Robin Hood Pricing? Bottom of the Pyramid, Product Variety, and Performance

Abstract

Small packs are ubiquitous in resource-constrained, bottom-of-the-pyramid (BOP) markets. Firms can sell small packs at a discount, premium, or uniform price relative to large packs, and each pricing strategy entails important tradeoffs. How firms balance these tradeoffs and set prices for BOP products remains an understudied empirical question. Using granular data from Nielsen on prices and sales of all shampoo products in India, we find evidence of price discounts for smaller packs. Firms offering greater product variety outside BOP offer larger discounts on BOP products. Furthermore, we find that operating in BOP markets is associated with better performance outside BOP markets. Evidence highlights the use of redistributive pricing strategy and suggests that some firms do well outside BOP markets by doing good in BOP markets.