting-based explanation discussed previously, we examine this issue here. 2 Price increases are often masked as quantity decreases for many grocery products (Adams, Di Benedetto, and Chandran 1991;Gourville and Koehler 2004). This approach runs counter to the mental accounting perspective discussed previously (Diamond and Sanyal 1990). ...
... Meanwhile, there were no significant differences due to promotion format in the average weekly revenues of the nonpromoted products sold by the store (F(1, 14) < 1). Moreover, an ANOVA on the revenues from the focal products as a percentage of the total revenues in the store 2 Gourville and Koehler (2004) and Granger and Billson (1972) argue that consumers might be more sensitive to price information than quantity information, which would lead to a preference for price discount over bonus packs (contrary to H 1 ). A speculation offered for this differential sensitivity is the difficulty of processing quantity information due to the complexity of quantity information on packages and the use of odd numbers for sizes (Gupta et al. 2007). ...
Chapter
Full-text available
In a series of studies, we document an advantage in sales volume for a bonus pack relative to an economically equivalent price discount. We provide evidence that consumers’ preferences for quantity changes (including bonus packs and quantity decreases) are due to their tendency toward neglecting the base value of percentages.
... For theoretical completeness and because extending our investigation into harmful 66 / Journal of Marketing, July 2012 When More Is Less / 67 price and quantity changes makes it possible to distinguish our explanation from the mental accounting-based explanation discussed previously, we examine this issue here. 2 Price increases are often masked as quantity decreases for many grocery products (Adams, Di Benedetto, and Chandran 1991;Gourville and Koehler 2004). This approach runs counter to the mental accounting perspective discussed previously (Diamond and Sanyal 1990). ...
... Meanwhile, there were no significant differences due to promotion format in the average weekly revenues of the nonpromoted products sold by the store (F(1, 14) < 1). Moreover, an ANOVA on the revenues from the focal products as a percentage of the total revenues in the store 2 Gourville and Koehler (2004) and Granger and Billson (1972) argue that consumers might be more sensitive to price information than quantity information, which would lead to a preference for price discount over bonus packs (contrary to H 1 ). A speculation offered for this differential sensitivity is the difficulty of processing quantity information due to the complexity of quantity information on packages and the use of odd numbers for sizes (Gupta et al. 2007). ...
Article
Full-text available
The interpretation of a percentage change often hinges on the base value to which it is attached. The authors identify a tendency among consumers to neglect base values when processing percentage change information and investigate the implications of such base value neglect for how consumers evaluate economically equivalent offers presented in percentage terms, such as bonus packs and price discounts. The authors first document a substantial advantage in sales volume for a bonus pack over an economically equivalent price discount in a field experiment conducted in a retail store. Furthermore, in a mall-intercept survey and multiple lab studies, the authors provide additional evidence in support of the effect and identify managerially useful boundary conditions for when the effect is likely to manifest. The article concludes with a discussion of the theoretical and managerial implications of the findings.
... often respond differently to equivalent changes in prices and quantities. Gourville and Kohler (2004), for example, find that consumers are more likely to reduce the number of units they purchase in response to price increases than to equivalent quantity decreases. Simonson and Tversky (1992) suggest, on the other hand, that consumers are sometimes less attentive to prices than to other attributes of the goods. ...
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... In many ways, such strategies of a firm with the new products may drive the consumer behavior towards being sensitive to the price increase when it comes to making a buying decision. Some of the marketplace and experimental studies show that consumers are more sensitive to changes in price than to innovation and new products introduced by the firm (Gourville and Koehler, 2004). There are some critical issues associated to the price sensitive consumer behavior, whether customers are equally price-sensitive while purchasing products for functional (e.g. ...
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... Use of corporate brand endorsement either as a name identifier or logo identifies the product with the company, and provides reassurance for the customer ( Rajagopal and Sanchez, 2004). Some of the marketplace and experimental studies show that consumers are more sensitive to changes in price than to innovation and new products introduced by the firm ( Gourville and Koehler, 2004). There are some critical issues associated to the price sensitive consumer behavior, whether customers are equally price-sensitive while purchasing products for functional (e.g. ...
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The role of customer value has been largely recognized over time by the firms as an instrument towards stimulating market share and profit optimization. The customer values for innovative products and unfamiliar brands of firm in competitive markets are determined largely by habits, reinforcement effects, and situational influences than strongly-held attitudes. Marketing organic cosmetics is a recent phenomenon in the business and it is largely being encouraged by the growing environmental consciousness among the customers. Many multinational companies have entered the market of organic cosmetics and toiletries (OCT) in the global marketplace. However, there has been little awareness among the elite customers in Latin American markets about the harmful effects of synthetic cosmetics on prolonged usage. This study attempts to discuss the impact of economic and relational variables on customer and brand values in reference to OCT products in Mexico through empirical investigation in selected departmental stores that attract high profile customers.
... In many ways, such strategies of a firm with the new products may drive the consumer behavior towards being sensitive to the price increase when it comes to making a buying decision. Some of the marketplace and experimental studies show that consumers are more sensitive to changes in price than to innovation and new products introduced by the firm (Gourville and Koehler, 2004). As discussed above, clearance sales act as stimulus to consumers who are likely to elicit a positive response. ...
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Consumer responses to clearance sales, both in terms of consumer satisfaction with the decision process and in terms of subsequent store choice behavior, are explored in the paper through four controlled experiments conducted involving clearance sales in a consumer choice and decision satisfaction context. The results suggest that consumer response to clearance sales is driven to a large extent by two factors: the effect of a clearance sale on the available options of goods and the degree of store loyalty. Response to a clearance sale was found to be a function of two primary forces-the degree to which a consumer was personally committed to the discount sales alternative, and changes in the difficulty of making a decision due to limitation of buying options. Overall, the discussion of results of the four studies presented in the paper demonstrates that consumer response to clearance sales, both in terms of decision satisfaction levels and observed store-loyalty behavior, are strongly influenced by the variables of price sensitivity, attractiveness of products, store-loyalty and perceived value on available brands.
... 3 However, empirical evidence suggests that consumers often respond differently to equivalent changes in prices and quantities. For example, Gourville and Kohler (2004) find that consumers are more likely to respond to price increases than to quantity decreases. At the same time, anecdotic evidence suggests that consumers responding to quantity decreases often reduce their demand by more than they reduce it in response to an equivalent price . ...
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If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices remain sticky. We study a situation where producers adjust the quantity (per package) rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information. The model is based on evidence from cognitive psychology and explains consumers’ decision whether or not to process goods’ price and quantity information. Our findings explain why producers sometimes adjust goods’ prices and sometimes goods’ quantities. In addition, they predict variability in price adjustment costs over time and across economic conditions.
... As argued by Laroch et al., (2001), over the years there has been a continuous and constant increase in the number of customers that are pay more for "friendly" products and services. However, with regard to green products and services, customers were more aware to the price as their income was lower (Diaz, 2004) and in general, consumers are more sensitive to price than to the product's economical benefits (Gourville & Koehler, 2004). ...
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The motivation for this research was to examine whether the 'green trend' has a distinct added value from a marketing point of view. This argument was put into test in the context of building and with elderly people; both non-flexible and 'unattractive' segments that should help clarify the unique effect of ecological awareness to marketing. Specifically, the research aimed at examining the effect of cultural orientation, price perception and ecological awareness, with the mediating effect of psychological wellbeing, over elderly people's intentions to buy accommodations in a green sheltered housing project. Results suggest that ecological awareness is the main factor influencing green sheltered housing buying intentions of elderly people, and that negative cultural orientation, such as collectivism and conservatism, decrease elderly consumers' buying intentions. Operative implications and recommendations for further investigation are discussed, especially with regard to the fact that contribution is confined to an empirical research on Israel elderly population consuming patterns.
... In fact, Japanese consumers are keenly aware that downsizing implies an increasing price, in a sharp contrast with their American counterparts, who tend to be more sensitive to the price tag (quality-unadjusted price) than the per unit price (quality-adjusted price). To put this differently, Japanese consumers are more rational (in an economic sense) than the US consumers studied by Gourville and Koehler (2004). Moreover, the Japanese consumers seem more to be more than simply rational: the majority of Japanese consumers appreciate upsizing and detest downsizing independently of the per-unit price. ...
... Op den duur zullen klanten niet meer bereid zijn de reële prijs te betalen. Fabrikanten zetten steeds meer alternatieven in voor price offs, omdat deze sterk ten koste gaan van de eigen marge en die van de detaillist en vaak zorgen voor hoge logistieke kosten (Gourville & Koehler, 2004). ...
... Some of the marketplace and experimental studies show that consumers are more sensitive to changes in price than to innovation and new products introduced by the fi rm. 18 As discussed above, clearance sales act as stimulus to consumers who are likely to elicit a positive response. Further, it is predicted that the magnitude of this positive response will be proportional to the value of an option to select the discount sales alternative. ...
Article
Consumer responses to clearance sales, both in terms of consumer satisfaction with the decision process and subsequent store choice behaviour, are explored in the paper through controlled experiments conducted involving clearance sales in a consumer choice and decision satisfaction context. The results suggest that consumer response to clearance sales is driven to a large extent by two factors: the effect of a clearance sale on the available options of goods and the degree of store loyalty. Response to a clearance sale was found to be a function of two primary forces — the degree to which a consumer was personally committed to the discount sales alternative, and changes in the difficulty of making a decision due to limitation of buying options. Overall, the discussion of results of the two studies presented in the paper demonstrates that consumer response to clearance sales, both in terms of decision satisfaction levels and observed store-loyalty behaviour, are strongly influenced by the variables of price sensitivity, attractiveness of products, store loyalty and perceived value on available brands.Journal of Retail and Leisure Property (2007) 6, 117–135. doi:10.1057/palgrave.rlp.5100054
... A third stream examining consumer reactions to nonpromotional cases where product size has decreased and/or price has increased finds that price changes have larger effects on consumers than product size changes (Ҫakir and Balagtas 2014;Gourville and Koehler 2004). For instance, Ҫakir and Balagtas (2014) find that consumers are approximately four times as sensitive to package price as package size. ...
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In conveying product size increases, manufacturers use labeling tactics that can be classified as "bonus packs" (more for the same price) or "product enlargements" (more, but no mention of price). One study shows that when consumers do not know a products original size and price, attitudes are more favorable toward a bonus pack than an economically equivalent product enlargement. This difference disappears when consumers know the original product size and price. A second study shows that, less intuitively, a product enlargement associated with a small (but not a large) price increase is evaluated as positively as a comparable bonus pack. The result for a small price increase and corroborating evidence support an account in which the product enlargements economic inferiority is offset by consumers use of the quantity discount heuristic. Implications for product manufacturers and consumer researchers are discussed.
... For instance, although they may prefer wheat over corn, they may not choose cereal based on Vitamin B6 content (i.e., is low). This argument is consistent with the empirical finding that consumers are sensitive to price change in cereals [26]. As a result, as predicted in our model, firms produce various breakfast cereal brands (varieties) for different grain types. ...
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Chapter
Discussions explore the external factors affecting the consumer behavior in this chapter, and guide managers to learn the causes and effects of extrinsic variables to develop right marketing strategies. The external factors affecting consumer behavior have been discussed categorically in this chapter, spread across the sections on business environment, geo-demographic factors, consumer culture, seasonality, and induced consumer perception. This chapter also discusses the concerns emerging among the multinational companies, related to developing competitive marketing strategies by learning comprehensively about co-creation and creating consumer value that affect the behavior dimensions of the consumers. In general, this chapter focusses on learning about the influence of external factors by discussing how situational factors at the time and place of purchase may influence consumer behavior. The discussions also guide managers about how consumers’ relationships with the marketing organization influence the decision-making process of the company.
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In this paper, we empirically examine the extent to which product downsizing occurred during the deflationary period in Japan, as well as the effects of product downsizing on prices and quantities sold. Using scanner data on prices and quantities for all products sold at about 200 supermarkets over the last 10 years, we find that about one third of product replacements were accompanied by a size/weight reduction. We also find that a 1-percentage point larger size/weight reduction is associated with a 0.45-percentage point larger price decline, resulting in an effective price increase. Finally, we show that the quantities sold decline with product downsizing, and that the responsiveness of the quantity sold to size/weight changes is almost the same as the price elasticity, indicating that consumers are as sensitive to size/weight changes as they are to price changes. Our results suggest that the Japanese consumer price index may be downwardly biased rather than upwardly biased.
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