Abstract
<p>The cost of food in Mexico has increased over several decades while modern retailers face intense rivalry. Currently, consumers have several choices for buying food, which prompts retail managers to implement pricing strategies designed to differentiate from competitors and attract more customers. The problem is that several retailers seem to be using the same approach without a clear understanding of consumer price sensitivity, the effect of non-price promotions, and the variations across retail formats. This research will address these issues by analyzing scanner sales data and mystery shopper price reports to calculate price sensitivity across six food categories sold in four retail chains. Results indicate that product demand, in most food categories, is sensitive to price changes at big-box retail competitors and not traditional supermarket retailers. Additionally, results indicate that the six food categories in the study are sensitive to feature advertising. Retail managers can use these findings to help define their value propositions, focus their pricing strategies, and inform their marketing communications strategy.<strong></strong></p>
Highlights
In his seminal work on pricing and consumer behavior, Friedman (1967) noted that it was possible for consumers to make rational purchase decisions provided they had accurate quality and price information about their products
The problem is that several retailers do not have a clear understanding of consumer price sensitivity, the effect of non-price promotions, and the variations across retail formats
This study was conducted to understand whether price sensitivity expands across food categories and competing retailer types in the emerging Mexican market
Summary
In his seminal work on pricing and consumer behavior, Friedman (1967) noted that it was possible for consumers to make rational purchase decisions provided they had accurate quality and price information about their products. In his view, consumers could find accurate price information on goods and services, but the process could be cumbersome and not worth the effort. If consumers do not react to slight increases in prices, they may inadvertently encourage retailers to set higher margins for their products. If consumers do not reward retailers for reducing their prices, they may discourage them from negotiating better terms with suppliers or setting lower margins
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