Study focusses on pricing plans

A new study conducted in Chicago suggests everyday low pricing may not be the magic potion the grocery industry is looking for to cure what ails it.The study took the form of an experiment by a marketing research team from the...

A new study conducted in Chicago suggests everyday low pricing may not be the magic potion the grocery industry is looking for to cure what ails it.

The study took the form of an experiment by a marketing research team from the University of Chicago’s Graduate School of Business.

Some of the findings of the study are reported in the summer issue of the CMS Canada Coupon Bulletin.

The team manipulated prices in 19 product categories in a Chicago-area supermarket chain.

Some of the stores used the high-low pricing approach – weekly specials on some items and higher prices on everything else – and others reduced prices and kept them low.

The everyday low pricing stores saw slightly more sales but much less profit than the high-low stores.

The research team calculated that overall profits in the categories that used everyday low pricing were about 17% below what the grocers would have made with the traditional approach.

Higher profit margins on items that were not on sale made the difference, say the researchers.

The project’s manager, Mary Purk, says the findings are so striking they raise questions about whether stores are really using everyday low pricing, and, if they are, in many cases it is to their detriment.

Also, the study found some items sell more when discounted. Frozen entrees and soft drinks moved more quickly when they went on sale than did dish detergents

The researchers pointed out people are not going to wash more dishes just because soap is on sale. But they probably will drink more pop if it is sold at a discount.

Income alone does not determine consumer price sensitivity, the study found, and the proximity of the nearest supermarket competitor was also a big factor.

Customers buy more of a product when it is featured in multi-unit packages, the study noted, even when it is not a bargain.

For example, the researchers found when paper towels were sold at two rolls for $1.49 sales were greater than for single rolls of towels sold at 75 cents each.