The Impact of Price and Size Comparisons on Consumer Perception and Choice

In packaged-goods retailing, manufacturers and retailers seek to set price levels and select package sizes such that their products are optimally competitive. In doing so they can choose to differentiate on price or on product size. For example, suppose Kraft offers a 330 ml bottle of salad dressing for $2.51, implying a unit cost of $0.76 per 100 ml. When a higher positioned competitor such as Praise aims to offer its product at the higher unit cost of $0.84 per 100 ml, it can either offer a similar sized package at the higher price of $2.76 or resize its product to 300 ml and match Kraft’s price of $2.51. In both cases Praise’s unit cost stays at $0.84 as intended and the difference between the Kraft and Praise products can be deemed economically equivalent. We define the two situations as the two comparison modes: price comparison (PC) mode and size comparison (SC) mode. In the context of promotions, prior research has identified that, while a bonus pack and a price discount both represent a saving, consumers generally tend to prefer a bonus back over an economically equivalent price discount (Diamond and Sanyal 1990). The monetary cost being zero for a bonus pack makes that it is processed independently of its price and so is perceived as a pure gain. In contrast, a price discount is more likely to be integrated into the regular price and is perceived as a reduction in loss (Chandran and Morwitz 2006). A pure gain looms larger than a reduction in loss on the value function, this results in a preference towards a bonus pack over a price discount in most instances.