Consumer Responses to Simultaneous Changes in Price and Quantity: Do Direction and Magnitude Matter?

Consumers are generally sensitive and averse to price increases but in order to maintain profitability, it may be unavoidable for a firm to increase prices of its products, for example due to inflation or increasing costs. When required to increase prices, marketers of packaged groceries generally rely on either of two tactics: (1) they raise the retail price without altering the package size; or (2) they reduce the package size without changing the retail price (Gourville and Koehler 2004, Kachersky 2011). Both tactics essentially result in a higher effective price, or unit price, of a product. Now imagine a situation where the price and size of a product vary simultaneously and in the same direction, that is, the price increases but the volume also increases, or the price decreases but the volume also decreases. In such a situation, would volume changes mitigate against price changes in their effects on consumer price attitudes? Even more, consider if the magnitude of the price movement differs from the magnitude of the size movement. In such a situation the change in unit price may be in an opposite direction to the change in retail price. For example, retail price decreases of 10% combined with size decreases of 15% would result in an increase in unit price of (1-10%)/(1-15%) – 1, is 6%; conversely a retail price increase of 10% combined with a volume increase of 15% results in a unit price decrease of 1- (1+10%)/(1+15%), is 4%. Would consumers be able to cognitively detect and interpret the differences in changes in price and volume, and consequently, would they respond negatively (positively) to such a situation where the ‘effective price change’ of a product is in contrast to its prima facie price change?