COLUMBUS, Ohio -- Contrary to expectations, a new study has found that higher- income shoppers may be bigger bargain hunters for some products than are lower- income consumers.
The results suggest higher-income consumers are more likely to take advantage of bargain prices on certain products by stocking up -- and buying less of these goods when prices rise. Lower-income consumers may be less able to take advantage of discounts, said Robert Leone, co-author of the study and professor of marketing at Ohio State University.
Researchers examined actual liquor sales in 35 different retail stores in one city during a four-year period. They found that when prices dropped for specific liquor brands, sales of these brands increased more in stores serving high-income customers than they did in stores serving low-income consumers.
The results seemed surprising, because researchers had assumed people with lower incomes would naturally be most eager and willing to hunt for bargains, Leone said.
But the results make more sense when you consider that, for some high- priced goods like liquor, higher-income consumers may be able to buy greater volumes when prices are low and wait out periods of higher prices, Leone said.
"High-income people have the cash available to buy more when prices are low or buy a more expensive brand that is on sale," he said. "If you're on a limited income, you may not be able to afford to purchase more than what you need for the immediate future. Because lower-income consumers have less buying power, they often must pay whatever price is offered at the time of their purchase and do not switch to higher-priced items even if they are a better value."
Leone conducted the study with Francis Mulhern of Northwestern University and Jerome Williams of Pennsylvania State University. Their results appear in the current issue of the Journal of Retailing.
Although this study looked only at liquor sales, Leone said the findings likely apply to other packaged goods that people buy regularly. "When diapers go on sale, those with high incomes can stock up. But for those with limited resources, buying extra diapers would mean they couldn't buy some of the other items that they need for the week."
The results also suggested that African Americans were less price sensitive than other consumers, although this result may be related to the fact that Blacks in the area studied tended to have lower incomes, Leone said. The study did find that, in those areas which had concentrations of higher-income African Americans, consumers showed higher than average sensitivity to prices. "Income was the dominant factor," Leone said. "Ethnicity wasn't the main story."
Still, these results were a surprise because most research has suggested that African Americans are more price conscious than other consumers. However, Leone said much of the previous research was based on surveys that asked consumers to report how sensitive they are to prices.
"Self-report surveys are often inaccurate because people don't remember their behavior, or they give answers they think are appropriate," Leone said. "But the value of this work is that we are looking at purchase behavior."
While lower-income people and African Americans may sincerely want to be more price conscious, their situation may prevent them from bargain hunting, he said. For example, if low-income consumers have to take public transportation, they may not be able to shop several stores to look for sales. "They may want to think of themselves as price sensitive -- and they may say that on surveys -- but what they want to do may be different from what they can actually do in the store," Leone said.
On the other hand, higher-income people may report on surveys that they aren't price sensitive. "That may be true, but if a product is on sale, they may still buy three times what they normally would," he said. "They just don't want to give the impression on surveys that they can't afford more expensive products or they don't want to think of themselves as price shoppers."
This study used scanner data from a single chain that was the only liquor retailer in the area, Leone said. This allowed the researchers to study price responsiveness without the often confusing effects of competitive stores' pricing activities.
The researchers chose stores in a variety of neighborhoods that featured substantial variability in income and ethnic composition. The researchers examined census data that included income and ethnic characteristics for residents living within a one-mile radius of each store.
The assumption was that most customers of the stores were nearby residents. To confirm this, the researchers did a mail survey of store managers asking them about the demographic characteristics of their shoppers, and also asking the extent to which their shoppers represented the same profile as the residents in the immediate area. In nearly all the cases, the managers' estimates of demographic composition closely matched the demographic information drawn from census data, Leone said.
Written by Jeff Grabmeier, 614-292-8457; Grabmeimer.1@osu.edu
Journal
Journal of Retailing