There is a range around reference prices, the so-called latitude of price acceptance, where consumers seem insensitive to changes into prices, with these ranges being wider for buyers of private brands. This paper analyses objective price gap between two product alternatives as a main driver of consumer behaviour. Therefore, the authors shed light on whether the price gap conditions consumer-switching behaviour and at what point the price gap triggers a switching pattern.
Shopping data on two product alternatives of olive oil were obtained from a household scanner panel of Spanish consumers (607 households) with weekly price tracking, and multilevel regression models were performed.
The results suggest that the price gap has a fundamental effect on the consumers' choice. In this case, up to 1 euro/litre the demand seems almost inelastic; beyond that price gap, the demand for the finer product plummets.
This study focussed on olive oil products. The research needs to be extended other food products.
The authors contribute to the literature by documenting how the price context measured in terms of a price gap is a relevant stimulus in consumer choices, with a focus on the change in price sensitivity between product alternatives when competing brands are not involved but private brands are.
