TY - JOUR
T1 - Consumer Response to Package Downsizing
T2 - Evidence from the Chicago Ice Cream Market
AU - Çakir, Metin
AU - Balagtas, Joseph V.
PY - 2014/3
Y1 - 2014/3
N2 - It is common among producers of consumer packaged goods to reduce the volume of product per package such that the new size replaces the old one. This tactic is commonly referred to as package downsizing. In this article, we investigate the extent to which consumers have different sensitivities to package price and package size in order to shed light on the managerial implications of package downsizing. To do so, we estimate a random utility model of demand to measure consumer response to price and package size using household scanner panel data on bulk ice cream purchases in Chicago. The estimation framework involves modeling household heterogeneity, addressing price endogeneity and accounting for unbalanced choice alternatives. Our main finding is that consumers are less responsive to package size than to price; the demand elasticity with respect to package size is approximately one-fourth the magnitude of the demand elasticity with respect to price. This result implies that marketing managers can use downsizing as a hidden price increase in order to pass through increases in production costs, that is, cost of raw materials, and maintain, or increase, their profits.
AB - It is common among producers of consumer packaged goods to reduce the volume of product per package such that the new size replaces the old one. This tactic is commonly referred to as package downsizing. In this article, we investigate the extent to which consumers have different sensitivities to package price and package size in order to shed light on the managerial implications of package downsizing. To do so, we estimate a random utility model of demand to measure consumer response to price and package size using household scanner panel data on bulk ice cream purchases in Chicago. The estimation framework involves modeling household heterogeneity, addressing price endogeneity and accounting for unbalanced choice alternatives. Our main finding is that consumers are less responsive to package size than to price; the demand elasticity with respect to package size is approximately one-fourth the magnitude of the demand elasticity with respect to price. This result implies that marketing managers can use downsizing as a hidden price increase in order to pass through increases in production costs, that is, cost of raw materials, and maintain, or increase, their profits.
KW - Consumer behavior
KW - Demand analysis
KW - Discrete choice model
KW - Hierarchical Bayesian analysis
KW - Package downsizing
UR - http://www.scopus.com/inward/record.url?scp=84895910976&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84895910976&partnerID=8YFLogxK
U2 - 10.1016/j.jretai.2013.06.002
DO - 10.1016/j.jretai.2013.06.002
M3 - Article
AN - SCOPUS:84895910976
SN - 0022-4359
VL - 90
SP - 1
EP - 12
JO - Journal of Retailing
JF - Journal of Retailing
IS - 1
ER -