Study raises questions about 'value size' pricing

Promotional strategies may be affecting more than the bottom line.

Rachel Cernansky

February 8, 2017

3 Min Read
Study raises questions about 'value size' pricing

Both retailers and manufacturers should pay attention to value pricing, according to Paul Dobson, a professor at University of East Anglia and the lead author of a recent study exploring junk food promotions. Perhaps the most problematic marketing strategy with sugar-packed foods and drinks, he says, is "value size" pricing, where larger-sized products are sold at much lower per-unit prices than smaller sizes of the same products. It's a tactic used most often to push soda, junk food and otherwise unhealthy products. That approach to pricing is not representative of the true product costs, but it’s also not the most ethical of marketing tactics because, Dobson says, it’s really a way for companies to exploit two different sets of consumers.

"Some are value-conscious while others are health-conscious, or sometimes as individuals we lean one way and at other times the other way," Dobson says. "The smart retailer can then drive a wedge between these two consumer types and exploit their vulnerability to the respective offers—either willing to pay a high price for being disciplined or succumb to temptation and take the bargain offer but suffer from overconsuming.”

The more discipline that consumers have to resist buying the larger "value" size, the more eager they are to stick to the small size regardless of the higher price—essentially being penalized for their restraint.

The researchers found that price promotions occur much more frequently with unhealthy products than with healthy ones—even those that fall under the natural foods sector.

"We have seen evidence of extensive price promotions on what we call oxymoron products—unhealthy healthy products, like bagged Caesar salad loaded with calories—and healthy unhealthy products, like low-fat ice cream, reduced-sugar breakfast cereals, low-salt/low-sugar ketchup, low-fat mayonnaise, etc.," Dobson says.

And natural foods consumers aren’t immune; they’re vulnerable to the same forces that drive unhealthy habits in society overall.

"The simple truth is that manufactured and processed food is produced with the deliberate intention of exciting our taste buds and leaves us open to mechanical eating, such as unthinkingly working our way through a huge bag of tortilla chips while watching the TV."

And even when people buy both healthy and unhealthy products, he adds, it is the healthy ones which tend to be wasted and thrown away uneaten, like salad products, because they have been displaced by the attraction of snacking or gorging on unhealthy products once home.

Larger cost implications

Dobson explains that economic losses occur when a larger amount of product is sold below its cost of supply. "The cost difference is more than the price difference. In effect, consumers buying the large size (who are getting the bargain deal) are cross-subsidized by consumers buying the small size (who are paying a premium and being stung for their discipline)," he says. He points to France’s recent legislation seeking to ban free refills of carbonated drinks, which "precisely fits with our argument, because the vendor is giving away the incremental amount for no extra charge but clearly is incurring a cost on the incremental amount consumed. The same logic also applies with two-for-one (BOGO) deals when it results in excessive personal consumption."

It’s not only manufacturers who are at fault, he says. Retailers are complicit as well—because these value-size deals, like most price promotions, tend to be agreed upon by both parties.

His message for natural foods businesses? "I would please ask this community to avoid using value-size pricing or any other pricing incentive that encourages excessive and unnecessary consumption," he says. "The organic and natural food and beverage industry has the opportunity to take the moral high ground, not just for supplying fine and healthy products, but because it can also promote them through responsible pricing to encourage healthy eating and healthy lifestyles for the greater public health and economic benefits."

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