A grocery product’s unit price refers to the retail price of that product re-expressed in terms of some standard unit of measurement (e.g., price per 100 g).
When available to shoppers, unit prices can facilitate direct price comparison between similar products by removing the need to calculate price differences when those products are sold in varying pack sizes. In this way, unit pricing has been widely suggested as a useful mechanism for allowing consumers to make more informed choices and to potentially save money.
It is important for supermarket retailers and FMCG manufacturers to understand how the provision of unit price information might influence shopper behaviour within the store, specifically switching behaviour.
Although there is often an inherent assumption that unit prices will lead consumers to buy cheaper products, which can raise concern among manufacturers and retailers, this may not always be true.
In recently published research by the Queensland University of Technology, the authors set to examine how unit price information encouraged brand switching behaviour and whether category characteristics moderated this switching behaviour. The findings were based on approximately 15,600 grocery receipts provided by 302 household shoppers across a 20-week period.
The history of unit price and brand switching research
Unit pricing research began in line with the promotion of unit price programs among several large supermarkets in the United States during the early 1970s and remains topical today with researchers examining both consumer and retailer impacts. Researchers initially sought to measure consumer knowledge, awareness, understanding, and usage of unit price information. Focus then turned to examining factors believed to moderate the effect of unit pricing on product choice, such as unit price prominence and demographic characteristics of customers such as those relating to socioeconomic status and educational level. Early attempts were made to examine whether the provision of unit price information influenced shoppers’ selection of products, but few studies specifically considered impacts on switching between brands or between product sizes.
Brand switching behaviour has been examined in a range of settings, including services, automotive retailing, banking and finance and retail channels. More commonly however, it has been studied within the realm of grocery stores and supermarkets, where the frequency and low involvement nature of purchases, low switching costs, and availability of product alternatives has been shown to facilitate this behaviour. Within this setting, studies have typically examined outcomes such as the impact of brand switching on retailer profitability and revenues and changes in consumption patterns.
New research on unit price facilitated switching
This current work makes several contributions to retailing and grocery shopping behaviour knowledge. In general, this new research demonstrates that depending on the type of product considered, unit pricing can lead to changed purchasing behaviour in the supermarket, but switching behaviour varies across categories. Specifically, it was demonstrated that for categories where limited brands and limited pack sizes are available (e.g., block chocolate or cola) exposure to unit pricing has little to no impact on switching.
However, in categories like instant coffee or teabags, where there are typically limited brands considered but multiple pack sizes within those limited brands, switching was observed. That is, where strong brand loyalty exists (Lipton, Nescafe), customers ‘upsized’ within brands their favourite brand.
Where multiple brands and also multiple pack size options were available, such as with butter/margarine or laundry detergent, shoppers were equally inclined to switch between different brands, but also within brands (upsize).
In categories such as tomato sauce/ketchup and fresh eggs, shoppers are more likely to only switch between brands, since limited pack size options are typically available (e.g., eggs are predominantly purchased by the dozen).
Customer savings mean good news for supermarket retailers
Interestingly, this new research discovered that despite customers achieving savings through unit price usage, their overall total weekly spending tended to be relatively stable. Instead, the research found that shoppers who used unit price information may spend less per product, but simply purchase more products with any savings achieved. This is because shoppers tend to have a ‘mental wallet’, a set budget each week for groceries, petrol, public transport and entertaining. So, shoppers spent to the same level each week, purchasing more items each time.
In Figure 1 below, regardless of the level of education shoppers were provided (none, intensive, less intensive) there were no significant differences in spending each week.
However, what becomes clear in Figure 2 below, is that those shoppers educated to use unit pricing in the supermarket were consistently able to buy more groceries each week.
Implications for supermarket retailers
Grocery retailers and grocery manufacturers operate in the highly competitive fast moving consumable goods (FMCG) market, characterised by low margins, price discounting, and low growth.
Previous research has raised concern that the provision of unit pricing encourages shoppers to switch to the cheapest products available and reduce grocery expenditure, yet this new research does not support this view. We found for products in all eight categories examined, the average final unit price paid by shoppers educated about unit pricing was at a middle-ground within the range of unit prices available – not simply the cheapest. This finding suggests that offering ranges that include a number of high unit priced products in each category may actually move existing shoppers to new slightly higher mid-points.
Alternatively, it may be useful to offer ranges that introduce additional low unit priced products if a goal is to better convey a sense of being a “low price” store, and encouraging greater volume purchases. We found that switching within and between brands was less likely in categories where there was a limited number of dominant brands (strong brand loyalty) and limited pack size range options. While a naïve perspective might be to adapt all categories to this structure, such an approach would limit consumer choice sets and possibly customer satisfaction levels.
To retain shoppers within a given brand however it may be reasonable to increase pack size options to ensure customers consider upsizing rather than switching between brands (as with tea and coffee). For categories where there is considerable brand switching and upsizing (as with butter/margarine and laundry powder), it might be reasonable to reduce the range available.
Authors: Gary Mortimer, associate professor in marketing and consumer behaviour, Queensland University of Technology; and Dr. Clinton Weeks, senior lecturer in marketing and consumer psychology, Queensland University of Technology.