At The Bottom Of Retail Pricing Holes: (https://www.forbes.com/sites/nikkibaird/2018/05/25/at-the-bottom-of-retail-pricing-holes/#1232a54d5fd5)
In this article the author brings up the issues surrounding retailers and the promotions that use to
stimulate sales. The author begins to talk about how she believes a lot of retailers are actually too
reliant on promotions and could be doing a bit more harm than good when it comes to sales. She
suggests that customers have become to expect promotions too much and that the change to targeted
promotions is not causing a significant lift in growth of promotions for retailers. The author spoke with
Justin Sargeant the CEO of Nielson to try and look at promotions in a new way and it is revealing and
fresh to think about targeting blocks of items in this way. Nielson suggests that every item that a retailer
stocks has two elasticities one for the base price that the item is being sold at and one for the
promotional price. The article uses one of the examples we had in class discussing the elasticity of some
items such as gas and how regardless if price is up across the board consumers will still end up buying it
because they need it. Although, the article goes even deeper in that there is a base price and
promotional price matrix that retailers should look at when promoting brands or products. The first one
if low base price low promotional elasticity. This means consumers are going to buy these items no
matter what. Nielson suggests that 57% of grocery items fall into this category, and promotional budgets
should not be used for items like these because they giver margin back to the consumer. Nielson’s study
found that 58% of the most highly promoted items fall into this category so it is actually not helping
sales when grocery stores promote these items to consumers. The next category is high promotional
elasticity and low base price elasticity. These items need to be included in promotional budgets because
the programs will in fact stimulate sales. Retailers need to do a better job of identifying these items
because according to Nielson they total only 7% of items that retailers stock but will do the bulk of the
work in creating a promotional life to sales. The article also talks about a promotional “rules of thumb”
in that 10% of promotions on items deliver the bulk of results when stimulating sales (these 7% of the
items represent this percentage of promotions for this rule), then there is 30% of items do not make
money but also to not lose money, and the remaining 60% of items left are giving away margin back to
the consumer and shouldn’t be promoted. Since only 10% of items deliver a majority of promotional
success it is paramount to identify these items for promotional programs, or a retailer could run the risk
of losing out and promoting items in the undesirable 60%. The next category on the elasticity matrix is
low promotional elasticity and high base price elasticity. These items make up about 20% of retailer
offerings and are usually highly recognizable brands that are bought often. These products are good
candidates for EDLP offerings because the items are well known to consumers, so they are inclined to
buy them already and an EDLP would give them the same feeling of savings that a promotion would but
the retailer can keep more margin on these items because the price is in fact the promotion here. The
last quadrant was high promotional elasticity and high base price elasticity these items are more
seasonal type items in which there is a high demand period for these, but after that period ends
consumers would need a convincing reason to buy these types of items. This quadrant is where a lot of
loss leaders would operate and is a dangerous place to have a high percentage of your offerings in. The
article suggests that retailers need to hold steady and stop the “addiction” of providing promotions to
the 60% of items that are not actually providing any promotional lift. Although, the author also suggests
that this is not an easy thing to do because it could turn consumers off the store and not just the brand.
This ties into class with the BC Ferry case in that the company was struggling to find ways to justify to
consumers the hike in the ride rate and grocery stores could see a similar issue if they were to drastically
change promotional spending on items consumers are used to getting.
Weatherspoon, Dave; et al. “Price and Expenditure Elasticities for Fresh Fruits in an Urban Food Desert,” Urban Studies, June 2012
This article focuses on “food desert” community who wants to adopt a healthy lifestyle by eating more fruits. However, due to having a low income they are not able to afford it. That’s why community leans more towards eating fast food and living an unhealthy lifestyle. The data also showed that if the consumers spent more than the demand for fruits went high. For example, 1 percent rise in spending caused 1 to 2 percent increase in fruit purchase. Similarly, if the prices for fruit went high, then fruit purchase dropped but not as much as the price increase. This shows how demand for fruit is inelastic. The other data talks about the smaller price elasticities and larger expenditure elasticities. Since the price of elasticity directly impacts the demand. Especially in this community which has most minorities price will play a significant role, compare to average American. This issue can be resolved if local produce provides the quality product with competitive price or an opening additional store to bring more competition. This can help “food desert” community to increase fruit consumption and live a healthy lifestyle.
