Tag: consumer behaviour

This rather strange question has been central to a storm that has been brewing between various celebrity chefs, including Jamie Oliver and Hugh Fearnley-Whittingstall, and the supermarkets. Supermarkets say that consumers don’t want irregular shaped vegetables, such as carrots, parsnips and potatoes. ‘Nonsense’, say their critics.

At the centre of the storm are the farmers, who find a large proportion of their vegetables are rejected by the supermarkets. And these are vegetables which are not damaged or bad – simply not of the required shape. Although these rejected vegetables have been described as ‘wonky’, in fact many are not wonky at all, but simply a little too large or too small, or too short or too long. Most of these vegetables are simply wasted – ploughed back into the ground, or at best used for animal feed.

And it’s not just shape; it’s colour too. Many producers of apples find a large proportion being rejected because they are too red or not red enough.

But do consumers really want standardised fruit vegetables? Are the supermarkets correct? Are they responding to demand? Or are they attempting to manipulate demand?

Supermarkets claim that they are just responding to what consumers want. Their critics say that they are setting ludicrously rigid cosmetic standards which are of little concern to consumers. As Hugh Fearnley-Whittingstall states:

‘It’s only when you see the process of selection on the farm, how it has been honed and intensified, it just looks mad. There are many factory line systems where you have people looking for faults on the production line; in this system you’re looking for the good ones.

What we’re asking supermarkets to do is to relax their cosmetic standards for the vegetables that all get bagged up and sold together. It’s about slipping a few more of the not-so-perfect ones into the bag.’

In return, consumers must be prepared to let the supermarkets know that they are against these cosmetic standards and are perfectly happy to buy slightly more irregular fruit and vegetables. Indeed, this is beginning to happen through social media. The pressure group 38 degrees has already taken up the cause.

But perhaps consumers ‘voting with their feet’ is what will change supermarkets’ behaviour. With the rise of small independent greengrocers, many from Eastern Europe, there is now intense competition in the fruit and vegetables market in many towns and cities. Perhaps supermarkets will be forced to sell slightly less cosmetically ‘perfect’ produce at a lower price to meet this competition.

Videos

Hugh’s War on Waste Episode 1 BBC on YouTube, Hugh Fearnley-Whittingstall (2/11/15)
Hugh’s War on Waste Episode 2 BBC on YouTube, Hugh Fearnley-Whittingstall (9/11/15)

Articles

Hugh Fearnley-Whittingstall rejects Morrisons’ ‘pathetic’ wonky veg trial The Guardian, Adam Vaughan (9/11/15)
Jamie Oliver leads drive to buy misshapen fruit and vegetables The Guardian, Rebecca Smithers (1/1/15)
Hugh Fearnley-Whittingstall’s war over wonky parsnips The Telegraph, Patrick Foster (30/10/15)
Asda extends ‘wonky’ fruit and veg range Resource, Edward Perchard (4/11/15)
Wearne’s last farmer shares memories and laments loss of farming community in Langport area Western Gazette, WGD Mumby (8/11/15)
Viewpoint: The rejected vegetables that aren’t even wonky BBC News Magazine (28/10/15)
Viewpoint: The supermarkets’ guilty secret about unsold food BBC News Magazine (6/11/15)

Questions

  1. What market failures are there is the market for fresh fruit and vegetables?
  2. Supermarkets are oligopsonists in the wholesale market for fruit and vegetables. What is the implication of this for (a) farmers; (b) consumers?
  3. Is there anything that (a) consumers and (b) the government can do to stop the waste of fruit and vegetables grown for supermarkets?
  4. How might supermarkets estimate the demand for fresh fruit and vegetables and its price elasticity?
  5. What can supermarkets do with unsold food? What incentives are there for supermarkets not to throw it away but to make good use of it?
  6. Could appropriate marketing persuade people to be less concerned about the appearance of fruit and vegetables? What form might this marketing take?

A recent article on this blog discussed the likelihood that we will soon move to a cashless society. It is therefore interesting to consider the implications that this might have for consumer behaviour. We might expect the form of payment to make no difference to a rational consumer. However, there is considerable evidence to suggest that this is not the case.

One reason why people appear to spend more freely on credit cards is payment decoupling – you get utility from the item purchased before you pay the cost. However, more recent evidence suggests that this is not the only relevant factor. It appears that the degree of transparency of the payment method also has an effect. Psychologists quoted in the above article conclude from their experimental evidence that:

Payment modes differ in the transparency with which individuals can feel the outflow of money. ….with cash being the most transparent payment mode.

This effect also appears to make people spend cash less freely.

The author of the above article spent some time experimenting with trying to make all his purchases using cash. He found that by doing so, he was able to reduce his spending by about 10%. However, this seems likely to become harder to do in the future and, as the article concludes, it is already difficult to purchase some items with cash.

Article

Why does foreign money seem like play money? Science Codex (04/06/07)

Questions

  1. What type of products is it already difficult to purchase with cash?
  2. How did the psychologists test the transparency of payment methods?
  3. Do you think the consumer behaviour described above is likely to persist in the long-run?
  4. Might firms be able to take advantage of the consumers behave described above?
  5. Do you think the transparency of foreign currencies is the main reason why people spend more when they are abroad?

When people shop in supermarkets they often look for what’s on special offer. After all, everyone likes a bargain. About 35–37% of supermarket items are on special offer at any one time and around 50% of the money spent by customers is on such items.

But things aren’t always as they seem. Supermarkets use clever marketing to persuade people that they’re getting a good deal, while sometimes it’s nothing of the sort. Examples include putting up prices for a while and then reducing them again saying “huge reduction”; or promoting an offer of, say, “three for £2”, when you could buy an individual item for 60p; or using the word “now” £2.50 to imply that the previous price was higher, when in fact it wasn’t; or selling a double-sized “value pack” for more than double the price of the regular size. These tricks are commonplace in supermarkets.

Sometimes the wary consumer will be able to find out which offers are genuine, but it’s not always that easy. And even if you do buy something at a genuine discount, is it something you really want? Or have you been persuaded to buy it simply because it’s on offer? Supermarkets study consumers’ psychology. They find clever ways of promoting products to make us feel that we have done well in getting a bargain.

The following programme in the BBC’s Panorama series looks at the big four supermarkets in the UK – Tesco, Asda, Sainsbury’s and Morrisons – which between then have 68% of supermarket sales. It gives examples of some of the not so special offers and how consumers are being hoodwinked.

Webcast

Revealed: The truth about supermarket ‘bargains’ BBC Panorama (clip), Sophie Raworth (5/12/11)
The Truth About Supermarket Price Wars BBC Panorama (full programme), Sophie Raworth (5/12/11)

Articles

What you need to know about the supermarket price wars Totally Money (7/12/11)
Supermarkets accused of misleading consumers The Telegraph, Nick Collins (5/12/11)
Supermarket price war: Can they all be cheapest? BBC News, Anthony Reuben (9/12/11)
Are Our Retailers Criminals? International Supermarket News, Laura Elliott (6/12/11)
Supermarket deals “not what they seem” warns expert Retail Gazette, Gemma Taylor (6/12/11)

Questions

  1. What types of misleading offers are identified in the Panorama report?
  2. For what reasons are consumers “taken in” by such offers? Does this imply that consumers are irrational?
  3. Does intense oligopolistic competition between the big four supermarkets lead to lower prices?
  4. How is it possible for two supermarkets to claim that they are cheaper than the other? How would you decide which supermarket was generally cheaper?
  5. Why might it be difficult for an independent agency to do a comparison of prices of different supermarket chains?

This autumn has been one of the mildest on record. Whilst this may be very nice for most of us, certain industries have been suffering. For example, gas and electricity consumption is down as people delay turning on their heating. One sector particularly badly hit has been clothing. Sales of winter clothes are substantially down and many retailers are longing for colder weather to boost their sales.

Of course, this is not helped by consumer incomes. With inflation at around 5% and average (pre-tax) weekly earnings currently rising by less than 2%, real incomes are falling. In fact over the year, even nominal disposable incomes are down 2.1%, given the rise in national insurance and income tax. And the problem of falling incomes is compounded by worries over the future state of the economy – whether it will go back into recession, with further falls in real income and rises in unemployment.

It’s no wonder that retailers are longing for some cold weather and for their customers to return from the seaside or their garden barbecues to the shopping malls. Look out for the ‘sales’ signs: they’re beginning to spring up as desperate retailers seek to attract wary customers.

Webcast
Retailers slash prices in Christmas build-up BBC News, Tim Muffett (25/11/11)

Articles
Winter woes: warm weather means shoppers aren’t buying as much Guardian, Zoe Wood (21/11/11)
Shoppers urged to be savvy as Christmas sales last for weeks The Telegraph, Victoria Ward (21/11/11)

Data
Earnings tables: Labour Market Statistics ONS (November 2011)
Personal Income and Wealth ONS
Price Indices and Inflation ONS
Personal Inflation Calculator (PIC) ONS

Questions

  1. Identify the determinants of demand for winter clothing.
  2. How responsive is demand likely to be to these determinants (a) over a period of a few weeks; (b) over a period of a few months?
  3. What factors should a retailer take into account when deciding whether to make pre-Christmas discounts?
  4. Assume that you are employed but are afraid of losing your job in a few months’ time. How would this affect your consumption of (a) seasonal goods; (b) durable goods; (c) day-to-day goods?
  5. What longer-term strategies could retailers adopt if they predict tough trading conditions over the next two or three years?

In 2009, Nudge: Improving Decisions about Health, Wealth, and Happiness was published. This book by Richard Thaler and Cass R. Sunstein examines how people are influenced to make decisions or change behaviour.

According to Thaler and Sunstein, people can be ‘nudged’ to change their behaviour. For example, healthy food can be placed in a prominent position in a supermarket or healthy snacks at the checkout. Often it is the junk foods that are displayed prominently and unhealthy, but tasty, snacks are found by the checkout. If fashion houses ceased to use ultra thin models, it could reduce the incentive for many girls to under-eat. If kids at school are given stars or smiley faces for turning off lights or picking up litter, they might be more inclined to do so.

The UK government has been investigating the use of ‘nudges’ as a way of changing behaviour, and the House of Lords Science and Technology Committee has been considering the question. It has just published its report, Behaviour Change. The summary of the report states that:

The currently influential book Nudge by Richard Thaler and Cass Sunstein advocates a range of non-regulatory interventions that seek to influence behaviour by altering the context or environment in which people choose, and seek to influence behaviour in ways which people often do not notice. This approach differs from more traditional government attempts to change behaviour, which have either used regulatory interventions or relied on overt persuasion.

The current Government have taken a considerable interest in the use of “nudge interventions”. Consequently, one aim of this inquiry was to assess the evidence-base for the effectiveness of “nudges”. However, we also examined evidence for the effectiveness of other types of policy intervention, regulatory and non-regulatory, and asked whether the Government make good use of the full range of available evidence when seeking to change behaviour.

The report finds that nudges

… used in isolation will often not be effective in changing the behaviour of the population. Instead, a whole range of measures – including some regulatory measures – will be needed to change behaviour in a way that will make a real difference to society’s biggest problems.

So is there, nevertheless, a role for nudges in changing behaviour – albeit alongside other measures? Read the report and the articles below to find out!

Articles

Lords report calls for regulation over persuasion to improve public health Wales Online, David Williamson (19/7/11)
Government’s ‘nudge’ approach to health is not enough, according to House of Lords and Work Foundation HR Magazine, David Woods (20/7/11)
How can I tell if I’ve been nudged Independent, Natalie Haynes (20/7/11)
Healthier behaviour plans are nudge in the wrong direction, say peers Guardian, Sarah Boseley (19/7/11)
‘Nudge’ is not enough, it’s true. But we already knew that Guardian, Jonathan Rowson (19/7/11)
Nudge not enough to change lifestyles – peers BBC News, Nick Triggle (19/7/11)
Why a nudge is not enough to change behaviour BBC News, Baroness Julia Neuberger (19/7/11)
House of Lords findings: why green Nudges are not enough The Green Living Blog, Baroness Julia Neuberger (19/7/11)
Lords Science and Technology Sub-Committee publish report on Behaviour Change YouTube, Baroness Julia Neuberger (14/7/11)

Report

Press Release Lords Science and Technology Select Committee (19/7/11)
Behaviour Change Lords Science and Technology Select Committee (online version) (19/7/11)
Behaviour Change Lords Science and Technology Select Committee (PDF version) (19/7/11)

Questions

  1. When may a nudge (a) be enough, (b) not be enough to change behaviour?
  2. What instruments does the government have to change behaviour?
  3. Distinguish between a ‘technical’ and an ‘adaptive’ solution to changing behaviour. Give examples.
  4. Why might adaptive solutions provide more of a challenge to policymakers than technical solutions.
  5. Can a nudge ever be transformative?