Consumer Response to Package Downsizing: Evidence from the Chicago Ice Cream Market

Metin Çakır and Joseph V. Balagtas

Journal of Retailing, 2014, vol. 90, issue 1, 1-12

Abstract: It is common among producers of consumer packaged goods to reduce the volume of product per package such that the new size replaces the old one. This tactic is commonly referred to as package downsizing. In this article, we investigate the extent to which consumers have different sensitivities to package price and package size in order to shed light on the managerial implications of package downsizing. To do so, we estimate a random utility model of demand to measure consumer response to price and package size using household scanner panel data on bulk ice cream purchases in Chicago. The estimation framework involves modeling household heterogeneity, addressing price endogeneity and accounting for unbalanced choice alternatives. Our main finding is that consumers are less responsive to package size than to price; the demand elasticity with respect to package size is approximately one-fourth the magnitude of the demand elasticity with respect to price. This result implies that marketing managers can use downsizing as a hidden price increase in order to pass through increases in production costs, that is, cost of raw materials, and maintain, or increase, their profits.

Keywords: Consumer behavior; Package downsizing; Demand analysis; Discrete choice model; Hierarchical Bayesian analysis (search for similar items in EconPapers)
JEL-codes: C11 C33 C35 D12 M31 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022435913000456
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jouret:v:90:y:2014:i:1:p:1-12

DOI: 10.1016/j.jretai.2013.06.002

Access Statistics for this article

Journal of Retailing is currently edited by A. Roggeveen

More articles in Journal of Retailing from Elsevier
Bibliographic data for series maintained by Catherine Liu ().