March 15, 2008
Dear Economist: Why does a twinpack cost more than two singles?
Dear Economist,
A single Milky Way costs 20p in my local corner shop. A twin pack costs 47p. I’ve made a habit of checking the prices in other shops and a twin pack invariably costs more than two singles. What could be the cause of this apparent madness? The madness in pricing, that is, not the madness of a twenty-something compulsively checking the price of children’s sweets.
Kendrick Curtis, via e-mail
Dear Kendrick,
I am composing this reply overseas, far from the British corner shops where I can check your story, but what you say rings true. In my own travels around shops with a clipboard – a sure way to make the staff twitchy – I have often discovered products with an unexpected mark-up. One example was the medium-sized pack of washing powder priced at rather more per 100g than the small or the large.
All shops want to offer competitive prices to customers who demand them, while charging more to customers who do not much care. Random mark-ups will do the trick: they are easily avoided by bargain hunters but will often snare the unwary.
You are right that it does feel mad for a twenty-something to check the price of children’s sweets; that is why the pricing you describe is clever. I am confident that many adults do not consider the price of confectionery, and that most children do. If I am right, the mark-up on a twin pack is likely to be aimed with pinpoint accuracy at greedy, careless grownups. The children will find the cheaper deal – if they want two Milky Ways, they can buy two singles. Adults, their wallets overstuffed and the days of saving for penny chews long forgotten, will grab for a twin pack and pay more. It seems to me like sweet justice.
Questions to economist@ft.com
Can the Undercover Economist tell us if there is a difference in pricing between
Posted by: HKLivingston, 26, investment banker | March 15th, 2008 at 3:40 am | Report this commentA: luxuries (confectionery or diamonds–double the number or double the size costs more than twice as much), and
B: necessities (detergent or paper towels–triple the volume or triple the number at a little more than double the price)?
CLARIFICATION: Are we referring to two bars in a single packaging, or two individually-packed bars further contained in another layer of packaging?
If the latter, then the explanation for the price difference in this instance could be more mundane–for most items, especially small ones, the cost of the contents is dwarfed by packaging, transport, marketing and other costs.
Posted by: J Michael, private banker, 39 | March 15th, 2008 at 1:41 pm | Report this commenti’ve noticed this in chile (where i live) on bars of soap, crisps, toothpaste - in each case it was the price per amount that was higher in the larger pack (the smallest bars of soap cost less per pound than the larger bars, for example). my guess was similar to the one “economist” have, except that here i think the customers for the lower priced items are probably domestic help (it’s still quite common for middle class people to have a maid, because the country as a whole is quite poor so minimum wages are low).
ps also, it’s still relatively rare to find “cost per pound” on the price tag in supermarkets.
Posted by: andrew cooke | March 16th, 2008 at 5:17 am | Report this commentI used to work with a consumer goods firms on new product developments and there are a couple of reasons why cost per unit of weight/volume is cheaper for smaller packs as opposed to big packs -
a) small packs were initially used to drive sampling, ie get the consumer to try it, and if she likes it - she will go for the big one
b) sometimes the formulation used in the smaller packs (esp sachets) is diff (and cheaper) from the one in the larger packs -
c) sometimes tax structure are such that the larger SKUs have a higher tax rate - I know that used to happen with hair oil and shampoo if I remember correctly..
Posted by: St | March 17th, 2008 at 3:02 am | Report this commentIndeed the answers given are smart. Once when I flew with Brussels airline, the fact surprised me that if I book return tickets together would cost 20 euro more than to book go and return seperately.So brussels airline probably wanted to squeeze more profit on those careless customers.The cost to compare the price is bigger in this case compared to the metioned example of confectionary, since you have to input your schedule seperately while most people won’t do so because we all assume that return tickets are cheaper.But I wonder, the price is clearly presented for the confectionary case, however for the airline website, is that true that the company is hiding information from customers with some tactic? Is such act legal?
Posted by: Li Chen | March 17th, 2008 at 5:27 pm | Report this commentThis happens with regularity in America as well. I went to the local supermarket yesterday - always an interesting pricing challenge. They had a 5 pound bag of Domino sugar for $2.50. Next to it on the shelf was a plastic container with Domino sugar for $2.50. Only problem was that the plastic container had only 4 pounds!!!
Same store had half and half (like light cream) 16 ounce container on sale for 2 for $3.00(or for those mathematically challenged economists that means 1 quart for $3.00). Next to it on the shelf were 1 quart containers (32 ounces) for $2.69!!!
How?? Why?? GRRRRRRRRR!!!!
Posted by: AlB | March 18th, 2008 at 11:21 am | Report this comment