Pricing can be a way to build or destroy brand equity and, at the same time increase consumer cynicism about the intent of corporations. For example, my sister, the realtor, came back from the grocery store yesterday annoyed about their pricing policies. Sobey’s has taken to feature pricing products in multiples. For example “Buy two for $3.99, get the third one FREE!”. If you want to by one of the item you pay $1.49, when the regular price is $1.79 each. So for the single item the shopper gets a 17% discount. When you buy three items, you get a 27% discount.
What’s so bad about that? Sobeys is rewarding heavy users with a bigger discount. Here is the problem. Sobeys will only do this with products that experience “expandable consumption”. That is, the more a consumer has in the cupboard, the more that they will actually use. Thus this pricing strategy is encouraging unnecessary consumption, and in the case of food, obesity. But it gets worse. The word “FREE” is irresistable to most of us. Dan Ariely in his book Predictably Irrational shows us just how “free” may lead us to get something we don’t need, when something else might be a better choice. In order to get the deal, we buy more, but we also pay more. And that extra money could have been used on other items. Brian Wansink, the author of Mindless Eating, showed in a recent study that American consumers throw away about 12% of the groceries that they purchase. Costco, with its hernia pack format and grocery stores multiple pricing policies are making this worse.
Grocery retailers and manufacturers are facing a difficult situation. The grocery industry in North America is growing at about 1% a year. The stock market insists on growth of 8% to 12% for the industry. This leaves a huge gap for managers to close. Pricing policies that encourage increased purchase are one way to close that gap.
But these strategies result in over consumption, waste and disproportionate spending. They also result in the consumer perception that they are being forced to buy more than they want in order to save money. This increases consumer distrust of corporations and erodes brand equity.
Perhaps we need to think about business models that focus on better, not more. Perhaps a model of “anti-consumption”. Dan Ariely suggests that there might be an anti-spending credit card. We need credit cards to shop online and to travel. But some of us may need limits to our cards. If you are susceptible to over-spending, would you pay to limit your spending on unnecessary items?