Consumption Self-Control by Rationing Purchase Quantities of Virtue and Vice
Consumers' attempts to control their unwanted consumption impulses influence many everyday purchases with broad implications for marketers' pricing policies. Addressing theoreticians and practitioners alike, this paper uses multiple empirical methods to show that consumers voluntarily and strategically ration their purchase quantities of goods that are likely to be consumed on impulse and that therefore may pose self-control problems. For example, many regular smokers buy their cigarettes by the pack, although they could easily afford to buy 10-pack cartons. These smokers knowingly forgo sizable per-unit savings from quantity discounts, which they could realize if they bought cartons; by rationing their purchase quantities, they also self-impose additional transactions costs on marginal consumption, which makes excessive smoking overly difficult and costly. Such strategic self-imposition of constraints is intuitively appealing yet theoretically problematic. The marketing literature lacks operationalizations and empirical tests of such consumption self-control strategies and of their managerial implications. This paper provides experimental evidence of the operation of consumer self-control and empirically illustrates its direct implications for the pricing of consumer goods. Moreover, the paper develops a conceptual framework for the design of empirical tests of such self-imposed constraints on consumption in consumer goods markets. Within matched pairs of products, we distinguish relative "virtue" and "vice" goods whose preference ordering changes with whet her consumers evaluate immediate or delayed consumption consequences. For example, ignoring long-term health effects, many smokers prefer regular (relative vice) to light (relative virtue) cigarettes, because they prefer the taste of the former. However, ignoring these short-term taste differences, the same smokers prefer light to regular cigarettes when they consider the long-term health effects of smoking. These preference orders can lead to dynamically inconsistent consumption choices by consumers whose tradeoffs between the immediate and delayed consequences of consumption depend on the time lag between purchase and consumption. This creates a potential self-control problem, because these consumers will be tempted to over consume the vices they have in stock at home. Purchase quantity rationing helps them solve the self-control problem by limiting their stock and hence their consumption opportunities. Such rationing implies that, per purchase occasion, vice consumers will be less likely than virtue consumers to buy larger quantities in response to unit price reductions such as quantity discounts. We first test this prediction in two laboratory experiments. We then examine the external validity of the results at the retail level with a field survey of quantity discounts and with a scanner data analysis of chain-wide store-level demand across a variety of different pairs of matched vice (regular) and virtue (reduced fat, calorie, or caffeine, etc.) product categories. The analyses of these experimental, field, and scanner data provide strong convergent evidence of a characteristic crossover in demand schedules for relative vices and virtues for categories as diverse as, among others, potato chips, chocolate chip cookies, cream cheese, beer, soft drinks, ice cream and frozen yogurt, chewing gum, coffee, and beef andturkey bologna. Vice consumers' demand increases less in response to price reductions than virtue consumers' demand, although their preferences are not generally weaker for vices than for virtues. Constraints on vice purchases are self-imposed and strategic rather than driven by simple preferences. We suggest that rationing their vice inventories at the point of purchase allows consumers to limit subsequent consumption. As a result of purchase quantity rationing, however, vice buyers forgo savings from price reductions through quantity discounts, effectively paying price premiums for the opportunity to engage in self-control. Thus, purchase quantity rationing vice consumers are relatively price in sensitive. From a managerial and public policy perspective, our findings should offer marketing practitioners in many consumer goods industries new opportunities to increase profits through segmentation and price discrimination based on consumer self-control. They can charge premium prices for small sizes of vices, relative to the corresponding quantity discounts for virtues. Virtue consumers, on the other hand, will buy larger amounts even when quantity discounts are relatively shallow. A key conceptual contribution of this paper lies in showing how marketing researchers can investigate a whole class of strategic self-constraining consumer behaviors empirically. Moreover, this research is the first to extend previous, theoretical work on impulse control by empirically demonstrating its broader implications for marketing decision making.
A Quantity Discount Pricing Model to Increase Vendor Profits
In this paper, we analyze how a supplier can structure the terms of an optimal quantity discount schedule. The vendor's challenge is to adjust his present pricing schedule to entice his major customer to increase his present order size by a factor of "K." Optimal levels for "K" and the corresponding price discount are determined in order to maximize the supplier's incremental net profit and cash flow. Implementation issues are discussed and future research needs identified.
Channel coordination and quantity discounts
This paper presents a model for analyzing the impact of joint decision policies on channel coordination in a system consisting of a supplier and a group of homogeneous buyers. The joint decision policy characterized by the unit selling price and the order quantity is coordinated through quantity discounts and franchise fees. Both the annual demand rate and the operating cost-including the purchase, ordering, and inventory holding costs-depend on the joint decision policy employed. This paper contributes by integrating work addressing quantity discounts on inventory and ordering policies and work focusing on the control mechanism provided by quantity discounts in channel coordination. It is shown that the optimal all-unit quantity discount policy is equivalent to the optimal incremental quantity discount policy in achieving channel coordination. Furthermore, it is shown that quantity discounts alone are not sufficient to guarantee joint profit maximization. The analyses of the general models are illustrated by specific analytical results obtained for a given demand function.
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