February, 2012

Research Perspective and Comments & Analysis

The Influence of Price Discount Versus Bonus Pack on the Preference for Virtue and Vice Foods

Executive Summary by Arul Mishra, Assistant Professor of Marketing in the David Eccles
School Of Business at the University of Utah, and Himanshu Mishra, Assistant Professor
of Marketing in the David Eccles School Of Business at the University of Utah.

Human beings have always had a complicated affair with food. Eating is necessary to stay alive, so nature has made food difficult to resist. However, in recent times, overeating has led to one of the most pervasive problems developed society currently faces — obesity. Recent data indicates that 67 percent of the population in the United States is overweight, which includes 17 percent of children between the ages of 6 and 19, making obesity one of the most serious health concerns. Policy initiatives, such as increasing the availability of and providing subsidies for healthy foods (e.g., fruits and vegetables) and restricting or taxing unhealthy foods, have been proposed to increase the purchase of healthy food items. The food industry is blamed to a large extent for the current obesity problem and is expected to take constructive actions that can help consumers stay healthy.

The findings of this article provide one way through which both consumers and marketers can benefit. In this research, the authors explore how price- and quantity-based sales promotions can influence the consumption of vice foods (e.g., unhealthy food, such a chocolate cake) and virtue foods (e.g., healthy food, such as raisins). Specifically, the findings show that people prefer a bonus pack to a price discount for healthy food items, but they prefer price discounts to a bonus pack for unhealthy food items. For our research purposes, a bonus pack is defined as offering more of the product for the same price, and a price discount is defined as offering the same product at a reduced price.

We propose that consumers exhibit a preference for price discounts over bonus packs on vice foods because a price discount provides them with a reason (buying on a deal) to purchase, which helps mitigate their guilt and reduces the need to exercise self-control (i.e., not consuming at all). Therefore, consumers are better able to resolve the conflict between indulgent consumption and healthfulness. Conversely, because there is no conflict between consumption and guilt for a virtue food, people are happy to buy more of it  — a bonus pack. Indeed, the purchase and consumption of virtue food helps people achieve their goal of staying healthy. Five studies provide support for the proposed research and the underlying theory.

This work has several managerial and policy implications. Both bonus packs and price discounts are categorized as different forms of price discrimination strategies that retailers use to increase profitability, because both provide a savings benefit to the consumers. The findings suggest that because consumers do not perceive these two promotions similarly, managers might benefit from offering a price discount for vice foods and a bonus pack for virtue foods. By offering bonus packs with virtue foods, managers can not only increase sales but also improve brand image; consumers will feel good after consuming virtue foods and might attribute the positive emotions to the brand. From a policy standpoint, this research provides insights that can benefit both marketers and consumers. At a time when consumers are looking for ways to increase virtue food intake and society is struggling with concerns of obesity and related health issues, marketers can guide consumption by providing a bonus pack instead of a price dis count on virtue foods. These findings indicate that by providing a price discount on vice food, consumers can indulge their wants in moderation. By controlling their consumption of vice food, consumers may be faced with a detrimental situation of self-control failure. A price discount allows consumers to justify their purchase of a vice food, helps them consume vice food in moderation and reduces their chances of self-control failure.

 

Vice Vs. Virtue In Perishables

The question of how foods can be most effectively marketed is of great importance to the food industry. Beyond that, anyone who has watched Supersize Me, the documentary (or political screed, depending on your politics) focused on the impact of fast food on the American diet, has had to consider the public-policy implications of the industry practice of selling food by offering more for less — as exemplified by the fast-food practice of “supersize it,” or the retail practice of “Buy One, Get One Free.”

The conventional wisdom, supported by some meaningful research, has long been that consumers generally prefer bonus packs to price discounts. Retailers and restaurants have found the practice more profitable than discounting, and so this has become a standard marketing approach.

Now Arul and Himanshu Mishra, both assistant professors of marketing at the University of Utah’s David Eccles School of Business, have done an extensive research project that suggests an important caveat to this line of thinking. They found that generally speaking, although consumers prefer a bonus pack for what the researchers call “virtue foods,” such as fruit salad, they prefer a price discount for what the researchers call “vice foods,” such as chocolate cake.

The logic here is that although consumers normally prefer a bonus pack because they focus on the bonus as “something for nothing” rather than the price and on “virtue foods” may even welcome the opportunity to be virtuous and eat more of these healthy foods, on “vice foods” they don’t consider more to be necessarily beneficial as they don’t want to consume excessively, so would rather have a price reduction.

For fresh produce marketers, the general concept of preferring a bonus quantity is an insight mostly ignored in fresh fruit and vegetable marketing. Aside from the occasional BOGO, almost all Best Food Day ads and in-store specials focus on price discounts. This research indicates that consumers may be more receptive to a “buy ten apples at their regular price and get three apples free” than they are to a price reduction. Experimentation with this certainly is justified as a way of helping shippers, retailers and public health.

Still, though the researchers tried diligently to think through any possible objections to their research — doing an initial survey and then five subsequent experiments designed to address various alternative explanations for the results — the validity of the results and, more important, their application to real world marketing will require additional study.

One problem with the research is that the choice of products utilized in the study may have biased the results. The initial study was a survey done in a Starbucks, which used two baked goods — low fat blueberry muffins as the virtue food and chocolate chip cookies as the vice food. The nature of these products as perishables means that the issue of consumption is pretty short term. So it makes sense that there is a limit on the number of cookies one wants to eat in a short time frame.

What if, however, the “vice food” was something easily stored, say a good quality vodka? It is not obvious that vodka drinkers would prefer a lower price to more vodka.

Another obvious point regarding the studies is that they are solely focused on consumer preference without considering the business dynamics that drive promotions. If a retailer or a restaurant normally makes 50 percent gross profit on a $10 sale, the establishment is earning $5 gross profit. If the establishment reduces its price by 50 percent, the retailer or restaurant earns nothing. If the retailer or restaurant increases the amount of food given out by 50 percent, the establishment still earns a gross profit of $2.50. The researchers were not at all focused on how such a strategy would impact the profitability of retailers, restaurants and manufacturers.

This means that there is a real question mark as to the practicality of the study as it offered consumers a choice that the real world is unlikely to provide. There are many costs to selling an item that don’t go down because the quantity goes down. For example, it costs the same thing to run a 6-oz. package or an 8-oz. package through the front end. It costs the same to advertise a price reduction or a value pack. This is why warehouse clubs are such fierce competitors.

In all of the studies the researchers conducted, they assumed an equivalent price decrease or bonus pack. In other words, it was 20 percent more chocolate cake or a 20 percent reduction in the price of the cake. In actuality, the choice is likely to be a 30 percent bonus size cake or a 10 percent reduction in price — and the study didn’t address how consumers might value such asymmetric promotions.

The produce industry should look at minimum package sizes and different promotional ideas. It is hard to believe that consumers would regularly buy 5 lbs. of Clementines if the Spanish and Moroccans hadn’t originally shipped them in those boxes. This study gives some indication that there may be opportunity here for produce, but the idea that price cuts will beat out value packs on “vice goods” will require a more real world analysis.