Clever Carton Accounting
It is a well-known marketing principle that you’ll make more money charging the same for less than charging more for the same amount.
So I wasn’t too surprised when I noticed that something had changed about my usual 64-ounce carton of orange juice.
Instead of raising the price of the 64-ounce carton of orange juice from $3.99, the good people at Tropicana just reduced the amount of orange juice I’d get by 5 ounces. At the old price, orange juice cost around 6.25 cents per ounce. At the new price, it costs about 6.78 cents per ounce. That 5 ounce drop in quantity is effectively an 8.5 percent price increase!
I’m sure Tropicana knows that if they raised the price of a 64-ounce carton of orange juice to $4.33, some people would think twice about buying it. People are comfortable paying $3.99 for their product, and they might be uncomfortable paying $4.33 for it.
Instead, by reducing the amount, the company can effectively raise the price without disturbing the consumer’s comfort level. And since people pay more attention to price than they do to quantity, most consumers probably won’t even realize they are paying more.
And just in case they might notice, why not keep the carton the exact same size?
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9 Comments
Juejun Xiao · June 29, 2011 at 5:39 pm
Wow, from spotting such small change to reason the reason behind change, you amaze me from time to time. I think this benefits the company and the consumer. While company gains more profit, consumer consume less,but they get almost the same satisfaction.
A can regular Coke Cola contains 355ml with 140 calories(that is 1 calories per 2.54ml). Assume its a perfect cylindrical can,with radius 3.25cm, and height 12 cm. Now reducing it to its size to radius 3cm and height 11.5cm. The Volume goes from 398ml to 325ml, which is about 18% less. As a consumer, one would barely notice the change, but would get almost the same satisfaction, because one bare in mind the number of can he drinks, not by fluid in millimeter.
Orange juice carton works in a similar way. Reducing carton’s size, just by a little, reduces volume by 5oz, because it is big carton to begin with, we consumer hardly notice the change, thus the company gets away with less.
I mention calories count earlier, in a can a Coke Cola, 18% less means, 140*(.18) = 25.2 calories less. It benefits consumer since one would finish a can Coke by means to not waste anything. Now it becomes less calories but same satisfaction.
MrHonner · June 30, 2011 at 8:35 am
The consumer’s perceived satisfaction may indeed be the same, but the bottom line is that the customer is paying more for the product. Furthermore, the perceived satisfaction is only the same because the company has actively tried to hide the change.
That being said, there are some interesting psychological ideas involved here which you have alluded to. For instance, there has been a backlash against “super-sized” drinks in fast food restaurants, with the argument being that people don’t really need that huge amount of soda, but they’ll drink it if you give it to them. But serve them a smaller drink and they will be just as “satisfied”, with reduced negative consequences.
Chris Lusto · June 10, 2012 at 6:54 pm
I suspect all this leaves such a bad taste in our mouths because of the asymmetry in the consumer/producer relationship. Consumers are doing their accounting in terms of conventional units (e.g., per carton), while producers are doing their accounting in terms of standard units (e.g., per ounce). Now that, in itself, isn’t such a big deal, because normally it’s trivial to convert between the two systems. The problem arises because only the producers (government intervention notwithstanding) have the power to change the conventional unit, unilaterally and without notice. The very notion of a conventional unit—of any convention, really—is agreement in the name of avoiding confusion. When one side not only ignores the convention, but intentionally introduces confusion for personal gain, we feel like our trust has been violated. What’s more, the convenience that comes with convention disappears; conventional units become meaningless, which is a shame.
MrHonner · June 10, 2012 at 8:18 pm
That’s an interesting point about how the real casualty here may be the very idea of conventional unit.
It may actually be the case that grocers are required to post price per unit (per ounce, or pound) in some places, but it probably goes unnoticed for the most part.
Educational Aspirations · February 8, 2012 at 10:07 pm
Interesting and unique post. I’m going to borrow this idea. This specific idea will enrich my economics and pricing units.
MrHonner · February 8, 2012 at 10:45 pm
Borrow away! And please share if this idea inspires your students to do something fun, creative, or interesting!
kevinkrenzKevin · February 8, 2012 at 10:25 pm
I think it’s the same reason why there are now 20-packs of soda available. Not quite as sneaky, though.
MrHonner · February 8, 2012 at 10:46 pm
Probably. Once you start looking and paying attention, you start to see it all around you.
For example, shortly after I noticed this, I realized that my local coffee shop had been engaging in a similar practice: https://mrhonner.com/2011/06/28/more-clever-accounting/.
Kevin · February 8, 2012 at 10:50 pm
Yeah – I’ve noticed that one, too. I just need to start writing these things down more to use them when I teach!