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But if a retailer features items too frequently, he believes “the consumer will wait for the specials to buy and lay off of non-promotional purchases”.
“Not all items in the ad are at below cost, at cost and a bit above cost as many of the items in the ad are at a profitable level,” he says, citing value-added salads, value-added vegetables and semi-perish- able items as good examples.
“One longer-term trend we do see impacting the marketplace is the value shoppers place on convenience and pack- aging,” adds Garven. “The convenience shoppers are typically less price sensitive across all commodities – they’re willing to pay more for the value-ad that comes with that type of product.”
Christou says consumers are more aware of price fluctuations on products they purchase often. “Consumers who see staples fluctuating may choose to shop around in search of more consistent pricing on the products that they choose to buy regularly,” he says. “In response, retailers
may choose to maintain steady pricing on these items, making more or less profit as FOB (freight on board) pricing fluctuates.”
Christou cautions that while price rigidity with low prices on everyday products can benefit consumers, this may also lead to pressure being placed on growers to lower their prices to unsustainable levels.
For the Del Monte executive, the level of price responsiveness is driven by consumer perceptions over whether an item is a staple or a luxury.
“Where the product is considered a staple, consumers are likely to make a purchase even if the price increases, while
luxury items will be given up if the price exceeds consumer expectations,” he says. “Consumers respond positively to price promotions on grapes, berries and pineap-
ples,” he says.
But what methods can retailers employ
to lift sales of inelastic staples?
“For a staple item, retailers can support
a price promotion by helping consumers to identify new day parts in which the product can be consumed,” says Christou.
“Since bananas are often eaten at breakfast or as a morning snack, to improve sales during the promotion a retailer could, for example, display recipe cards highlighting how bananas can be incorporated into an evening meal.”
“Promoting packaged options can also entice them to buy larger volumes than they might have originally planned,” adds Garven. “If retail providers know how many each shopper typically purchases at one time, it can quickly be assessed what it would take to get shoppers to buy more in one trip.” pb
THE ELASTICITY OF ORGANIC
Ben Campbell, assistant professor in agricultural and applied economics at the University of Georgia, has a focus on pricing strategies for labels, particularly for organic, local and sustainable items.
“There are groups of consumers that are highly price insensitive to organic,” he says. “It’s a relatively small group, probably 10-15 percent of consumers depending on the product.”
Campbell explains in fruit and vegeta- bles the average price increase or premium for organic compared to conventional would be estimated at around 46%.
“If you start driving up price much more than that, you’re going to have a lot more people switch off than are going to stay, so revenues are going to go down,” he says.
“You have that group who you can charge those higher prices to and they’re not going to switch off if you raise the price a little bit,” he says. “The fine tinkering with price is how much can I drop price and grab that extra group that really cares about price but doesn’t really care about organic, but not lose the sales I get from this smaller group.”
Last year, researchers from the Univer- sity of Kentucky’s Department of Agri- cultural Economics (GwanSeon Kim, Tyler
30 / FEBRUARY 2019 / PRODUCE BUSINESS
B. Mark and Michael R. Reed) and the National Institute of Agricultural Sciences in South Korea (Jun Ho Seok), investigated price relationships between organic and conventional carrots, tomatoes and lettuce in the U.S.
Using Nielsen scanner data from 2006 to 2015, the authors found posi- tive long-run price relationships between organic and conventional in carrots and tomatoes. The correlation was that a 1 percent rise in the price of organic carrots or tomatoes led to a greater rise in prices of the conventional product.
“We also find that there is no cross- price relationship between organic and conventional lettuce in all regimes, which implies that consumers tend to consider organic and conventional lettuce as different goods,” the authors said.
The researchers discovered U.S. consumers recognized organic and conven- tional carrots and tomatoes as “limited substitutable goods.”
“These results provide marketing opportunities to grocery store managers for these vegetables due to their limited substitutability,” the authors said.
“Managers could take advantage of this situation by setting higher price margins on
lettuce and tomatoes between organic and conventional products to increase profits.”
For UGA’s Campbell, the right pricing strategy comes down to understanding your consumer base in order to make the right decisions.
“For example Whole Foods ... they know who their shoppers are and they’re charging premiums because they know the customers coming in will pay a higher price,” he says. “Is an apple you buy at Whole Foods different to an apple you buy somewhere else? Probably not, but they know who the clientele is and they can charge those prices.”
He says products labeled as local also drive premiums, but the nature of demand is a bit different as the topic isn’t as contro- versial.
“In local you have the same thing, but I wouldn’t say the price premiums are as large as you see in organic,” he says.
“Now there are many retailers in organic, and it’s sort of lost some of its luster for a lot of people,” he says. “Local on the other hand hasn’t, and you have groups of consumers who will pay more for it compared to non-local, but gener- ally local doesn’t have that dichotomy of perceptions like organic does. pb


































































































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