Page 28 - February2019

“Longer-term trends are more difficult to measure because varieties change, store formats change, packaging changes, etcetera, but we think the more important long-term factor to pay attention to for a pricing strategy is the consumer and shopper.”
She points to coconuts and Honeycrisp apples as good examples where elasticities change depending on location and the time of year. “In Hawaii, there might not have that wiggle room in pricing of coconuts, but in locations not as close to production, there probably is,” she says.
“Here in Minnesota, where the Honey- crisp apple was developed, shoppers expect to see this in every store they shop in the fall, and these items are likely to be more sensitive to price changes because of its availability. However, later in the season as supply becomes scarcer, this variety becomes more inelastic and less sensitive to price changes.”
THE ART OF PRICING: ELASTICITY, EXPECTATIONS AND STABILITY
While the price elasticity of demand can be calculated for a specific place and time at a standardized weight, demand is ulti- mately the product of expectations. When you consider the willingness of a consumer to buy a product, the psychology around the purchase cannot be underestimated.
“It sounds simple, but one of the most common pit-falls we see when we go into a retail provider to consult on pricing is that retail providers tend to do the same type of promotion for an item,” says Gina Garven of Robinson Fresh.
“Ninety-nine cents per each, as an example, is often repeated without testing other options. We can measure mathe- matically how shoppers respond to that change in price, but the reality is that they’ll also respond differently to different versions of this price.”
Instead of pricing products at $0.99 each, Garven says they can be marked as two for $2, or have them sold at $2 each with a buy-one-get-one-free promotion.
“All of these versions result in basically the same price, but shoppers will respond differently, which of course impacts the volume—the elasticity measures that result. This is the art of pricing.”
Pandol believes the 99-cent model is unsustainable for table grapes, and spec- ulates high-low pricing may be hurting the
28 / FEBRUARY 2019 / PRODUCE BUSINESS
produce industry generally because prices are “just so all over the board.”
“On a cost basis for a 99-cent retail price, somebody’s losing somewhere in the chain there,” he says, claiming there is a substantial piece of the market where retail and wholesale prices are “divorced.”
“One of the other pricing strategies that we think tends to negatively affect demand is these extreme high-lows where there might be 200 percent between the regular price and the ad price.
“The ups and downs may be respon- sible for the younger generation not eating as much produce, because its prices are unknown and kind of unreliable.”
On a psychological note, Pandol talks about how consumers don’t seem to notice the swing in retail prices per pound as much for berries, with the size of packages changing throughout the season while the price per package stays more consistent.
“I would say most consumers don’t do long division. They look at the package price,” he says.
“Someone said to me one time: ‘I don’t know why potatoes are in 5- and 10-pound units, because it’s easy to calculate the price per pound. They should be like some products in the store that are really oddball sizes.’ Laundry detergent is one of those.”
Christou of Del Monte Fresh Produce also alludes to the psychological elements of pricing, highlighting retailers may be tempted to alter their programs to hit certain price points.
“For example, a customer buying large pineapples or melons may be tempted to consider a smaller size to attain a reduced selling price per unit and create a false sense of value to the consumer,” he says.
Spezzano thinks consumers expect produce pricing to fluctuate with a lot of specials as they understand supply moves and there is seasonality that is reflected in retail pricing.
“The ups and downs may be responsible for the younger generation not eating as much produce, because its prices are unknown and kind of unreliable.”
— John Pandol, Pandol Bros.