Tuna fish query

Shaun, a loyal MR reader, asks:

I have something that is
bugging me: I have noticed that the small tuna fish cans are cheaper,
by the ounce, than the larger ones. This holds true with every brand
and supermarket. This seems very counterintuitive to me; nearly every
other food product gets cheaper as the quantity increases. I wondered
if you could tell me what’s going on here.

Could it be storage and spoilage costs, thereby making this the corollary of the vending machine question?  Or is it price discrimination against families and in favor of single people?  Or do single people never finish the can and thus they need a lower price as compensation, noting that you still have to cite storage costs to prevent arbitrage?  Those are my quick reactions, can you do better?

Comments

Is it possible that the smaller cans contain more broth and less tuna?

I'm not sure that smaller packages are so uniformally more expensive per ounce. Certainly, the vast majority are but in the UK it is my experience that a significant minority (say a few percent) of product are more expensive in larger quantities. I had assumed this was due to the supermarkets taking advantage of peoples hueristic that larger was cheaper.

On a side note, meat and fish and deli products from the counter are almost invariably cheaper than those pre-packed despite it being (probably) being higher cost for supermarkets to provide them this way, think staff costs, but I suspect this is price discrimination aginst customers who want the convinience of just chucking something in the trolley.

I think Sam probably has it. It's probably nothing to do with tuna in particular. People don't really have the time to calculate prices on everything they buy, so a retailer can probably get away with this if they don't do it too often.

I would guess more than single people, it might be aimed at retired people. Without kids at home, they don't need large quantities of food. They have plenty of time to work out unit costs. And they're probably exceptionally price-sensitive.

So, retailers might find it better to accept a smaller profit margin on some smaller unit goods to get their business. But probably they'd want to cycle it around different products so that the less price-sensitive buyers don't have time to figure it out.

getting the water out of the tuna fish can basically sux. So, to have to do it twice for the same amount of tuna represents a big cost to the consumer. Hence, they will pay less for a smaller amount because double the amount causes two can openings and water squeezings.

I've been noticing this with tuna cans for many years, consistently. I always assumed it was due to demand: somehow I figure that 6-7 oz can just sells in much larger quantities. Maybe most tuna eaters eat alone? Who knows?

With other types of food/paper prods/liquid soap/etc., the ratio varies: the larger size is often but now always cheaper per unit vol. -- what I find odd is the permanence of this tuna fact.

Perhaps very few people buy the large cans. Economies of scale might exist when making small cans that don't exist when making large ones. This would make small cans cheaper than large ones.

Leave half a can of tuna in your fridge if you want to "see" why small cans might be heavily preferred.

Wendy's chilli was like this. I think it had something to do with people having insufficient math skills.

Could it be that the small cans are filled with smaller chuncks and the large cans with larger chuncks of fish? Don't like fish, but have noticed this for bacon, where I have always assumed that large bacon strips are harder to produce, while small blocks can be made from various waste cuts.

Price discrimination against stupid people. Most cereals are cheaper in the smaller size at Wal*Mart. I bet in Wal*Mart actually I could find at least 100 products where this is the case, but they get mad when you start taking pictures of everything.

Could it be that small cans are for people who do not know that big chunks of tuna are better ?

I've noticed this recently for many products. I suspect it might be a hangover from the bulk-buying fad that happened a few years ago. Now, there's a lingering impression that bigger is a better value, and people don't have time to check the price. I've even seen it with silly things like the two Listerine bottles that are shrinkwrapped together.

I have observed the same phenomenon for Basmati rice in London. I regularly buy Basmati rice produced by Tilda. It's quite common and usually sold in 500g, 1kg, 2kg, 5kg, and 10kg bags. In the big supermarkets the per unit price is declining with the size of the bag as you would expect. However in small corner shops I often notice that the unit price for the smallest bag ( 500g ) is lower than that of the next biggest bag ( 1kg ). I've always found this rather puzzling, even more so than the tuna case. The quality of rice is perfectly homogeneous across bag sizes. Also it is just as easy to transport and store two small bags as one big bag.
Two possible explanations come to mind. People shopping for 1kg bags in corner shops are in a hurry and do not compare prices. Maybe they expect the same pricing pattern as in their supermarket. This would then allow shop keepers to lower the price for the small bags to induce more low valuation customers to buy rice.
Another possibility is that shops want to discourage customers from buying bigger bags. That might be the case if it induces more visits to the corner shop coupled with purchases of other goods such as sweets or alcohol. If you only go to the corner shop once you've run out of rice, this strategy might work.

I think it has to do with the mechanics of canning tuna.

most of the higher quality tuna seems to be cut out of a can-thickness sheet of the fish in the shape of the can. Think about the wastage from cutting round biscuits out of rolled biscuit dough... smaller cans leave less waste in between, or perhaps they nest in between the voids left by the larger cans.

then drop the biscuit-cutter analogy and think about wooden boards: longer boards can cost more per foot because fewer are of the quality needed to make one unblemished piece.

So rather than thinking of tuna cans as a quantity of tuna flesh, think of them as containing cuts of the tuna itself: larger pieces of a given quality are in shorter supply.

The loss-leader explanation alone doesn't cover it. If true, a rational consumer would just buy an equivalent number of smaller cans.

Either as some have said, rational consumers value the extra time taken to open a number of small cans greater than the economy saving.

Or, as others have said, consumers don't notice that they could get cheaper tuna by buying many smaller cans since they're accustomed to the opposite.

Or, from the people who've actually investigated the prices in this thread, it doesn't happen consistently at all.

Maybe someone happened to price up a box of big cans with a new higher price first, and it was just a temporary occurrence that they happened to be more expensive.

In Germany several studies found that bigger sizes are relatively more expensive (up to 200 %). These studies also found that this is especially so for products demanded by families (chocolate, dipers, etc.). These consumers are price sensitive and expect bigger packs to be relatively cheaper. Also, especially branded products are relatively more expensive in bigger packs.

More: http://www.uni-protokolle.de/nachrichten/id/106229/

Haven't read through all the comments, but here's a theory:

People assume that buying in bulk results in a discount. This behavior is reinforced by the 'industrial-size' aisle at the grocery store and at big box stores like Costco and Sam's Club. This, then, becomes a mental heuristic for a consumer, that bigger = cheaper per volume/weight/size.

Suppliers then exploit this heuristic by pricing larger sizes relatively higher than smaller sizes, expecting consumers not to do the math and follow their instincts.

The idea of economies of scale for smaller cans seems to appeal, but loses some gusto when applied to other goods (Mars bars and Chicken McNuggets).

I saw today at the store that a 2-litre bottle of Coke cost 94p, whereas the two of these bottles shrink-wrapped together cost £2.64.

Also, at my local supermarket, they don't post the prices for loose vegetables that you throw in a plastic bag and weigh, but they do post the prices on pre-packed ones. As a result, I usually buy the pre-packed ones since I know what I'm paying. I'm not sure which is more expensive, since I don't want to get to the cashier and find out that I'm paying £3 for something that cost 85p pre-wrapped.

Maybe they're price discriminating, making the loose ones more expensive so people who don't care will just buy them? At the same time, you would expect richer folks to not want to waste time bagging the vegetables and just go straight for the pre-packaged ones. I have no clue.

Most people need 3 oz. at at time.
If you need more, you really need more; and you don't want to open multiple cans.

Regarding the theory that people value the time saved in opening a single can, I think we should remember the How much cash should you carry thing we went through last year.

Back then the observation was "people notice monetary opportunity costs but often ignore time opportunity costs". So, it seems strange that people should care so much about the extra time taken to open multiple cans.

It's just price discrimination, and it's been well studied before.

Consumer price awareness in food shopping: the case of quantity surcharges

"Quantity surcharges, higher unit prices on larger sizes than smaller sizes, are often found among grocery items. In this study we consider the question of why consumers buy surcharged goods. We hypothesize that it is the consequence of a failure to price search, and that some buyers purchase larger sizes in the belief they are cheaper, thus avoiding the need for price comparisons. In the analysis we examine canned tuna, using 1990 data from 54 grocery regions on sales, prices, and consumer demographics. Results support the hypothesis. We find evidence that buyers of surcharged items are mainly those with high time and information costs."

Given that the study was done 18 years ago, this is largely a settled question.

No one has presented evidence that the pricing anomalies persist for tuna, or that consumers don't eventually wise up to this.

Here's the longer version:
Consumer price awareness in food shopping: the case of quantity surcharges
"James K. Binkley and John Bejnarowicz

The level of consumer price awareness in food markets is an important issue to those involved in the industry. While few believe that price knowledge is perfect, research has indicated that both academics and industry personnel overestimate its extent. As a consequence, pricing decisions and market research may be based on an erroneous assumption. It is an understandable error, for the possibility that consumers might fall considerably short of full price knowledge seems inconsistent with the fact that such knowledge is needed for them to make the best use of their limited budgets. However, the acquisition of price information requires time and effort. This is especially the case in the supermarket, where a shopper is confronted with many products, most of which make a very small demand on the household budget, which limits the gains from price knowledge.

That information has cost is a tenet of information economics and was first articulated by Stigler (1961). He proposed that information gathering and price search continue only as long as benefits exceed costs. Hence, unless search costs are zero, price information will generally be incomplete for consumers.

In this study we test the validity of this theory in a new context by studying consumer response to quantity surcharges. A quantity surcharge exists when there is a higher unit price for a larger size than for a smaller size of the same branded item. Surcharges lend themselves to studying price sensitivity because the items differ only in package size, which most consumers are likely to regard as a trivial difference. Because, larger sizes usually have lower unit prices, many observers believe that some consumers use a "discount heuristic" as a shopping rule. While this reduces the need for price comparisons and lowers information costs, it sometimes results in a quantity surcharge.

In the study we use 1990 market level data for 54 grocery regions, data provided by a leading product tracking firm, and examine consumer purchasing patterns in the face of a quantity surcharge. We consider a single commodity, chunk light tuna. Most tuna is sold in a six ounce can, but there are also considerable sales in a twelve ounce size, which consistently sells for a higher unit price. In our data the average surcharge across the US was 30 percent; later surveys have shown it to be higher.

Using a regression model, we studied the role of prices and market demographics in determining variation in the share of tuna sales in the smaller, more economical package across the 54 markets. The demographics were selected as proxy measures for information costs. Key among these were income and female labor participation rates as measures of time cost; education and lack of facility with English as measures of ease of information processing; and market quantity of tuna sold as a measure of shopping experience and information value. Also included were household size and extent of single family housing, which account for differences in disposition to large sizes.

Our results suggest a strong role for information costs in determining purchase patterns and, by inference, in explaining why many consumers do not bother to collect all needed prices. Information measures explain a substantial portion of the difference in the small can's share across the markets; the prices of the two sizes had virtually no importance. We found evidence that sales of surcharged tuna are higher in markets with higher average incomes, and lower when the market has a higher level of education, and in markets where tuna is a larger component of the food basket. This is what we expect if information is costly.

We further address the question of the persistence of surcharges, and why canned tuna is such a consist target. We believe that surcharges arise at the manufacturer level, and in part reflect a price discrimination strategy involving producing different sizes and then pricing them with different markups. For cost considerations, usually a larger size receives a smaller markup and attracts the more price aware, price sensitive buyers. This opens the way for the firm to increase the markup on the standard size, since most price sensitive consumers no longer buy it. Hence we have the phenomenon of "economy" sizes, which, among other things, provide a means of price discrimination.

However, if price sensitive buyers resist the large size, this discrimination strategy will not work. Resistance is more likely for commodities that, once opened, are subject to rapid quality loss, so they must be used at once. This is true of tuna. Unless a large quantity is needed in the first place, the excess may be of little value, less than the savings from the discount, so the price sensitive consumers continue buying the smaller size.

Under this condition, the best option for the firm may be to price the large size with a higher markup, that is, a surcharge. Price sensitive large size buyers are unlikely to resist multiples of the smaller size if it has the smaller markup, leaving at least some buyers, non-searchers who buy the large size, paying a premium price. If those buying the surcharged item are mainly non-searchers, a firm trying to increase its market share with a price cut will be met with little response and probably lost revenues. Thus, surcharges can persist.

Babson College
Babson Park, MA 02457
Phone: 781-235-1200"

As an additional, beat this horse down, note. Every single grocer in my town puts the "/100g" or "/unit" price in little characters on every single price label. Everyone checks those things, they're an intentional service to take the thought out of price analysis. Large tuna cans are still more expensive, and it's obvious because the little unit cost shows it in writing! So although I'm sure behaviourists have found some method by which grocers could use our psychology to rip us off, they probably don't have the time to care. There is a cost on the grocer's end to figuring all this out, and it's not worth it for him either.

Costco is different -- a lot of ther stuff is pricier per volume. Mostly due to higher quality, but sometimes not. In the case of tuna, higher quality means larger chunks (many large cans contain chunks larger than a small can). But I have a theory that costco offsets lower prices on brand name big-ticket items with higher prices on some foods. We just did a food inventory comparison between costco and a local wholesaler, and they are lower on specialty items, but higher on the staples.

Most "rational consumer" theory is flawed because of the value of the consumers's time and attention isn't included.. i.e theorist exclude the factors they can't understand and try to model reality on the rest.

When I shop I don't have the time to calculate every item's price/volume ratio; compare it with other sizes on the shelf; then a mental database of items in another supermarket; and then go to another supermarket to buy a less expensive-per-volume can. That would take hours!

Yes, small cans should be more expensive because I'm willing to pay more for a package size that I'll get more use out of.
Small tuna is a marker. If the absolute price is cheap, other prices will seem acceptable. There are probably other markers; a loaf of some brand of bread, margarine, eggs, milk. Boxes of tissue. Toilet paper. Pack of gum. Bottle of water (or maybe a 24-pack). Those low-priced, often-bought items will be permanent loss leaders, with extra losses for specials. (side note to Gamut.. retailers, especially supermarkets, have spent massive time and dollars on pricing for decades. I expect they're second only to the financial industry in that regard)

Walter, I agree, I'd rather buy 1 pick for 75c than 3 picks for 50c. The price difference, to me, signals a difference in quality (I assume the retailer is greedy, and would price the pack of 3 at $1.50 if he could get away with it). 75c is a small amount to pay for peace of mind. Would the 3-pack wear down faster? Damage my guitar or fingers in some way? If it was $75 versus $50, I'd take a chance and buy the $50 pack.

Anyone who thinks otherwise.. I assume you're unemployed, retired, or your partner must do the shopping. Get outside more!!!

2 possibilities that I can see. if the market for the smaller cans is much larger than for the large cans, it's possible that scale efficiencies in the production/canning process overwhelm the scale efficiencies of a larger package. This happens with paper. For a lot of paper, when buying in medium sized quantities, it's cheaper per pound to buy cut sheets (8.5x11, A4) than parent sheets (23x35, A1 and the like). The reason is that there is huge demand for cut sheets, and the mill can cut them cheaper than various printers or distributors, and once they have that huge run going, it's more expensive to produce the "odd" parent sizes unless you're ordering massive quantities (on the scale of what they would produce in cut sheets for that paper)

The other one has always been my assumption, which is that supermarkets are tricky -- they realize a large percentage of customers do not check prices carefully most of the time, and the default assumption will be that larger cans are cheaper per unit, so customers will always gravitate toward the largest size container that they feel sure will not spoil.

There's probably some game-theoretic strategy for optimizing the extra profit from doing this by what percentage of items you do it with. The more items you do it to, the more often people will check the prices.

Since I noticed stores doing this a fair bit, I almost always check the price.

Here's another question to consider regarding tuna can sizes. If you look at recipes in older cookbooks, they often specify "one 7-1/2 oz. can of chunk light tuna," which was the common size years ago. Take a look today - the can has shrunk considerably, down to 5-1/2 oz.. Not only are you paying significantly more for the one can all by itself, you're now getting 25% less. And if you buy "chunk light" tuna, you're basically getting what I'd call tuna threads, not chunks at all.

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