消費者價格彈性與通路價格策略 - 以洋芋片為例 - 政大學術集成

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(1)國立政治大學商學院國際經營管理英語碩士學位學程 International MBA Program College of Commerce National Chengchi University. 碩士論文政治. 大. 立Master’s Thesis. ‧. ‧ 國. 學 sit. y. Nat. 消費者價格彈性與通路價格策略 - 以洋芋片為例 er. io. Consumer Price Sensitivity and Channel Pricing Scheme – A. a. n. v i Case lStudy on Potato Chips n C hengchi U. Student: Jia-Pin Wu Advisor: Professor Foo Nin Ho. 中華民國一○四年三月. March 2015.

(2) 消費者價格彈性與通路價格策略 – 以洋芋片為例 Consumer Price Sensitivity and Channel Pricing Scheme – A Case Study on Potato Chips. 研究生：吳家萍. Student: Jia-Pin Wu. 指導教授：何富年. 國立政治大學. 學. ‧ 國. 立. Advisor: Foo Nin Ho 政治大. ‧. 商學院國際經營管理英語碩士學位學程. al. A Thesis. y er. io. sit. Nat. 碩士論文. n. v i n C International Submitted to h e n g c hMBA i U Program National Chengchi University. in partial fulfillment of the Requirements for the degree of Master in Business Administration 中華民國一○四年三月. March 2015.

(3) Acknowledgements Joining IMBA was a surprise totally beyond my imagination. I hesitated when the enrollment letter was sent to my mail box, but eventually I took the challenge and became a student and full time employee at the same time.. Now I am happy for the choice. Without taking the challenge, I wouldn’t be able to have such great experience in NCCU. Yes, life was busy, yet it was colorful because of people I met and courses I took in this program.. 立. 政治大. Special thanks to my thesis advisor, Professor Foo Nin Ho, for his coaching in my thesis writing.. ‧ 國. 學. Professor Ho lives in San Francisco, so we always had discussions through Skype and he had to. ‧. stay up late due to time difference. I still feel really sorry for that. Without his patience, professional knowledge and fully support, I wouldn’t be able to complete the research myself.. y. Nat. n. er. io. al. sit. This is the best luck I had in this program.. i n U. v. Life is full of surprises. You never know what joy and beauty are waiting unless you step. Ch. engchi. forward. The experiences in IMBA gave me the courage to take new challenges. Thanks to my thesis advisor and classmates, you escort me in the journey of learning, and made my MBA experience an unforgettable one.. i.

(4) Abstract Consumer Price Sensitivity and Channel Pricing Scheme – A Case Study on Potato Chips By Jia-Pin Wu With modest increase of wage level and increasing inflation of raw material prices in Taiwan, manufacturers face pressure in maximizing profit with limited pricing power. Price and pack. 治政 size management become keys for revenue maximization. 大The idea of this research originates 立 from the observations from a price increase project of a key salty snack manufacturer in ‧ 國. 學. Taiwan. In the project, the manufacturer increased both pack size and price per gram of chip,. ‧. aiming to sell bigger pack sizes in PX Mart, where shoppers are mainly housewives who buy for households. The price increase led to different outcomes in different channels due to. y. Nat. er. io. sit. shoppers’ different sensitivity. As a result, a choice-based conjoint (CBC) analysis was conducted to find out if shoppers in Convenient Store (CVS) and PX Mart have different. n. al. Ch. i n U. v. sensitivities for potato chips. Also, pack sizes and different promotions are combined to test if. engchi. deeper promotion depth can offset the negative impact from price increases. From the effect of different combinations, we offer recommendations on the optimal pack size and pricing strategy for the salty snack category in CVS and PX Mart, respectively.. Keywords: price sensitivity, demand elasticity, pricing scheme. ii.

(5) TABLE OF CONTENTS 1. Introduction .......................................................................................................................... 1 1.1. Research Background and Motivation ........................................................................ 1 1.2. Purpose and Objective of the Study............................................................................. 2 2. Preliminary Studies .............................................................................................................. 3. 政治大. 2.1. Positioning of Convenient Stores (CVS) and PX Mart .............................................. 3. 立. 2.2. Consumption pattern of potato chip in relation to promotion effects ...................... 5. ‧ 國. 學. 2.3. Price Increase Project Execution in B Company ........................................................ 6. ‧. 2.3.1. Price up project details ........................................................................................... 6. sit. y. Nat. 2.4. Results of Price up in CVS and PX Mart .................................................................... 9. n. al. er. io. 3. Research Methodology ....................................................................................................... 11. Ch. i n U. v. 3.1. Research Design ........................................................................................................... 11. engchi. 3.1.1. Hypothesis and assumption .................................................................................. 11 3.1.2. Questionnaire format ............................................................................................ 11 3.1.3. Target segments .................................................................................................... 11 3.1.4. Target survey pool ................................................................................................ 11 3.2. Research Method ......................................................................................................... 12 3.2.1. General Information ............................................................................................. 12 3.2.2. Conjoint Attributes ............................................................................................... 13 4. Survey Results ..................................................................................................................... 14. iii.

(6) 4.1. Respondents profile ..................................................................................................... 14 4.2. Choice Based Conjoint (CBC) Analysis Results ....................................................... 16 4.3. Preference Analysis ...................................................................................................... 18 4.4. Promotion Effect Simulation ...................................................................................... 19 4.4.1. Simulation for CVS shoppers ............................................................................... 21 5. Managerial Recommendations .......................................................................................... 24. 治政 5.1. Manufacturers should nibble, not bite ...................................................................... 24 大立 ‧ 國. 學. 5.2. Utilize discriminative pricing for different pack sizes.............................................. 24 5.3. Set break-even point for sales decline and gross profit increase ............................. 25. ‧. 5.4. Use promotions to off-set the negative impact from price increase ........................ 25. sit. y. Nat. io. n. al. er. Reference ................................................................................................................................. 27. Ch. engchi. iv. i n U. v.

(7) List of Figures and Tables Table 1 Comparison of CVS and PX Mart ................................................................................. 4 Table 2 Price up details for Company B ..................................................................................... 8 Table 3 Respondents Gender Distribution ................................................................................ 14 Table 4 Respondents Age Distribution ..................................................................................... 14 Table 5 Most Frequent Shopping Channel for Potato Chips .................................................... 15 Table 6 Respondents Purchase Frequency................................................................................ 15. 治政 Table 7 CVS shopper preferences ............................................................................................ 16 大立 Table 8 PX shopper preference ................................................................................................. 17 ‧ 國. 學. Table 9 PX shopper promotion preference simulation ............................................................. 20. ‧. Table 10 PX Shopper Preference Analysis ............................................................................... 21 Table 11 CVS Shopper Promotion Preference Simulation ....................................................... 22. y. Nat. n. al. er. io. sit. Table 12 CVS Shopper Preference Analysis ............................................................................ 23. Ch. engchi. v. i n U. v.

(8) 1. Introduction The research aims to find out whether consumers shopping in different channels have different price sensitivities, preference for potato chip pack sizes; and, whether different promotion depths would alter consumers’ buying quantity choices. The objective of this research is to find out the best practice for the price and pack size combination in different channels. In this research, only CVS and PX Mart shoppers were chosen because these two channels are the two biggest retails channels in Taiwan and their shopper profiles are quite different.. 立. 政治大. ‧ 國. 學. 1.1. Research Background and Motivation. With rising inflation of raw material prices, manufacturers face increasing pressure to maintain. ‧. profit margins. The most direct way to maintain gross profit is to increase a product’s retail. Nat. sit. y. price. However, consumers are more price sensitive in a saturated and competitive market.. n. al. er. io. If the price increase strategy is not designed properly, consumers will switch to other. i n U. v. alternatives available and manufacturers may suffer from a drop in market share and revenue.. Ch. engchi. The idea of this research originates from real cases of price increase projects in company B (real name will be concealed in this paper for confidentiality), which is a key manufacturer and marketer of potato chips in Taiwan. They conducted price-up projects and increased the prices of same products in different channels resulting vast differences in outcomes.. In the first price up initiative, the price increase in CVS was successful, while the same price up ratio turned out to be a failure in traditional trade (i.e. Mom and Pops) and the company had to switch back to the old price to avoid further sales decline.. 1.

(9) In the second price increase project, with retail price and pack size increased simultaneously, sales volume in CVS was able to be maintained; however, PX Mart suffered from around 30% sales decline.. This led to a few key marketing questions posed by management: “Do. shoppers in different channels have different price sensitivities? What is the most suitable pack size in different channels? And what would be the best strategy for pricing scheme in different channels if consumers have different price sensitivities?”. 政治大 In order to answer these questions, a Choice-Based Conjoint (CBC) study is conducted to find 立 1.2. Purpose and Objective of the Study. ‧ 國. 學. out if different factors, i.e., price and pack size, would change consumers’ preference under. different combinations of variables. Different promotion mechanisms are combined too in. ‧. order to evaluate if different promotion depths would induce consumers to buy more, so that. sit. y. Nat. we could help the company understand if promotions will offset the negative impacts from. io. n. al. er. price increase, and form a comprehensive strategy in channel pricing schemes.. i n U. v. Using the conjoint analysis approach, researchers can measure the relative importance of many. Ch. engchi. different attributes of a product to consumers while mitigating social desirability bias. Conjoint analysis achieves both goals by simulating a purchasing decision where the respondent ranks or chooses between different product bundles over a number of iterations, until they have ranked all possible combinations of product attributes. Conjoint analysis surveys are powerful because they model actual behavior over stated intentions or attitudes and closely model a real-life purchasing situation.. 2.

(10) 2. Preliminary Studies 2.1. Positioning of Convenient Stores (CVS) and PX Mart CVS and PX Mart are chosen in this study because they have the highest sales weight of potato chips in the total Taiwan market. However, results of price up execution in these two According to Thaler Richard (1985)1, customers generally expect to. channels are different.. pay different prices in different stores. Based on this hypothesis, a general discussion about the positioning of CVS and PX Mart in Taiwan would help define if the channel image would. 治政 have an impact on consumers’ price expectations. 大立 ‧ 國. 學. CVS (Convenience Stores): Taiwan has the highest density of convenient stores in the world. Currently, there are four major CVS chain stores in Taiwan, i.e., 7-Eleven, Family Mart,. ‧. Hi-Life and OK Mart. They have around 10,000 chain stores in total and the number is still. Nat. sit. y. steadily increasing. 7-Eleven comprises 60% of all CVS stores. In this study, sales data. n. al. er. io. from7-Eleven will be used because it is the biggest player in Taiwan and its sales data is representative for the whole market.. Ch. engchi. i n U. v. Convenience stores focus on convenience and sell a wide selection of commodities in small quantities for people’s contingent needs in daily life. People shop there for items mostly for immediate consumption.. Because CVS shoppers shop mostly for immediate consumption,. they have higher price tolerance. Unlike other channels which offer Everyday Low Price (EDLP) benefits, CVS sell products at list price when manufacturers don’t offer promotion supports. Due to channel positioning and demand patterns, people generally have less anticipation for discounts in CVS. PX Mart (全聯福利總處), on the other hand, is an exclusive channel type in Taiwan. It. 3.

(11) originates from the cafeterias for military government officials, which offers prices lower than the market. With the privatization of the channel, it still focuses on its low price strategy and offers at least 20% off EDLP to its customers. The channel is committed to expanding stores to rural areas to increase its scale economies. With its quick expansion, PX Mart now has around 700 stores in Taiwan and the number is still increasing. Because of its EDLP image, most consumers shop there with the expectation of getting better prices. The channel launched a series of ads which promoted its money-saving benefit and established the channel’s brand image.. 立. 政治大. ‧. ‧ 國. 學. Below is a comparison for these two channels on different aspects.. Table 1 Comparison of CVS and PX Mart. CVS. PX Mart. Price (when. List price. 20% off EDLP. sit. n. al. er. io. non-promotion). y. Nat. Channel. Ch. engchi. i n U. v. Promotion. Utilize incentive to encourage. Direct price discounts, i.e. show the. types. consumers to buy more, i.e. “buy 2. discounted price on shelf talkers.. get 20% off” (第二件六折), “Show. For example, “2 for $54”.. payment receipt and get Buy 2 get 30% off discount” (憑代收收據第二件四折). Shopper profile Age. 18-34. 35-54. 4.

(12) Purpose of. Mostly buy for immediate use. shopping. Stock replenishment for the whole family. 2.2. Consumption pattern of potato chip in relation to promotion effects Previous research has shown the effects and impact of promotions on consumers’ behavior; and, the importance of frequency and consumption cycle on people’s price elasticity for the commodity category. Therefore, the following discussion attempts to understand people’s. 政治大. consumption pattern of potato chips.. 立. ‧ 國. 學. Functionality: People eat potato chips to tide them over between meals, share with friends or family members, or simply as a way to indulge themselves. However, there are a lot of. ‧. alternative foods which also satisfy these demands. More than 50% of salty snack purchase in. sit. y. Nat. trades is driven by impulsive purchases, i.e. people who don’t have a concise wish list for. io. er. snacks before they enter the store; and, they are attracted by product packaging or shelf talker/. al. promotions and buy the snacks which they didn’t plan to. These attributes make salty snack. n. v i n sales rely heavily on promotions.CAccording Lehman and Neslin (2001), a firm’s h e n gtocAilawadi, hi U advertising and promotion policy influences its ability to attract and retain customers by. inducing more of them to (1) switch to the firm’s brand, (2) repeat-purchase it more often, or (3) consume larger quantities2. The attributes of potato chips aforementioned make consumers perform more of these behaviors when promotions are executed on a potato chip brand.. Brand switching: More than 50% of salty snack sales is driven by impulsive purchases; therefore, the chances for brand switching in potato chip category is relatively higher. People are easily tempted by new flavors, packages, or promotion activities and buy the brands they didn’t plan to. The cost of switching on salty snack is nearly zero and most consumers have 5.

(13) the desire to try different snacks once in a while. Due to this characteristic, promotions can have a positive effect in inducing customers to switch brands for potato chips.. Repeat purchasing: Behavioral learning theory indicates that promotions train the consumer to buy on deal rather than repeat-purchase the brand (Rothschild 1987). Promotion deals lower consumers’ expected price for the product. Moreover, potato chips are not a necessity in daily life. Therefore, it is assumed that the repeat purchasing effect on potato chips. 政治大. promotions is minor.. 立. Consume larger quantities: According to Kusum L. Ailawadi and Scott A. Nesline’s (1998). ‧ 國. 學. study, different commodities have different flexible usage rates, which means consumption varies with inventory level of the product, and this function works differently on different. ‧. commodity categories. In Kusum L. Ailawadi and Scott A. Nesline’s study, they compared. y. Nat. sit. ketchup and yogurt consumption change with inventory level, and found yogurt has higher. n. al. er. io. flexibility on the usage rate due to its characteristics. Yogurt is perishable and can be. i n U. v. consumed as a “snack” at any time. Potato chips have the same characteristics. Moreover,. Ch. engchi. several focus group studies conducted for salty snack indicated consumers are tempted to eat more when higher inventory level is available. Due to this nature, it is assumed promotions have positive relation in consumers’ consumption rate.. 2.3. Price Increase Project Execution in B Company 2.3.1. Price up project details Due to inflation of raw material prices, food industry manufacturers have to increase product prices from time to time in order to maintain gross profits. Observations from two price-up projects executed in company B will be discussed here. Retail prices on the same product with. 6.

(14) different channel pack sizes were raised. For the first project, the company just raised the retail price without changing pack volumes. The result in CVS was successful. Daily sales per store dropped at the beginning after price was increased, but sales trends soon went back up and overall sales soon went back to the original level before the price increase. It took 6 months only for consumers to adjust to the new price. However, the sales of same pack price dropped more than 50% in traditional trade and the trend didn’t go up as it did in CVS. In order to avoid further sales decline, the company chose to switch back to the old price.. 政治大 With the increase of raw material prices and labor rate, industries always face the pressure to 立. ‧ 國. 學. maintain margins. Company B had to raise the retail price again three years later. However, there’s a new constraint to not just raise retail prices. This time, company B decided to. ‧. increase both the pack volume and unit price, offering consumers bigger size products with. y. sit. io. n. al. er. raising prices only.. Nat. higher unit prices, so as to avoid giving consumers the impression that the company was. i n U. v. The price change details for CVS and PX Mart in company B’s 2014 price up project are shown below:. Ch. engchi. 7.

(15) Table 2 Price up details for Company B PX Mart Twin Pack. Channel Pack size. CVS Tall Box. Single Pack. Product photo. Before. 立. 50 $ 140 $ 0.36. 160 $ 0.41 15.5%. $ 108 $ 0.42. 95 $ 0.41 1.5%. Before 22 $ 55 $ 0.40 4.2%. After 25 60 0.42. ‧. ‧ 國. $ $. 學. unit price gram per pack price per gram price up %. 治政 Before After 大 66 $ 39 $ 45. After. The purpose and details of price up project are as below:. sit. y. Nat. io. al. n. price increase and b) encourage consumers to eat more.. Ch. engchi. er. 1. Sell bigger packs to chip users, particularly in PX to a) avoid the impression of drastic. i n U. v. In the price up project, volume for PX pack is raised 14.3% (140g 160g) per pack, and price per gram in PX is raised 15.5%. Volume for CVS Tall box pack is raised 13.7% (95g108g) and price per gram is raised 1.5%. For Single Packs, the volume per pack increased 9% (55g60g) and price per gram increased 4.2%.. 2. Reduce price discrimination between channels.. Before the price raise, price per gram in PX is 14.9% higher than CVS ($0.36/gram v.s. $0.41/gram). In the price up project, the gap is decreased to 2.4% ($0.41/gram v.s. $0.42/gram). The prices per gram for CVS packs were also adjusted. Before price up, the 8.

(16) price per gram for Single Pack was 2.6% cheaper than Tall Box. In this project, it was adjusted to same price as Tall Box, which is fair to consumers who buy bigger packs.. The. overall strategy is to eliminate the price discrimination between channels and encourage chip users to consume more by increasing pack volumes.. 2.4. Results of Price up in CVS and PX Mart. 政治大. Using 6 months of post price-up results for CVS and PX Mart respectively, we found different. 立. results in each channel.. ‧ 國. 學. The unit price in CVS is increased 15% ($39$45) but price per gram only increased 1.5% for Tall Box. In PX Mart, the unit price increased 32% and price per gram increased 15.5%,. ‧. which is a drastic change to the shoppers. In terms of sales volume, CVS maintained its sales. y. Nat. sit. volume (-3%) with extra promotion support if we compare like period from June to Nov.. al. n. support.. er. io. However, in PX Mart, sales volume dropped 22% and didn’t recover with extra promotion. Ch. engchi. i n U. v. One thing that needs to be noted is regarding the gross profit. Even though CVS maintained its sales volume after price increase, the extra spending on promotion resulted in a decline in gross profit because the price per gram only increased 1.5%. For PX Mart, the decline (-22%) on sales volume exceeded the price increase ratio (+15.5%) and therefore, price increase could not offset the decline in sales volume and resulted in ≈15% decline in gross profit at the beginning. However, sales slowly recovered as consumers gradually got used to the new pricing. The gross profit in PX Mart slowly went back to the same level before the product price was increased. However, although CVS sales maintain at similar level with extra. 9.

(17) promotion support, the spending hurts the overall gross profit level because price per gram only increased 1.5%.. Conjoint Analysis was conducted to find out whether people primarily shopping in CVS or PX Mart have different price sensitivities and preferences over different pack sizes. With the research result and findings from Company B’s case study, the purpose of Conjoint Analysis is to find out the best price up scheme in potato chip category.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 10. i n U. v.

(18) 3. Research Methodology 3.1. Research Design 3.1.1. Hypothesis and assumption Based on the actual previous project results, it is assumed that shoppers in different channels have different price sensitivities because of the channel brand image. Chip consumers who primarily shop in PX Mart have higher price sensitivity than consumers who primarily shop in CVS. Sales promotions with bulk purchase discount mechanism will encourage shoppers to. 治政 buy more and off-set the negative impact of price increase. 大立 ‧ 國. 學. 3.1.2. Questionnaire format. Choice based conjoint analysis is utilized to test consumers’ preference for different. ‧. combinations on pack sizes and promotion mechanism. The combination of attributes will. n. al. er. io. 3.1.3. Target segments. sit. y. Nat. help simulate the change of weight of consumers’ preferences over pack sizes.. Ch. i n U. v. The survey targets people who buy and eat potato chip. A total of 392 respondents filled out an online conjoint study.. engchi. After screening, 250 records were used for analysis. CVS and PX. Mart shoppers comprise 90% the total valid respondents which represent the current channel distribution in Taiwan salty snack market.. 3.1.4. Target survey pool Respondents were recruited through social media to target potential salty snack users, which include fan page for salty snack in PTT, NCCU student club, and senior high school students. Respondents who reported as never buying or eating potato chips were screened out to include respondents who really eat and buy potato chips.. 11.

(19) 3.2. Research Method 3.2.1. General Information Demographic and behavioral information is collected at the beginning of the questionnaire to understand respondent shopper profile: (1) Gender (1.1). Male. (1.2). Female. 政治大. 立. (2) Age. ‧ 國. 學. (2.1) under 18. y. al. n. (2.6) over 65. sit. io. (2.5) 55-64. Nat. (2.4) 35-54. ‧. (2.3) 26-34. er. (2.2) 18-25. Ch. engchi. (3) Purchase Frequency (3.1) Everyday (3.2) once or twice per week (3.3) once per month (3.4) once every two-three months (3.5) I never buy potato chips. (4) Function 12. i n U. v.

(20) (4.1) To snack during work hours (4.2) Eat and share with friends (4.3) Buy as snack for kids (4.4) Share with family members (4.5) Others (please specify). 3.2.2. Conjoint Attributes. 政治大. In order to streamline the impact on consumers’ purchase decision, the survey excludes. 立. product flavor choices, which will alter consumers’ choices, and adopt only one single. ‧ 國. 學. product which is the best-selling flavor in current Taiwan market. Pack size before and after the price up, and promotion mechanism which are most commonly used in CVS channel, are. ‧. the only variables included in the survey. Pack size and promotion mechanisms are combined. y. Nat. al. n. Pack size:. er. io. volume.. sit. to test if they will mutually impact consumers’ preference choices and intentional purchase. Ch. 1) Tall Box new spec: $45/ 108g. engchi. 2) Tall Box old spec: $39/ 95g 3) Single pack new spec: $25/ 60g 4) Single pack old spec: $22/ 55g. Promotion mechanism: 1) One for 10% off (單件九折) 2) Two for 20% off (第二件六折) 3) Buy 2 get 1 free (買二送一). 13. i n U. v.

(21) 4. Survey Results Of the 250 qualified responses, 52% of respondents primarily shop at CVS and 36% of respondents primarily buy potato chips in PX Mart.. 4.1. Respondents profile The descriptive data of respondents profile are as below: Table 3 Respondents Gender Distribution Gender - What is your gender?. 立. ‧ 國. 1 Male. Frequency. 70. ‧. 2 Female. 180. y. Nat. io. sit. 250. Frequency. Valid. Cumulative. Percent. Percent. 28.0. 28.0. 28.0. 72.0. 72.0. 100.0. 100.0. 100.0. aTable iv l C4 Respondents Age Distribution n hengchi U. n Age - How old are you?. Valid. er. Total. Percent. 學. Valid. 政治大. Percent. Valid. Cumulative. Percent. Percent. 1 Under 18. 16. 6.4. 6.4. 6.4. 2 18-25. 89. 35.6. 35.6. 42.0. 3 26-34. 99. 39.6. 39.6. 81.6. 4 35-54. 42. 16.8. 16.8. 98.4. 5 55-64. 4. 1.6. 1.6. 100.0. 14.

(22) Total. 250. 100.0. 100.0. Table 5 Most Frequent Shopping Channel for Potato Chips Channel - Where do you normally purchase potato chips? Frequency. 1 Convenience store (such as 7-Eleven). Valid. Cumulative. Percent. Percent. 130. 52.0. 52.0. 52.0. 2 Wholesale Club (such as Carrefour). 14. 5.6. 5.6. 57.6. 3 Chain Super (such as PX Mart or Wellcome). 94. 37.6. 37.6. 95.2. 4 Others (Please specify). 學. Valid. Percent. 12. 4.8. 4.8. 100.0. Total. 250. 100.0. 100.0. Table 6 Respondents Purchase Frequency. sit. Nat. y. ‧. ‧ 國. 立. 政治大. n. al. er. io. Purchase Frequency - What's your purchase frequency in buying potato chips?. Valid. Ch. i n U. v. Frequency. engchi. 1 Everyday. Percent. Valid. Cumulative. Percent. Percent. 1. .4. .4. .4. 2 Once or twice per week. 44. 17.6. 17.6. 18.0. 3 Once per month. 93. 37.2. 37.2. 55.2. 111. 44.4. 44.4. 99.6. 1. .4. .4. 100.0. 250. 100.0. 100.0. 4 Once every two-three months 5 I never buy potato chips Total. The respondents profile echo the profile of CVS shoppers, who primarily age between 18 – 34. 15.

(23) years old.. 4.2. Choice Based Conjoint (CBC) Analysis Results In order to find out whether shoppers in different channels have different pack size preferences and price sensitivities to sales promotions, respondents are separated based on primary shopping channels to run CBC analysis respectively. Results are as below:. CVS shoppers: No significance for pack size and promotion mechanisms.. 治政大 Table 7 CVS shopper preferences 立. ‧. 4.00 2 not sig. er. io. sit. Nat. Within Att. Chi-Square D.F. Significance. Total 130 0.52 0.52 0.46. y. Total Respondents One for 10% Buy 2 for 20% Buy 2 get 1 free. 學. ‧ 國. Prom otion. n. a l Pack Size v Total i n C hTotal Respondents U 130 spec e TBnTBnew h i 0.46 goldcspec 0.50 SP new spec SP old spec Within Att. Chi-Square D.F. Significance. 16. 0.52 0.53 3.77 3 not sig.

(24) Prom otion x Pack Size Prom otion Mechanism One for 10% One for 10% One for 10% One for 10% Buy 2 for 20% Buy 2 for 20% Buy 2 for 20% Buy 2 for 20% Buy 2 get 1 free Buy 2 get 1 free Buy 2 get 1 free Buy 2 get 1 free. Pack Size Preference TB new spec 0.44 TB old spec 0.52 SP new spec 0.53 SP old spec 0.56 TB new spec 0.50 TB old spec 0.52 SP new spec 0.56 SP old spec 0.51 TB new spec 0.42 TB old spec 0.45 SP new spec 0.47 SP old spec 0.50. Interaction Chi-Square D.F. Significance. 立. 1.56 6 not sig. 政治大. 學. i.e. single pack old spec (55g at $22). Table 8 PX shopper preference. sit. io. Total 94 0.49 0.47 0.54. er. Nat. Total Respondents One for 10% Buy 2 for 20% Buy 2 get 1 free. y. Prom otion. n. a l Within Att. Chi-Square v 3.23 i n D.F. 2 Ch Significance e n g c h i Unot sig Pack Size Total Respondents TB new spec TB old spec SP new spec SP old spec Within Att. Chi-Square D.F. Significance. 17. ‧. ‧ 國. PX Shoppers: No significance for promotion mechanism, only one significance for pack size,. Total 94 0.41 0.49 0.54 0.55 9.93 3 p < .05.

(25) Prom otion x Pack Size Total Respondents One for 10% One for 10% One for 10% One for 10% Buy 2 for 20% Buy 2 for 20% Buy 2 for 20% Buy 2 for 20% Buy 2 get 1 free Buy 2 get 1 free Buy 2 get 1 free Buy 2 get 1 free. TB new spec TB old spec SP new spec SP old spec TB new spec TB old spec SP new spec SP old spec TB new spec TB old spec SP new spec SP old spec. 政治大. Interaction Chi-Square D.F. Significance. 立. Total 94 0.41 0.54 0.47 0.52 0.37 0.43 0.51 0.57 0.45 0.51 0.65 0.56 4.48 6 not sig. ‧ 國. 學. 4.3. Preference Analysis. ‧. Based on above results, hypotheses are examined to find out if shoppers who primarily shop. y. Nat. er. io. CVS shoppers have lower price sensitivity to sales promotion. al. n. 1) H0:. sit. in CVS or PX Mart have different price sensitivities to sales promotions:. Ch. engchi. i n U. v. In CVS shopper data analysis result, chi-square does not exceed the value corresponding to degrees of freedom of promotion, pack size, or combinations of both variables, which means none of the sales promotion options is significant. Therefore, we fail to reject H0. This implies that CVS shoppers are less sensitive for potato chip price and have no significant preference for pack size.. 2) H0:. PX shoppers have higher price sensitivity to sales promotions. In PX shopper data analysis, respondents do not have strong preference for any promotion mechanism, but prefer the smallest pack size (Single pack before price up: $22 at 55 grams). 18.

(26) The preference for smaller pack in PX shoppers is contradictory to actual practice because pack size sold in PX channel is larger than in CVS, and designed for family use because most of the shoppers in PX Mart are people who buy for household consumption. One possible explanation is, respondents have a preference for lower unit price, not pack size. When promotion in trade is available, they will tend to buy more to get more discount.. Based on the assumption and previous results, a simulation scenario is conducted to validate. 政治大. if promotions can change consumers’ basket size.. 立. ‧ 國. 學. 4.4. Promotion Effect Simulation. ‧. Simulations were conducted for CVS and PX shoppers respectively to validate if below. y. Nat. sit. hypotheses are true in each channel.. n. al. er. io. H0: Promotion mechanism can induce consumers to buy more. i n U. v. Based on the data for PX shoppers, a simulation is conducted with Sawtooth Software to. Ch. engchi. simulate shoppers’ preferences for different combinations of pack sizes and promotion mechanisms. Each combination is given a preference score which in total adds up to 100. By ranking the scores from highest to lowest, simulation results are as below:. 19.

(27) Table 9 PX shopper promotion preference simulation Rescaling Method: One for 10% Buy 2 for 20% Buy 2 get 1 free. Zero-Centered Diffs Total -11.98 -27.87 39.85. TB new spec ($45/108g) TB old spec ($39/95g) SP new spec ($25/60g) SP old spec ($22/55g). -85.95 -2.26 41.89 46.32. 政治 Pack 大 Size. Nat. io. n. al. Ch. SP old spec ($22/55g) SP new spec ($25/60g) TB old spec ($39/95g) SP old spec ($22/55g) SP new spec ($25/60g) SP old spec ($22/55g) SP new spec ($25/60g) TB old spec ($39/95g) TB old spec ($39/95g) TB new spec ($45/108g) TB new spec ($45/108g) TB new spec ($45/108g). y. ‧ 國. 立. sit. Buy 2 get 1 free Buy 2 get 1 free Buy 2 get 1 free One for 10% One for 10% Buy 2 for 20% Buy 2 for 20% One for 10% Buy 2 for 20% Buy 2 get 1 free One for 10% Buy 2 for 20%. er. 1 2 3 4 5 6 7 8 9 10 11 12. Preference. ‧. Promotion. 學. NO#. engchi. i n U. v. 12.04 11.84 9.63 9.44 9.18 8.72 8.53 7.54 6.93 6.41 4.98 4.76. In PX shopper data analysis, there was no preference on promotion mechanism, only preference for SP old spec was significant. However, in simulation above, we can see promotion mechanism plays a higher weight on preference ranking than pack size. Buy 2 get 1 free for SP old spec ($22 @ 50g), SP new spec ($25 @ 60g), and TB old spec ($39 @ 95g) ranked Top 3 on respondents’ preference level, while one for 10% off for SP old spec and SP new spec only ranked fourth and fifth on preference. Then I calculated shoppers’ spending and expenses saved for all options and get results as below:. 20.

(28) Table 10 PX Shopper Preference Analysis NO#. Promotion. Pack Size. Preference. 1 2 3 4 5 6 7 8 9 10 11 12. Buy 2 get 1 free Buy 2 get 1 free Buy 2 get 1 free One for 10% One for 10% Buy 2 for 20% Buy 2 for 20% One for 10% Buy 2 for 20% Buy 2 get 1 free One for 10% Buy 2 for 20%. SP old spec ($22/55g) SP new spec ($25/60g) TB old spec ($39/95g) SP old spec ($22/55g) SP new spec ($25/60g) SP old spec ($22/55g) SP new spec ($25/60g) TB old spec ($39/95g) TB old spec ($39/95g) TB new spec ($45/108g) TB new spec ($45/108g) TB new spec ($45/108g). 12.04 11.84 9.63 9.44 9.18 8.72 8.53 7.54 6.93 6.41 4.98 4.76. gram purchased 165 180 285 55 60 110 120 95 190 324 108 216. Discounted Original price price 44 66 50 75 78 117 20 22 23 25 35 44 40 50 35 39 62 78 90 135 41 45 72 90. Expense saved 22 25 39 2 3 9 10 4 16 45 5 18. Price per gram 0.27 0.28 0.27 0.36 0.38 0.32 0.33 0.37 0.33 0.28 0.38 0.33. We can see in combination with promotion mechanism, when higher discount depth is offered,. 政治大. consumers tend to enlarge their basket size in order to save more money. Buy 2 get 1 free. 立. ranked Top 3 even in combination with Tall Box old spec. From the result, we can infer. ‧ 國. 學. consumers actually prefer the lower unit price, not the small pack size. PX shoppers have higher incentive to buy more and get more discounts because they have higher demand for. ‧. saving, stocking at higher level also give them less pressure because they have more family. sit. y. Nat. members to share.. n. al. er. io. However, shoppers still have a price tier limit for each product. When the unit price exceeds. i n U. v. the limit one is willing to pay, the promotion effect to off-set the negative impact on sales. Ch. engchi. becomes less. We can see Buy 2 get 1 free on Tall box old price ($45/108g) ranked only the 10th among the total 12 options, although it provides the highest saving($45) above all other options. When the unit price and expense exceed the limit customers are willing to pay, promotion effects will not totally off-set the negative impact of price increase, and the effect has a negative relation with the price increase percentage.. 4.4.1. Simulation for CVS shoppers Even though there were no significant preference for either promotion mechanism or pack size, simulation for promotion mixes are still conducted for CVS shopper data, and the results are as below: 21.

(29) Table 11 CVS Shopper Promotion Preference Simulation Rescaling Method: Zero-Centered Diffs Total One for 10% 19.67 Buy 2 for 20% 37.09 Buy 2 get 1 free -56.76 TB new spec TB old spec SP new spec SP old spec Promotion Pack Size 政治大 Buy 2 for 20% SP old spec. n. engchi. y. sit. io. Ch. i n U. 10.4 10.1 9.8 9.6 9.0 8.5 7.8 7.7 7.5 7.1 6.8 5.6. ‧. Nat. al. One for 10% One for 10% Buy 2 for 20% One for 10% Buy 2 get 1 free Buy 2 get 1 free Buy 2 for 20% One for 10% Buy 2 get 1 free Buy 2 get 1 free. SP new spec SP old spec SP new spec TB old spec TB old spec SP old spec SP new spec TB new spec TB new spec TB old spec TB new spec. 學. ‧ 國. 立 Buy 2 for 20%. 1 2 3 4 5 6 7 8 9 10 11 12. Preference. er. NO#. -66.37 -7.33 33.91 39.79. v. Contrary to PX shopper simulation result, Buy 2 get 1 free becomes the most unfavorable promotion mechanism for CVS shoppers, while Buy 2 get 20% off becomes the most favorable promotion mechanism. Preferences for pack size is similar to PX shoppers, SP small pack is still the most favorable pack, and the preference ranking has a negative relation with increase of pack volume. Then I also added gram purchased, expense saved, and price per gram to get a better picture on the analysis. Details are as below:. 22.

(30) Table 12 CVS Shopper Preference Analysis NO#. Promotion. Pack Size. Preference. 1 2 3 4 5 6 7 8 9 10 11 12. Buy 2 for 20% Buy 2 for 20% One for 10% One for 10% Buy 2 for 20% One for 10% Buy 2 get 1 free Buy 2 get 1 free Buy 2 for 20% One for 10% Buy 2 get 1 free Buy 2 get 1 free. SP old spec SP new spec SP old spec SP new spec TB old spec TB old spec SP old spec SP new spec TB new spec TB new spec TB old spec TB new spec. 10.4 10.1 9.8 9.6 9.0 8.5 7.8 7.7 7.5 7.1 6.8 5.6. Gram Discounted purchased Price 110 35.2 120 40 55 19.8 60 22.5 190 62.4 95 35.1 165 44 180 50 216 72 108 40.5 285 78 324 90. Original Price 44 50 22 25 78 39 66 75 90 45 117 135. Expense Saved 8.8 10 2.2 2.5 15.6 3.9 22 25 18 4.5 39 45. Price per gram 0.32 0.33 0.36 0.38 0.33 0.37 0.27 0.28 0.33 0.38 0.27 0.28. 政治大 spec, Buy 1 for 10% off with SP old and new spec ranked Top 4, even though options ranked 立. From the results above, we can see Buy 2 for 20% off in combination with SP old and new. ‧ 國. 學. No. 3 and No.4 saved only $2.2 and $2.5 respectively. Option ranked No. 5 saved $15.6, which is more than 6 times saving than No. 3 and No. 4. From the financial perspective, the. ‧. preference ranking isn’t a rational choice at all. However, if we consider that CVS shoppers. sit. y. Nat. mostly buy for immediate consumption, and have a smaller basket size, then it is reasonable. io. n. al. er. to infer CVS shoppers will choose a smaller purchase volume rather than saving on deals.. Ch. engchi. 23. i n U. v.

(31) 5. Managerial Recommendations Based on the empirical evidence in company B’s price up project and survey results, I will give below recommendations for future applications of price increase for potato chip or commodity with similar consumption patterns.. 5.1. Manufacturers should nibble, not bite Company B adjusted the potato chip price per gram in all channels to be the same. This resulted in 15% price increase in PX Mart, which is a drastic move to the consumers. In order. 治政 to off-set the negative impression, the company also increased 大 the pack volume in an attempt 立 to dilute the price up impact, but the initiative wasn’t successful. ‧ 國. 學. For potato chips, consumers have higher sensitivity for unit price than pack volume. This. ‧. means shoppers are more perceptive of the unit price increase and may not appreciate pack volume increases. The tendency to avoid loss in human psychology might drive shoppers to. y. Nat. er. io. sit. switch their purchase decision to other brands. Moreover, potato chips are considered as unhealthy food and people have a concern to consume too much potato chips. Bigger pack. n. al. Ch. i n U. v. size, also with higher unit price, isn’t necessarily a favorable choice for consumers. As a result,. engchi. managers should avoid drastic increase in the unit price. Instead, they could increase price per gram, but launch smaller packs or decrease pack volume and maintain same unit price, to make the price up less noticeable to consumers.. 5.2. Utilize discriminative pricing for different pack sizes In Company B’s price up project, the manufacturer tried to adjust the discriminative pricing between channels to equal level. However, it led to sharp increase ratio in channels with EDLP pricing strategy like PX Mart. The sales decline ratio is too high and cannot be balanced by the gross profit increase. Since consumers have different price expectations over. 24.

(32) different channels, manufacturers should utilize it and set different price per gram on different pack sizes. In CVS, the price per gram can be higher, and manufacturers can launch smaller pack sizes to meet consumers’ needs to tide over between meals. In channels like PX Mart, where shoppers have higher price sensitivities, manufacturers should list small and bigger packs at the same time, making the price per gram more expensive for smaller packs, and lower price per gram for bigger pack sizes. The key for bigger pack size is to show the “Buy more, Save more” benefit on the packaging design and present the value on pricing.. 政治大. 5.3. Set break-even point for sales decline and gross profit increase. 立. In the case of Company B, if sales decline does not exceed the price up ratio, the company. ‧ 國. 學. still benefitted by the project due to overall gross profit increase. Therefore, managers should set the bottom line of how much sales drop the company can accept from the price up. ‧. initiative. Sales decline ratio versus gross profit increase should be simulated to find out the. y. Nat. sit. break-even point, so that the company can project at what price tier the company will be. al. n. price increase.. er. io. making maximum profit, and be more prepared for the sales drop in the initial period after. i n U. Ch. v. e nnegative 5.4. Use promotions to off-set the g c h iimpact from price increase Price increase causes direct negative impact on product turnover, the impact is more significant for non-durables with relative lower brand loyalty than durables. The opportunity to offset the negative impact is to do promotions at the initial period after price increase, before consumers are used to the new product price. From the survey results, we see that promotions do induce price-sensitive consumers to “Buy More,” and reasonably infer promotions offset the negative impact from price increase. As a result, managers should also put extra promotion spending into consideration. When they set the new pricing scheme, they should make sure the gross profit per unit really increase, not 25.

(33) just the unit price. In Company B’s price up project, managers try to make the unit price per gram the same in all channels. However, this imposes a risk in CVS because if sales decline exceeds 1.5% (see Table 1), the company will need to spend more to maintain same sales level, and the gross profit will decrease due to extra promotion spending. To sum up, managers should understand consumers’ real needs and carefully set new product price with suitable pack sizes if adjustments are needed. Sales decline from price up is unavoidable; however, if the decline ratio does not exceed the ratio on gross profit increase,. 政治大. the price up project is still successful. Managers should avoid direct price discount, but utilize. 立. bundle purchase promotions to encourage consumers to buy more and maintain market share. ‧ 國. 學. before consumers get used to the new pricing.. ‧. n. er. io. sit. y. Nat. al. Ch. engchi. 26. i n U. v.

(34) Reference Thaler, Richard (1985), “Mental Accounting and Consumer Choice,” Marketing Science, 4 (summer), 199-214 Kusum L. Ailawadi, Donald R. Lehmann, Scott A. Neslin (2001) “Market Response to a Major Policy Change in the Marketing Mix: Learning from Procter & Gamble’s Value Pricing Strategy”. Journal of Marketing: January 2001, Vol. 65, No. 1, 44-61. 治政大 Rothschild, Michael L. (1987), “A Behavorial View of Promotion’s Effects on Brand Loyalty,” 立 in Advances in Consumer Research, Vol. 14, Melaine Wallendorf and Paul Anderson, eds. ‧ 國. 學. Provo, UT: Association for Consumer Research, 119-120.. ‧. Kusum L. Ailawadi and Scott A. Nesline (1998), “The Effect of Promotion on Consumption:. Nat. sit. n. al. er. io. 1998), 390-398. y. Buying More and Consuming It Faster. Journal of Marketing Research, Vol. 35, No. 3 (Aug.,. Ch. engchi. 27. i n U. v.

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