Grocery Price Setting and Quantity Surcharges

Abstract

Quantity surcharges occur when the unit price of a brand's larger package is higher than the unit price of the same brand's smaller package. The authors examine how price-setting practices in the grocery industry help explain the existence of quantity surcharges. Two studies support the authors’ contention that common pricing practices aimed at establishing a favorable store–price image can result in quantity surcharges. First, an experiment shows that consumer demand and the importance price setters place on establishing a low store–price image have an interactive effect on price-setting behavior. Second, an examination of retail sales volume, price, and cost data suggests that such price-setting reactions can result in quantity surcharges when certain asymmetries in demand exist across package sizes. The authors also discuss managerial and public policy implications along with areas for further study.

Sales, Quantity Surcharge, and Consumer Inattention

“…Studies have found that "quantity surcharges occur in 16% to 34% of supermarket brands that are available in two or more package sizes" (Sprott, Manning, and Miyazaki, 2003). The marketing literature distinguishes QSs that are a deliberate and systematic policy used in place of quantity discount (not the case for detergent in our sample) and those that are a by-product of promotional activities (explains events of quantity surcharge during large pack promotions in our sample).…”

“…Little attention has been dedicated to the second type of QS (the type that interests us in this study) because it is less frequent and it occurs as "as an unintentional by-product of common price setting processes" (Sprott, Manning, and Miyazaki, 2003).…”

Guest editorial: The psychology of pricing on the internet

“…Indeed, changing focal areas while retaining the same research topic allows the topic to take on new dimensions and often provides new insights not previously considered. For example, Dave Sprott, Ken Manning, and I found that the process of shifting our research on quantity surcharges from a focus on consumer perceptions of sellers' prices (i.e., grocery store brand-size prices set by retail price setters) to seller perceptions of other sellers' prices (i.e., competing prices for the same brand-size), and ultimately to seller (retailer) price-setting practices, greatly expanded our understanding of quantity surcharges (Manning, Sprott, & Miyazaki, 1998;in press;Sprott, Manning, & Miyazaki, 2003). It also allowed the study of what seemed to be a relatively narrow topic to develop into multiple research projects from the perspectives of the various research areas described above.…”

Beyond promotion-based store switching: Antecedents and patterns of systematic multiple-store shopping

“…These categories differ primarily in the degree to which they are perishable (low degree for specialties and convenience items, high degree for fresh items, Krider & Weinberg, 2000) and in the perceived quality differentiation within the category (low differentiation for convenience items, high differentiation for specialties and fresh items, Corstjens & Corstjens, 2000;Fernández-Barcala & González-Diaz, 2006). Also, demand for specialty items is typically lower than for fresh or convenience items (Dhar, Hoch, & Kumar, 2001;Sprott, Manning, & Miyazaki, 2003).…”