The Effect of Unit Pricing on Product Demand and Perceived Product Satisfaction

Product demand can be viewed as the aggregate expression of individual consumer's attitudes towards a product. This expression of attitude is in the form of a buy-or-not-buy outcome of the decision process by which buyers analyze the cues of stimuli concerning the product. These stimuli are composed of both positive and negative affects associated with the product, and as such comprise the total perceived satisfaction associated with purchase of the product. Quantity, manufacturer's of dealer's reputation, promotional messages and past experiences are pieces of information which serve as product stimuLi. One such piece of information which almost always is known to the buyer is the price of the product. Price may contain much information for the buyer [7]. One such factor may be associated with product quality (especially where other information cues are lacking [1]), while another factor is related to the cost to the consumer [9]. Thus, price contains both favorable and unfavorable stimuli.

Citation:

Peter J. LaPlaca (1974) ,"The Effect of Unit Pricing on Product Demand and Perceived Product Satisfaction", in NA - Advances in Consumer Research Volume 01, eds. Scott Ward and Peter Wright, Ann Abor, MI : Association for Consumer Research, Pages: 9-16.

Advances in Consumer Research Volume 1, 1974    Pages 9-16

THE EFFECT OF UNIT PRICING ON PRODUCT DEMAND AND PERCEIVED PRODUCT SATISFACTION

Peter J. LaPlaca, University of Hartford

Product demand can be viewed as the aggregate expression of individual consumer's attitudes towards a product. This expression of attitude is in the form of a buy-or-not-buy outcome of the decision process by which buyers analyze the cues of stimuli concerning the product. These stimuli are composed of both positive and negative affects associated with the product, and as such comprise the total perceived satisfaction associated with purchase of the product. Quantity, manufacturer's of dealer's reputation, promotional messages and past experiences are pieces of information which serve as product stimuLi. One such piece of information which almost always is known to the buyer is the price of the product. Price may contain much information for the buyer [7]. One such factor may be associated with product quality (especially where other information cues are lacking [1]), while another factor is related to the cost to the consumer [9]. Thus, price contains both favorable and unfavorable stimuli.

It can be assumed that the objective of the buyer's selection decision process is maximization of total satisfaction or utility subject to the constraints of each individual's capacity to reach the goal. In choosing a mix of products to purchase, the buyer compares alternative products; relative, rather than absolute, perceived satisfaction is the basis for product selection.

When choices are among competing brands of the same product, the concept of demand can be viewed as the number of buyers selecting the jth brand (dj) rather than the total quantity of the product demanded. (The assumption being that the total quantity of the product purchased will remain the same, but that the amount of various brands of that product will be altered.) Individual buyer's demand is now represented by a dichotomous choice situation between perfect substitutes in which a brand is either purchased (a yes choice) or not (a no choice). If the individual's choice of brand is represented by cij, the overall formulation wouLd be as follows:

d_j = c_ij = f(rp_j, rs_j, y_i)

where rpj and rsj refer to the relative price and satisfaction of the jth product and y to the consumer's income. This represents the basic function necessary to determine the consumer's equilibrium or actual purchase decision [6,11].

A basic assumption of microeconomic analysis is the consumer's ability to correctly establish the relative prices of the two brands being considered. Perhaps a more correct term wouLd be perceived prices of the two brands. It is this perceived price information which serves as an input to the consumer's decision making process. A change in the buyer's perception will cause a shift in his equilibrium point, and therefore a change in behavior, similar to the change in the actual price as discussed in the microeconomic theory. This can determine the individual's demand for either of the two products, or where a dichotomous situation exists, it can indicate which brand will be selected A mechanism such as unit pricing which facilitates a correct assessment of relative price could therefore cause changes in perceived prices and subsequent choice behavior under different product selection environments.

HYPOTHESES

This method of analyzing demand is desirable because it is possible to experimentally manipulate the relative price and relative satisfaction components into four separate situations as shown in Figure 1. Cases I and II represent situations of equal product satisfaction and are best represented by those instances where the buyer is choosing among different sizes of the same brand of product. In these cases the demand function can be further simplified. It is assumed that the sum of the positive and negative affects would be constant for the same brand (within the bounds of not enough to serve or consume and so much that spoilage occurs), and therefore the relative satisfaction of the jth item compared to other size items of the same product should be equal to one.

FIGURE 1

PRODUCT DECISION ENVIRONMENTS

PRODUCT DECISION ENVIRONMENTS

PRODUCT DECISION ENVIRONMENTS

PRODUCT DECISION ENVIRONMENTS

In this situation relative price becomes the dominant factor in determination of demand. The income of the ith buyer, y, is independent of product and would remain constant for any item choice. Therefore,

d_j = f(rp_j).

It is assumed that under the condition of equal satisfaction, the buyer will select that item with the lowest unit price [6].

The ability of an individual to accurately judge the relative price of the jth product varies widely in the consuming public and errors of judgement are numerous. If the jth item has a relative price advantage (rpj less than one) over other items of the same brand of product, it is hypothesized that mechanisms which aid consumers in the assessment of relative price would also increase dj. One such mechanism is unit pricing [10], which shows, in addition to the price per item (shelf price), the price per standard unit of measure (ounce, pound, pint, square foot, etc.) and enables the consumer to better evaluate the relative price of the jth items. As a general hypothesis, this can be stated as follows:

H1: In a situation where relative satisfactions are equal, the total number of buyers selecting a specific product J (dj) after the presentation of unit price information will increase for those jth items with the lower relative price and decrease for those jth items with the higher relative price.

It closely follows from the above argument that in situations where relative satisfactions of the jth items are equal and relative prices are known to be equal, a mechanism such as unit pricing which facilitates price comparisons would have no effect on di, the total demand for the Jth product. This is stated in the following hypothesis:

H2: When relative price of the products under consideration as well as relative satisfaction are equal, then unit price information will have no effect on the demand for the jth product.

Both of the above hypotheses are applicable only in the Case I or Case II situation where relative satisfaction of the jth product is one. Consideration can now be directed to the more general case where relative satisfactions are unequal. A typical situation would be comparisons made between competing brands of the same product class. It has been shown that where price is not the only informational cue, it is relegated to secondary importance and relative satisfaction would be more important in influencing demand [1,4]. Unit pricing is studied under these conditions in Case III and IV situations. In the Case III situation where the relative prices of products under consideration are equal, and the assumption of no change in income remains the valid, the demand for the jth product would be a function of relative satisfaction only. This would be represented as

d_j = f(rs_j).

Under these conditions any mechanism which facilitates price comparisons would have no effect on demand. This may be hypothesized as follows:

H3: Where relative price of the products under comparison is equal, unit price information would have no effect on demand for the Jth product, regardless of the relative satisfaction.

Prior to this point, the effect of a person's income has been assumed to be constant. However, it is necessary to introduce income to develop an explanation of price comparison mechanisms. In the analysis of reduction of total purchasing power and the effects of brand importance, there is a problem of opposing forces. Those products which have a high relative price (an indicator of high quality and, in this consideration, a positive contribution to overall satisfaction) cause a larger reduction in total purchasing power than lower relative priced items. This reduction in buying power can be assumed to have a negative contribution to overall satisfaction. It can also be assumed that a unit reduction in buying power will have a greater effect on the satisfaction of a lower income consumer (close to a budgetary constraint) than on an upper income consumer (greater discretionary power).

A similar two-way contrast develops when consideration is given to the effect of brand importance. For those products where there is a high degree of brand importance, an indication of perceived product heterogeneity, it is assumed that there is a positive price-quality relationship and that it is desirable to convey an image of high price; however, for items where there is a low degree of brand importance, an indication of perceived homogeneity, the conveyance of a price image is assumed to be unimportant.

However, the corresponding reduction in buying power and its negative influence on satisfaction may have an effect on lower income consumers. It is therefore necessary to combine these factors into a unified concept of satisfaction. Where the effect of brand importance and price are operating in the same direction, that is both are increasing (or both are decreasing) satisfaction, these relationships can be readily combined. There would be an increase in relative satisfaction where there is a high degree of brand importance and a low relative price. It is more difficult to combine these concepts where they are operating in opposing directions, and a scale of degrees must be introduced. Where there is a high degree of brand importance, the increase in relative satisfaction associated with a higher price will be greater for a higher income buyer than with a lower income buyer, and where there is a low degree of brand importance, the reduction in relative satisfaction will be greater for a lower income buyer than for a higher income buyer. These relationships were tested in the following hypotheses:

H4: In Case IV situations, unit pricing will result in more buyers selecting the higher priced brand if that item is associated with a high degree of brand importance than before unit pricing information is given. This will be positively correlated with income.

H5: In a situation similar to above, unit pricing win result in fewer buyers selecting the higher priced product if that product is associated with a low degree of brand importance. This decrease win be negatively correlated with income.

RESEARCH AND DESIGN PROCEDURES

A pretest-posttest control group design was used employing 154 housewives from the Albany, New York and Rockland County, New York areas. Both groups were shown twenty-nine pairs of grocery products. In all but three cases (those of equal relative satisfaction), different brands were shown in each product pair. These stimuli were presented on 35mm, full-color slides to assure identical stimuli presentation for au groups. To determine classification data and base information, both experimental and control groups were first shown au product pairs without any price information. As each pair was shown, respondents were asked to complete a questionnaire regarding the products before them. For the no-price phase, respondents also indicated past purchase experience and brand importance.

The second phase was also identical for both the experimental and control groups. Here respondents were shown pairs of products with retail price per item given. The use of both a preference measurement and a purchase intention measurement enabled respondents to prefer one of the pair and, due to economic and other factors, purchase the other. (One may prefer a Rolls Royce but purchase a Buick.)

The third phase of the experiment involved a discussion of unit pricing for both experimental and control groups; however only the experimental treatment received unit Price information. ln this manner it was possible to isolate the effect of unit price information on purchase decisions and consumer attitudes. The entire three phase experimental procedure required approximately two hours.

RESULTS

Hypothesis One - To represent the conditions of equal product satisfactions, different size packages Of Birdseye Peas (10 ounces and 16 ounces) and Campbell's Tomato Juice (12 ounces and 46 ounces) were used; the former unit priced on a pound basis a-nd the latter on a quart basis. Responses were compared for both the seven-point preference scale and the purchase choice intention between phase two and phase three situations. A chi square statistic was computed for the distribution of respondents selecting each degree of preference (23.8075 for peas and 25.7717 for tomato Juice) and each product in the forced choice (21.9366 and 4.2785). The null hypothesis that unit pricing would not cause any change in these measurements was rejected at the .005 error level for both preference changes and at the .005 and .05 levels for the forced choice for the peas and tomato Juice respectively. Under conditions of equal Product satisfactions, the lesser unit priced item is preferred over higher unit Priced alternatives.

Hypothesis Two - A comparison between two sizes of Sweet Life Peaches (8.75 ounces at 11 cents or .202 per pound, and 30 ounces at 38 cents or .202 per pound) satisfied the condition of equal unit prices and relative satisfaction. Again responses were compared between phase two (the normal shopping situation) and phase three (with unit price information). To test a null hypothesis which predicts no change between the two conditions, a t-test was used and alpha and beta errors (for a minimum shift of 0.5 in the mean preference rating and 0.2 in the mean product choice scale) were computed. T-values for both the forced choice and the seven point support the no-change hypothesis. Corresponding beta errors of less than .10 for the preference measurement and .01 for the forced choice also support the no-change hypothesis. Under conditions of equal unit prices and equal relative satisfactions, unit price information does not cause any change in product demand.

Hypothesis Three - This hypothesis relaxes the equal relative satisfaction condition of the previous hypothesis. Seneca and Motts Applesauce were used as product stimuli. These were unit priced by the ounce (.017) as well as per pound (.267). The t statistics computed on mean preference ratings and purchase intention for both unit pricing bases support the no-change hypothesis. Beta errors of less than .01 for both the ounce and pound prices also indicate support for the no-change hypothesis. Regardless of relative satisfaction. unit price information does not effect relative demand for substitute products if they are equally unit Priced.

Hypothesis Four - This hypothesis predicts that unit price information will cause more consumers to select the higher unit priced item of a product pair under conditions of unequal product satisfactions and unit prices and where there is a high degree of importance placed in purchasing a brand name of the product. Additionally, this hypothesis predicts a positive correlation between the above mentioned shift in demand and the consumer's income.

Respondents had been asked to indicate the importance they placed on purchasing a brand name for each product comparison, and this measure served as a screening device for a sample selection for this hypothesis. Only respondents who indicated that purchasing a brand name was either extremely or very important were included in the analysis. A t statistic was used to test changes in mean preference ratings, and a chi square was used to analyze changes in product choice.

Changes in eight of the fourteen product's preferences and in nine of the fourteen priced choice measurements used in this hypothesis supported the hypothesis. Two products' preference changes and two of the forced choice changes were significant in a direction opposite to that predicted. The remainder of the changes induced by unit price information were not statistically significant. (It should be pointed out that the very small sample 17 respondents indicated a high level-of brand-importance - for the Del Monte Ketchup could have resulted in a non-representative event. To many housewives the brand name in ketchup is Heinz, and Del Monte may have been perceived as a high priced off-brand product. This is quite probable in light of the fact that a similar shift was also observed for the control group. The other product which had a preference and choice shift opposite to that predicted was the seven ounce can of Green Giant Corn. The fact that the unit price of Green Giant is more than double that of the private label corn could very well have been greater than any loyalty/price threshold that may exist. This is supported by a negative correlation between income and change in preference and choice. Lower income respondents showed a greater shift to the lower unit priced brand than did the higher income respondents.)

Correlation coefficients of income versus change in preference and/or choice support the hypothesis that there is a positive correlation between income and shift toward the higher unit priced item. Where the consumer is faced with unequal product satisfactions and relative prices and products are perceived to be heterogeneous, unit pricing results in a greater demand for the higher Priced item. This increase in demand is positively correlated with income.

Hypothesis Five - This states that unit pricing would cause a decrease in demand for the higher unit priced brand of a pair of products if there was a low degree of brand importance and unequal product satisfactions and prices. Additionally, lower income shoppers would show a greater shift toward the lower priced products than would the higher income buyers. As in the previous hypothesis, the measure of brand importance served as a screening measure, and only those respondents who indicated either a slight level of brand importance or that buying a brand name of a product was not-at-all important were used in this analysis. The same products were used as in the previous analysis; however, four product comparisons (Bordens Milk vs. Sweet Life Milk, Hellmanns Mayonnaise vs. Sweet Life Mayonnaise, and Joy Dishwashing Liquid vs. Sweet Life Dishwashing Liquid) had such a small number of respondents indicating low brand importance that they were not used in the analysis. There were six significant changes in the forced choice measurement consistent with the hypothesis and two changes which were significant in the opposite direction, and five significant changes in preference measurements in the direction predicted and one significant in the opposite direction. (One comparison which was opposed to the hypothesis was significant towards the hypothesis for the forced choice measurement. Apparently, even where preference for the higher priced ketchup existed, respondents would purchase the lower priced brand.) While every product comparison did not yield supportive evidence, it was felt that the majority of the responses did, and that Hypothesis Five was supported.

Every correlation coefficient was significant at the .01 or .001 level in the direction hypothesized; that is, the lower income shoppers were, in every comparison, found to exhibit a greater shift towards the lower priced alternative where brand name was not an important consideration. It is also important to point out that more lower income shoppers were included in the sample for Hypothesis Five than the previous hypothesis. This would indicate that unit pricing could be used by people of less discretionary income to save money rather than to purchase high priced brands for purposes of conspicuous consumption as had been stated by opponents to unit pricing. Where consumers perceive little difference among brands of a product and where they are faced with a choice between items with differing satisfactions and prices, unit pricing results in an increase in demand for the lower priced items. This negatively correlated with income.

CONCLUSIONS

The research reported in this article is the first attempt to isolate unit pricing as a purchase stimuli and yet retain the usual decision criteria of the housewife. (Two recent studies which investigate unit pricing are: Granger and Billson [2] in which housewives selected among different sizes of the same brands of soft drink and laundry detergent, and Houston [3] which discusses the use of unit pricing to select the lowest unit priced brand and size under conditions of economic shopping criteria.) Many of the supermarket vests of unit pricing have yielded different and often conflicting results [10]; however this may be due to the problem of aggregation of respondents across socioeconomic variables. A common finding of these studies was that, while respondents did indicate use of unit pricing, changes in product movements were not significant. Opponents of unit pricing felt that consumers' statements of use were inflated effects of the experiment; proponents of unit pricing stated what the lack of aggregate product movements was due to a cancellation of some consumers buying more expensive items and others buying less expensive items. It is clear from this research that the environment of the purchase decision affects the use of unit price information. This would lend support to the proponents' position on mixed results.

Where brands were perceived as heterogeneous, the higher priced national brand offered the greater reduction in purchase risk. Unit pricing more clearly identified the higher priced item and more buyers chose the higher priced alternative. This was the more likely response from the higher income buyers, where the negative effect of higher price was minimal if not nonexistent. The opposite result for the flour comparison stresses the importance of a dual price cue. The expenditure of $2.19 to obtain some benefit of quantity purchase economies would place a greater burden on the lower income buyer, and place him at a disadvantage compared to higher income buyers. While the unit price indicated the most economical purchase, the retail price served as a measure of total cost to achieve the desired savings.

On the other hand, where consumers perceive little difference among brands, they would behave in a manner similar to the equal satisfaction condition of the first two hypotheses: Unit price information results in more buyers selecting the lower priced alternative. Again, the benefit for this type of shift of purchase selection is greater for lower income shoppers, and, as expected, a negative correlation was found between income and shift to a lower priced brand of a perceived homogeneous product.

While grocery products manufacturers and retailers can affect the environment regarding relative prices of commodities, relative satisfactions are largely controlled by the consumers, and varies widely in the public. Unit pricing is, therefore, information which aids the consumer in her decision making process. It is an important part of her "Right to Know,'' and will become even more salient when new nutritional labeling requirements become effective.

REFERENCES

Gardner, David, "Is E ere a Generalized Price/Quality Relationship?" Journal of Marketing Research, May 1971, pp. 241-3.

Granger, C.W.J., and A. Bin son, "Consumer Attitudes Toward Package Size and Price," Journal of Marketing Research-, August, 1972, pp. 239-248.

Houston, Michael J., The Effect of Unitpricing on Choices of Brand and Size of Economic Shopping," Journal of Marketing, July, 1972, pp. 51-54.

Jacoby, Jacob, Jerry C. Olsen and Rafael A. Haddock, Price, Brand Name, and Product Composition Characteristics as Determinants of Perceived Quality," Journal of Applied Psychology, December 1971, Vol. 55, No. 6, pp. 570-579

Leavitt, H.J., "Experimental Findings About the Meaning of Price," Journal of Business, Vol. 27, pp. 205-210, 1955.

Mansfield, Edwin, Microeconnmics: Theory and Applications, (New York, Norton and Company, Inc., 1970).

Monroe, Kent B., "Buyers' Subjective Perceptions of Price," Journal of Marketing Research, February, 1973, pp. 70-80.

Monroe, Kent B., The Influence of Price and the Cognitive Dimension on Brand Attitudes and Brand Preferences," paper presented at the Attitude Research and Consumer Behavior Workshop, University of Illinois, December 1970.

Monroe, Kent B., "The Information Content of Prices: A Preliminary Model for Estimating Buyer Response," Management Science, April 1971, pp. B519-32.

Monroe, Kent B., and Peter J. LaPlaca, "What Are the Benefits of Unit Pricing" Journal of Marketing, July 1972, pp. 16-22.

Palda, Kristain, Economic Analysis for Marketing Decisions, (Ridgewood Cliffs, New Jersey, Prentice-Hall, 1969), Chapter 4.

Tull, D.S., R.A. Boring and M.H. Gonsior, "The Relationship of Price and Imputed Quality," Journal of Business, Vol. 37, pp. 181-191, 1964.

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