Vice Vs. Virtue In Perishables

By Jim Prevor, Editor-in-Chief, Produce Business

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 a 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 doesn’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 an 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.