Regional Price Observatory
Regional Price Observatory – Additional knowledge to increase consumer awareness
Carbonari Cristina, Martelli Bianca Maria, Paradisi Francesca
[1]Abstract Since 2003 the regional office of Italian National Institute of Statistics (ISTAT) in Umbria has been involved in an experimental project named Regional Price Observatory. Besides ISTAT actors other are working on this Project. They are the Regional Administration of Umbria, the Department of Economics, Finance and Statistics of the University of Perugia, the consumer protection organizations, and some UmbrianMunicipalities. The project is intended as a contribution to the interdisciplinary study of consumer behaviour and it provides useful insight to understand the consumers purchase behaviour.
The research adopts an innovative methodology suited to monitor prices’ level and purchase behaviour in a different way compared to the prices data collection used to make up the well-known inflation indexes. More specifically, original data are monthly collected directly by sampled retail selling points, highlighting the minimum, maximum, and average prices about of a most purchased goods set focusing on food, beverages, and home care products, that are "low cognitive involvement” products (convenience goods).
Furthermore the observation of few groups of selected products gives usthe changes to detect how and where consumer higher/lower attention for saving and it’s changes over time occurred.
This Project is part of the field research known as the theory of needs Maslow's hierarchy. In particular, it refers to the von Alvensleben’smodel dealing with the user foodstuff behaviour.
1Theoretical framework
The Regional prices Observatory is part of the consumer behavior theory that studies,according to a multidisciplinary approach, how the buying action is taken.
There is a wide literature about consumer behaviour,helped by the contributions of various sciences: economics, sociology, psychology, marketing, anthropological, historical and so on. With this paper we mention only a small part of the wide existing bibliography. Its aim is to list few important ones, in particularly those needed for our research purpose.
Consumer behaviour was first studied as an economic approach: the consumer is the central figure in the microeconomic theory. The neoclassical theory takes the first step towards the consumer behavior model formalization in which prices and income are the variable keys. The demand sensibility compared to price and income is defined at the 1800 end. Engel elaborated the so-called Engel's law, according to which the income proportion spent on food consumption decreases with the increasing income. In addition to the prices and income variables, as factors affecting consumer demand, by the Lankaster’s theory (1966) we added the products intrinsic characteristics as new variables.
The consumer behavior theory has grown over time, involving a number of scientific disciplines as psychology, sociology and marketing, in addition to the economic science, enriched by new research branches in order to extendthe neoclassical assumption of consumer rationality.
The needs hierarchy Maslow's theory of (1962) occupies a central role in psychologystudies about the consumer personality with his/her values and motivations.According to Maslow's theory, people have psychological and social needs sorted by priorities (physiological/basic need, security and protection need, appreciation need, self-fulfilment need). Only when all the basic needs are fulfilled, then people direct their attention to the higher level ones.
By a sociological point of view, buyer behavior is relevant as a collective phenomenon. According to Veblen (1899), by the end of the nineteenth century, the social conditioning is essential for success, and the goods owing, therefore theirs purchasing and consumption, is correlatedto successful social prestige. Duesenberry (1949) developed the demonstration effect concept. According to itconsumer behaviour is interconnected and influenced by other people behaviour.
The Engel, Blackwell and Kollant’s model (1968) is a relevant marketing side. In to the tails particular, the model distinguishes two buying behavior types witch are high or low cognitive involvement. They depend on the more or less complex decision-making process,if there are more or less purchases, if there are higher or lower associated risks. According to Assael (1981), the buyer behaviour is classified into four types (see Figure 1) based on a) consumer involvement degree, b) the perceivedlevel of brands differences.
Figure 1 – Assaelmatrix
High involvement / Low involvementSignificant differences
between brands / Complex buying behavior / Variety-seekingbehavior
Few
differences
between brands / Dissonance-reducing buying behavior / Habitual buying behavior
Howard (1963) analyzedthe consumer behavior within problem solving model. The problem could be solved during a several phases process (problem recognition, alternative solutionssearch, alternative assessments, their selection, consumption and post-purchase evaluation). The process can be complex (extensive decision-making processes), moderately complex (limited decision-making processes) or immediate (routine decision-making processes).
The von Alvensleben’s model (1997) is specific to food purchasing behavior. As by Maslow’s theory, food purchasing behavior can have the following and hierarchical motivations: nutritional reasons, health, leisure, convenience, safety, consistency, prestige, environmental and political.Product relevant variables (price, quality, packaging, distribution, promotion) are among the model inputs, along with the reasons and variables important to the consumer (norms, cultural values, socio-economic situation).The author, analyzing the development stages of the demand for food, concludes that "an economy with high income is almost wholly influenced by preferences, socio-demographic factors, attitudes, awareness of environmental issues and fashion, rather than income and prices level."
The price attributedto the product (together with its quality, packaging and style), has an important role in the method of means-end chain applied by Olson (1995) in order to understand the consumers decision-making process. By this model the product qualities become the consumer means to satisfied his/her needs and values (personal wellbeing, peace, safety, health, end so on.). The model also clarify the means-end chain associated to prices. This shows, for example (see Figure 2),that high price products can have both a negative role, because it involves an expenditure overdoing,or a positive role, when this is associated to high quality.
Figure 2 – Means-end chain associated attribute prices
The multidisciplinary approach, where economic, psychological and sociological interpretative models coaxing together belonging, is certainly the most suitable method to analyze the buying behaviorHowever, this approach is not flawless, because it’s main problem is the poor integration of the various contributions witch overlap that they don’t marge together. So the consumer behavior is analyzed according to different views but views partial by the different disciplines. (Zucconi, S., 2011), (D. Dalli, Romani S., 2011), (Source M., 1998).According to that, the food consumption model, developed by Malassis (1996), is one of the few models where food consumption analysis is carried out taking into account all the economic (production, exchange, storage, power d 'purchase, etc..) and socio-cultural aspects (cultural model global social distribution of purchasing power, food preparation and consumption, food symbolic value of, and so on).
To understand how the Regional Price Observatory fits in this research and its contribution, it is important to know that the countries central administrations, the world enterprises production and distribution, institutions protecting citizens, and mainly the citizens classified as consumers, are those interested in the consumer behavior analysis.
The knowledge is the basis for consumers in order to make more balanced, independent and attentive purchases. The Regional Observatory prices was born and developed with the specific goal to provide us with additional knowledge about buying behaviors and spending opportunities at the local level, especially useful in times of economic crisis like the current one.
2Context of analysis
In this historical period of deep economic crisis (2008-2012),the applicability of von Alvensleben argumentation (according to which in an economy with high income, purchases are little affected by the income and prices level) is questionable.
The "new poor people" in time of crisis (Fanò, 2012) are no longer identified as people coming from poor households, but they are recognized among medium-low income stability families, which mainly because of their loss job, become poor.
The unemployment ratein Umbrian have steadily increased during the last years, in particular, according to the latest ISTAT data available, the regional rate rose from 6,5 in 2011 to 9,8 percent in 2012, registering an increase higher than the national one.
Furthermore, the increased use of the unemployment insurance, which characterizes the Umbria region in the last years, shows a significant job insecurity. In 2012, according to the latest INPS data, the number of unemployment insurance authorized hours increasedover the previous years: the ordinaryunemployment insuranceincreased by 79,1 per cent, the extraordinary one increasedby24’8 per cent, and the exception one, that is particularly important in Umbria for the presence of a large number of small to medium businesses, increasedby 42,5 percent.
In Umbria, the per capita GDP has recorded a declining trend since 2001 with a peak decline in 2009, whensell to 7,7 percentage points; it keepingalways lower value compared to the national one, but emphasizing the gap. Umbria since 2008 also recorded a household final consumption real spending decline, particularly in 2009 (-3.0%).
The indicators considered show a deep critical Umbrian economy. In details the repeated real final consumption expenditure contraction in the householdscould cause consumers to keep a precautionary approach to expenditure in order to have a greater attention to saving.
3Project goal, methodology and results analysis[2]
The project, conducted by a number of local administrations (regional office of ISTAT, Regional Administration of Umbria, Department of Economics, Finance and Statistics of the University of Perugia, consumers’ associations and Municipalities of Perugia and Terni), adopts an innovative methodology suited to monitor opportunity of spending and purchasing behaviour at regional level, with the aim of developing consumer awareness and supporting more conscious purchase. The project has been intended as a contribution to the interdisciplinary study of consumer behaviour and it provides useful insightto understand how consumersmake their own purchasing decisions.
The subject of investigation is the references[3]price of the 77 most bought-sold goods[4]. These products are mainly food or those products that in anyway are bought under similar purchasing decisions (ie "convenience good" that consumers buy frequently, with low risks and relatively simple alternatives assessments).
For each product, whenever possible, the price of five referencesare recorded, such as most sold reference price, most expensive reference price, cheapest reference price, second most expensive reference price, second cheapest reference price. The survey gathers the price data collection at least in seven stores, carried out both in large stores, typical of the modern distribution and in traditional shops. The identification of the most sold reference price level is detected for each product by interviewing the store manager who states the monthly most requested reference by the consumer, in terms of sales quantity. The other references identification is ensured by the direct observation of the products prices displayed on the shelves in the store. The sampling plan takes into consideration the following features: municipality demographic size, population territorial distribution, stores territorial and the store owners willingness in participating.
From all the quotations detected in all the stores, a dedicated Oracle SW procedure calculates every month for each product and each Municipality, the lowest quotation detected, the highest quotation detected; the average quotation, the (average) quotation of the most sold reference, the (average) quotation of the most expensive reference, the (average) quotation of the cheapest reference, frequency and duration of the available discounts, the variation coefficient.
These values allow us to supervising both the displayed prices and the consumer purchasing behaviour. The lowest and the highest quotations represent the two extremes within which the consumer’s spending opportunity are included, that is to say the values within which the price of a given good, in a given month,in the sampled stores, in a specific area, is included. The average quotation, as average among all the gathered quotations, is avalue between the lowest and the highest quotations. The quotation of the most sold references provides, instead, consumer’s purchase behaviour details. By correlating the various references it is possible to identify which products by the consumerchoses, influenced or not by the opportunity of a lower or higher spending.
The graphs below, show us some examples of data analysis.
MEAT. The recorded highest quotation, the recorded lowest quotation, the (average) quotation among the most sold references.
The Municipality of Perugia, April 2013 (values in euro – 1.000 product grams)
In the meat group, the most wide expenditure opportunities are recorded by the following products purchase: chicken, where the recorded highest quotation (13 euro per kg) is more than 5 times the minimum (2,34 euro per kg), second cut beef meat and pork meat where the recorded highest quotations (respectively 20 and 15 euro per kg) are almost 4 times the minimum (respectively equal to 5,25 and 3.98 euro per kg). Chicken is also the product on which the consumer in Perugia in April 2013 pays more attention to the savings (most sold references average quotation is 5,24 euro per kg). The attention to saving is also evident in the first cut beef meat purchase, where the average price of the most sold references (18,79 euro per kg) is closer to the lowest quotation (12,90 euro per kg) than the highest one (27,45 euro per kg). An opposite behavior is present in the ground beef meat purchase, where the average quotation among the most sold references (9,22 euro per kg) is more distant from the lowest quotation (4.10 euro per kg)
CHEESE PRODUCTS. The highest quotation detected, the lowest quotation detected, the average quotation, the (average) quotation among the most sold references.
The Municipality of Perugia, April 2013 (index number , the average quotation =100)
Among the dairy products, yogurt is the product with more different extremes quotations (the highest quotation is 2,5 times the average, the minimum one is 66 percent lower). Yogurt also is the only group product over which there seems to be no attention to saving (the average quotation among the most sold references sold are more than 21,7 percent of the average). Caciotta and Parmesan cheese are characterized by high minimum prices, in both higher than 65 per cent of their average prices.
BABY PRODUCTS. Average monthly expenditure
The Municipality of Terni, April 2013 (values in euro)
For monthly babies products purchasing, consisting in biscuits (kg 1.5), powderedmilk (15 kg), baby homogenized meat (4,8 kg) and diapers (150 units), the consumer spending opportunities in Terni, in April 2013, regardless of brands, varieties, type of business, range on average from a minimum of € 358,09 euro, to a maximum of 459,35 euro. The consumer spends on the average about 398,13 euro, showing particular interest in savings.
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