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Downsizing Price Increases: A Greater Sensitivity to Price than Quantity in Consumer Markets
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.
... Beverages are commonly sized 330ml or 500ml. The common occurrence of these salient "standard quantities" may render consumers more sensitive to any changes away from them (Gourville & Koehler, 2004). ...
... As neither pens (T&M) nor USB flash drives 2 (L&W) are realistically susceptible to downsizing, we selected yoghurt as a product. Yoghurt has seen several cases of downsizing (by Danone in 2003, andChobani in 2014 3 ), and has been used earlier in literature about price endings (Stiving & Winer, 1997) and downsizing (Gourville & Koehler, 2004). Moreover, yoghurt content in the metric system is expressed in milliliters as mostly three-digit numbers (except for large quantities, like 1000ml, 1500ml, etc.). ...
... As an extension to the LDE, we proposed that standard quantitiesin the context of content quantities the commonly used fractions of higher order magnitudesmight be salient anchors for comparison. In line with (Gourville & Koehler, 2004), we expected that strong anchoring might amplify the LDE. We find that the LDE replicates for standard comparison values (p < .001), ...
(Thomas and Morwitz Journal of Consumer Research, 32(1), 54–64, 2005) demonstrated the left-digit effect (LDE): nine-ending prices influence our perception of price magnitude, but only if they trigger a change of the leftmost digit. We present a replication and extension of the left-digit effect for content reductions in the context of shrinkflation or downsizing—manufacturers responding to inflation-driven increases of unit costs by reducing size, content, or quantity of an offer without proportionally decreasing the price. We also include a replication attempt of (Lin and Wang Marketing Letters, 28, 99–112, 2017) who find that the LDE is weaker for larger quantities. As a theoretical extension, we investigate a quantity property specific to product content. Content quantities are often anchored on fractions of higher order quantities (e.g., 750 ml as 3/4, 500 ml as 1/2, or 250 ml as 1/4 of a liter). We assess whether these standardized content quantities act as evaluation anchors for downsizing.
... This practice has proved to be a viable and profitable business strategy on markets. For example, quoting Winter (2001), Gourville and Koehler (2004) recall that the brand PepsiCo reported a "sixth consecutive quarter of double-digit earnings growth" for the first quarter of 2001, which was partly attributed to the company's "weightout" strategy of putting "fewer chips in bags of Lays, Doritos, and other Frito-Lay products." Gourville and Koehler (2004) further note that the coffee brand Chock Full o'Nuts first implemented this strategy in 1988 and that a host of other brands followed suit (see Masters (2013) and Martin (2008) for additional examples). ...
... For example, quoting Winter (2001), Gourville and Koehler (2004) recall that the brand PepsiCo reported a "sixth consecutive quarter of double-digit earnings growth" for the first quarter of 2001, which was partly attributed to the company's "weightout" strategy of putting "fewer chips in bags of Lays, Doritos, and other Frito-Lay products." Gourville and Koehler (2004) further note that the coffee brand Chock Full o'Nuts first implemented this strategy in 1988 and that a host of other brands followed suit (see Masters (2013) and Martin (2008) for additional examples). ...
... From an even more specific point of view, some contributions have integrated the idea of a different perception or consideration of price and quality in relation to corporate strategy. In addition to the aforementioned contribution by Gourville and Koehler (2004), which uses two studies of sales, prices, and quantities, as well as two laboratory studies, and comes up with the idea of a quasi-systematic greater attention paid to price in relation to product size, Armstrong and Chen (2009) establish a model in which consumers buy a good based on price, but only a proportion of consumers pay attention to product quality, with the remaining consumers not paying attention to quality and buying solely on the basis of (cheapest) price. The authors show that a company may then be tempted to "cheat" in order to exploit inattentive consumers. ...
This article takes a macroeconomic view of the industrial practice of marginally reducing the size/weight of goods or altering the content of goods or services without passing on the cost savings in prices. Although seldom a subject of academic study, this practice has come in for renewed attention with the recent return of inflation because it is one way of containing prices. Variously referred to as “hidden price increases,” “product downsizing,” or “shrinkflation,” it is part of a microeconomic strategy that has macroeconomic effects on both income distribution and consumer well-being.
... This practice has the potential to become a viable and profitable business strategy on markets. For example, quoting Winter (2001), Gourville and Koehler (2004) recall that the brand PepsiCo reported a "sixth consecutive quarter of double-digit earnings growth" in 2001, which was partly attributed to the company's "weight-out" strategy of putting "fewer chips in bags of Lays, Doritos, and other Frito-Lay products" (PepsiCo 2001 first quarter press release, quoted by Winter 2001 and reprinted in Gourville and Koehler 2004). Gourville and Koehler (2004) further note that the coffee brand Chock Full o'Nuts first implemented this strategy in 1988, and that a host of other brands subsequently engaged in product downsizing practices (see Masters (2013) and Martin (2008) for additional examples). ...
... This practice has the potential to become a viable and profitable business strategy on markets. For example, quoting Winter (2001), Gourville and Koehler (2004) recall that the brand PepsiCo reported a "sixth consecutive quarter of double-digit earnings growth" in 2001, which was partly attributed to the company's "weight-out" strategy of putting "fewer chips in bags of Lays, Doritos, and other Frito-Lay products" (PepsiCo 2001 first quarter press release, quoted by Winter 2001 and reprinted in Gourville and Koehler 2004). Gourville and Koehler (2004) further note that the coffee brand Chock Full o'Nuts first implemented this strategy in 1988, and that a host of other brands subsequently engaged in product downsizing practices (see Masters (2013) and Martin (2008) for additional examples). ...
... For example, quoting Winter (2001), Gourville and Koehler (2004) recall that the brand PepsiCo reported a "sixth consecutive quarter of double-digit earnings growth" in 2001, which was partly attributed to the company's "weight-out" strategy of putting "fewer chips in bags of Lays, Doritos, and other Frito-Lay products" (PepsiCo 2001 first quarter press release, quoted by Winter 2001 and reprinted in Gourville and Koehler 2004). Gourville and Koehler (2004) further note that the coffee brand Chock Full o'Nuts first implemented this strategy in 1988, and that a host of other brands subsequently engaged in product downsizing practices (see Masters (2013) and Martin (2008) for additional examples). ...
This article examines, from a macroeconomic perspective, the industrial practice of reducing the size/weight of goods or the quantity of input incorporated into these goods at the margin, without passing the cost reduction on prices. Rarely examined at the academic level, this practice has received renewed attention with the recent return of inflation, as it makes it possible to limit price rises by reducing the quantity of finished product offered. Known as "product downsizing", "shrinkflation" or "hidden price increase", it is part of a microeconomic strategy that has macroeconomic effects in terms of income distribution and consumers'well-being. Abstract This article examines, from a macroeconomic perspective, the industrial practice of reducing the size/weight of goods or the quantity of input incorporated into these goods at the margin, without passing the cost reduction on prices. Rarely examined at the academic level, this practice has received renewed attention with the recent return of inflation, as it makes it possible to limit price rises by reducing the quantity of finished product offered. Known as "product downsizing", "shrinkflation" or "hidden price increase", it is part of a microeconomic strategy that has macroeconomic effects in terms of income distribution and consumers'well-being.
... 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). ...
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). ...
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). ...
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.
... Shrinkflation is very important as it directly relates to both firms and consumers, however, it received only limited attention of researchers especially in developing countries. Gourville, Koehler (2004) and Cakır, Balagtas (2014) claimed that the package downsizing positively relates to firms' profitability. If consumers notice package downsizing, it might all go. ...
Purpose: This research aims to understand what happens when consumers do notice unit size decrease. Furthermore, if the consumer will still be loyal to the product after the downsizing or not. Design/methodology/approach - This paper depends on a sample of 74 respondents, employing a drop-off methodology, with structured and self-administered questionnaire to measure consumer attitudes regarding three dimensions; consumers awareness, customers' satisfaction, and consumers' acceptance of package downsizing, utilizing a five-point Likert scale measure. Findings - The general findings show that the current consumers' attitudes toward shrinkflation is not highly favorable, indicating that a lot of work will be required from companies to maintain the customers loyalty. The study urged marketers and public policymakers in Egypt to pay more attention to the customers opinions and perspectives. © 2018 by the authors; licensee Modestum Ltd., UK. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution License
... 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. ...
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.
... 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. ...
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
... 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. ...
... 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. ...
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 don't change. 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.
... 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). ...
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.
... 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 . ...
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.
... 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. ...
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.
... 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. ...
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). 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. ...
The belief that individual difference in brand preference or choice behavior are caused by personality differences has not always been supported by empirical research. The experiment on the variety seeking behavior of consumers, discussed in this paper argues that although consumers are seeking novelty and unexpectedness in a brand that they have not bought before, their purchase will be selective, in reference to the empirical investigation. The perceptions on brand name in reference to brand risk and brand differences have been the prime factors in making buying decision for new brands among the consumers. Consumers also ascertain the brand name associated with the unfamiliar brands as they feel high risk averse and entangle in decision making with perceived brand differences. The paper discusses the influence of advertising, brand name, variety seeking behavior and customer value towards making buying decisions. The study has been divided into four experiments carried out in reference to retail business environment in Mexico.
... 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. ...
Customization requires not only an implementation of proper manufacturing systems but also a proper strategy regarding when firms should offer customized products and what the nature of customization should be. This paper questions 1)whether customization is better than no customization, and, if so, 2) what kind of customization strategy firms should adopt under competition. We find that customization is not optimal when the cost of soliciting customer preference information is sufficiently high. When competing firms choose to customize, we show that firms target only certain customer segments with customized products. We also find that the optimal customization strategy may require firms to offer only a few discrete product varieties. Despite the concern that customization may initiate price wars because customization reduces product differentiation, we find that customization does not escalate the price competition, because aggressive price competition exacerbates cannibalization. Although customers within the product line of a firm are charged higher prices, we show that on average customers are better off when firms adopt customization. However, unless the customization is quite cheap, when firms choose to customize, we find that firms cannot generate more profits than when firms offer only a single product
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.
This paper presents a novel perspective on industrial practices in modern competitive capitalist economies, questioning, in particular, the link between prices, competition, and the quality of goods and services. It tries to characterize a business practice that consists in reducing prices and maintaining (or increasing) profit margins by reducing the quality of goods and services while still presenting them as the same as before. The paper is primarily concerned with the practice of producing inferior quality goods by reducing the quantity of inputs used in the production process, or mixing inputs with cheaper constituents. The proposed term for this practice, “industrial seigniorage,” is based on the historical privilege of feudal lords (from Old French seigneur), who—possessing the right to mint gold coins—made a profit by adding cheaper base metals to the bullion. The present, essentially exploratory investigation attempts to delineate the widespread existence of such practices in various industrial sectors. It strives to explain the fundamental elements of consumer behavior that enable this practice to exist and discusses the effects of industrial seigniorage on several social issues. The attempt of the paper is finally to show that contrary to the ideology of capitalism, competition does not necessary lead to benefits for consumers or to an increase in product quality.
We analyze a duopoly competition when two firms face input cost increases. The objective of this study is to determine the firms` optimal strategy between a price increase and downsizing under conditions of a spatially differentiated market and consumers` diminishing utility on the product size. We develop a theoretical model of two competing firms offering homogenous products using the standard Hotelling model to determine how firms` optimal strategies change when facing input cost increases. In this paper, there are two types of duopoly competitions: symmetric and asymmetric. In the symmetric case, the two firms have the same marginal cost and are producing and selling identical products. In the asymmetric case, the two firms have different marginal costs. The results show that the optimal strategy decision depends on the size of the input cost increase and the cost differences between the two firms. We find that when two firms are asymmetric (i.e., they have different marginal costs), the two firms might choose asymmetric pairs of strategies in equilibrium under certain conditions. When the cost differences between the two firms are sufficiently large and the cost increase is sufficiently small, the cost leader chooses price increase, and the cost-disadvantaged firm chooses downsizing in equilibrium. This asymmetric strategy reduces price competition between two firms, and consumers are better off. When the cost differences between the two firms are sufficiently large, downsizing is the dominant strategy for the cost-disadvantaged firm. The cost-disadvantaged firm finds it more profitable to reduce the product size than to increase its price to reduce price competition, because consumers prefer downsizing to price increases. This paper might be a good starting point for further analytical research in this area.
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.
Purpose
Many multinational companies have entered the market of organic cosmetics and toiletries (OCT) in the global marketplace. This study attempts to analyze the impact of economic and relational variables on customer and brand values in reference to OCT products in Mexico through empirical investigation in selected department stores that attract high profile customers. The study proposes a framework for future research in measuring the customer value in specific reference to the non‐conventional products.
Design/methodology/approach
This study is based on the primary data using the information of 369 respondents, who were involved in shopping at chosen retail self‐service stores in Mexico City, administering a semi‐structured questionnaire. The study was conducted in 11 retail self‐service stores in Mexico City including four departmental stores spread over three locations in Mexico. The data has been fit to the model developed for the study using linear equations. One of the prominent features emerged during the study is that customer perception is largely governed by marketing communications.
Findings
The study reveals that strategic product positioning and effective retailing augment the customer perceptions and help building the long‐run customer values towards the non‐conventional products owning unfamiliar brands. Results of empirical data have also shown that advertising and promotional strategies of the OCT brands helped customers review their preferences against the synthetic cosmetics and toiletries which appreciated the brand value for the OCT products of the companies in Mexican market.
Research limitations/implications
Like many other empirical studies this research might also have some limitations in reference to sampling, data collection and generalization of the findings. Samples drawn for the study may not be enough to generalize the study results. Open ended questions were answered by the Mexican respondents in Spanish and sometimes transcription of the audio might have overlooked some issues. However, to ensure that the data cover a wider spatial and temporal dimensions in the study region, data should be cleansed and filtered with many variability factors affecting the consumer behavior and retailer performance.
Originality/value
Marketing of organic cosmetics encouraged by the growing environmental consciousness among the customers, is a recent phenomenon in the business. However, there is paucity of literature on this subject particularly in reference to Latin America. Hence, this paper attempts to contribute to the existing studies.
Innovation, continuous improvement, and changes forced by economics factors and marketing conditions are essential elements for bringing new products successfully in the marketplace; however, market competition with the existing products may have along term impact on the perceived value of the new products. Moreover, whether introducing new products/services or upgrades of existing products/services, better profit can be achieved by applying Lean product development technique and evaluating the long term impact of existing products on perceived value of new products will contribute in maintaining the desired profit margin. In this study, a two compartmental deterministic mathematical model for assessing the long term impact of existing products on perceived value of new products is proposed and analysed qualitatively. Numerical simulations support our analytical conclusions and illustrate possible behaviour scenarios of the model.
This study aims at measuring the effects of market demand and seasonality on new product introduction. Major factors contributing the variability of market demand and seasonality of new products have been discussed in reference to timing of introducing new products, variability of consumer preferences, retail sales and product promotion. The study is based on 243 new products in selected self-service stores in Mexico which belong to major food products sector for the reference period 2002-2006. Results of the study reveal that market demand and seasonality factors are most important for the timing of new product intro�ductions as such conditions determine success of the new products in a given market.
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