With only 26 days between Thanksgiving and Christmas— six fewer than last year— the retail industry is already up in arms about turning a sufficient profit. But the shortened holiday shopping period isn’t the only factor manufacturers and retailers need to worry about. According to a special IRI survey, 43 percent of consumers plan to [...]
When shopping for a yogurt or soft drink, I usually go for my favorite brand and flavors, and am willing to pay a little extra for these than for other brands. Similarly, when buying health products over the counter, I stick with what works, even if the price rises a bit. However, as a parent who stuffs my kids’ lunchboxes each week with drinks and snack bars, I usually approach this bulk purchase looking for the cheapest of the several brands they like, willing to switch from week to week. The implication here is that for my family and me, price has different meanings for different items. For a special treat, we can tolerate higher prices for brand loyalty, but for ongoing staples with many options, lower prices dictate the choice.
In fact, having different price responses across different products and need states is not solely a characteristic of the Haimowitz household; it’s reflected more broadly in the marketplace. At IRI, we see this frequently across our extensive multi-category price elasticity database, one of the largest collections of price and promotion response insights in the CPG industry. This syndicated results database contains price response measures for over 100 product categories, spanning many manufacturers, brands, outlets, and retailers.
As we have compiled this knowledge base, we have discovered a number of general findings that, while not universal, do hold across multiple categories. Here are a few examples:
- Faster moving items are generally more price elastic than slower moving items. This is true for both food and non-food departments. Thus beer, bottled water and toilet tissue are highly elastic. By contrast, spices, internal analgesics and skin care products are comparatively inelastic.
- Significant differences in elasticities exist across outlets of stores. Consider grocery stores vs. drug stores. Mustard and ketchup are very elastic in grocery stores, while not very elastic at all in drug stores. A similar gap exists for toilet tissue. By contrast, cigarettes as a category are very inelastic in drug stores and not quite as elastic in grocery stores.
- At a manufacturer level in aggregate, the largest manufacturers can have the most elastic brands. We’ve seen this hold for both carbonated beverages and breakfast cereals, among others. In a similar vein, private label tends to be less elastic than other manufacturers within many categories.
- Within a category, perceived luxury brands are often far less elastic than high volume common brands. In mustard, Grey Poupon is quite inelastic, likely a result of decades cultivating a brand image of an affordable luxury item.
- Even for a large, high volume manufacturer, distinguishing attributes or product combinations can create a brand that is much less price elastic. Examples are product blends (chocolate and peanut butter combined) or seasonal holiday specific items packaged specially.
- Package size is not quite a conclusive relationship with price elasticity; the category, the brand, and other factors are at play.
Our CPG manufacturer and retailer clients use IRI’s price elasticity knowledge base in several ways. A manufacturer can use the knowledge base as valuable asset for determining which brands and products within their portfolio are worth considering for a dynamic price change, and within which type of retailer. A retailer can also use IRI’s insights to optimize pricing, selecting among the categories in an aisle or department that are most elastic to price changes and promotions. That can help guide a preferential strategy for price discounting within their stores.