The Relationship Between Household Life Cycle and Purchasing Price

Transcription

1 The Relationship Between Household Life Cycle and Purchasing Price Giang Trinh. University of South Australia. Dr Vipul Pare*. University of South Australia. Prof. Malcolm Wright. Massey University. Abstract The research examines the relationship between price paid by the household for fast moving consumer goods products and different stages of household life cycle. We found evidence of changes in average price paid as households pass from one stage of the household lifecycle to another. The changes follow an S shape pattern across multiple product categories. Average purchasing price declines as households move from the pre-family stage to the young family stage, increases at the older family and post family stages, and then decreases again at the older single stage. Keywords: Pricing, Household life cycle, Consumer packaged goods Introduction and background Lansing and Morgan (1955) and Wells and Gubar (1966) were the first few prominent research work that proposed significant life cycle models that are valuable for market segmentation and examining consumer behavior. Later, Murphy and Staples (1979) and Gilly and Enis (1982) proposed modernized or upgraded model of life cycle that could be used for similar purpose. Since 1990s several studies have used the concept of household life cycle to understand consumption habits. These studies include Wilkes (1995), McGregor and Bateman (2003), Du and Kamakura () and Putler, Li and Liu () among many others. The basic premise of these studies is that as the household undergoes different stages of life cycle, their consumption habits and shopping behavior changes. Our paper examines the extent to which there is a relationship between the changes in household life cycle and purchasing price across consumer good categories. A model of household life cycle that defines various stages includes combinations of various demographic characteristics, predominantly age, marital status, family income, education and so on. These factors might play a significant role in the choice of brands and the price at which the brands are bought. It is possible that a moving from being a young couple to young couple with kids might increase the financial pressure leading to alter the choice of brands from expensive ones to cheaper alternatives. Literature has well documented the relationship between stages of household life cycle and spending pattern or consumption pattern. For example, in the life cycle stage where consumers are young and single tends to spend high amount of money on clothing, entertainment, alcohol and other recreational activities (Schaninger and Danko 1993). On the other hand, in the life cycle stage known as empty nest, where the children have left the house, 1

2 consumers spend more on travelling. In both the examples described above, the disposable income is generally high. Most of the research in this area (e.g. Schaninger and Danko 1993; Du and Kamakura ; Bojanic 2011) examined the relationship between stages of household life cycle and spending or consumption. Our study, although based on similar concept, examines the relationship of household life cycle with the price paid by the consumers. For example, consumers in a life stage with high disposable income might be spending more on entertainment or clothing but are they paying higher price? The research, therefore, examines two specific questions: a) What is the relationship between price paid to buy fast moving consumer goods and buyers stages of life cycle? b) Is the relationship consistent across multiple years? Research method The data used in this study is a panel data from the U.K. Taylor Nelson Sofres (TNS) gathered the data using electronic scanners. The data is gathered from a selected panel known as SuperPanel of approximately 15,000 households across the UK. The panel is geographically and demographically representative of the UK consumer households (TNS ). The study examines 8 fast moving consumer goods categories across three consecutive years. This ensured persistency and stability of the results. The categories include personal-care categories (shampoo, deodorant and toothpaste), laundry category (bleach), food related categories (breakfast cereals, soft drinks, tea and instant coffee). We computed the average purchasing price for the categories separately for five household life stages. These included pre-family (young single or young couple, main shopper age < 35, without children), young family (young couple, main shopper age < 35, with dependent children), older family (older couple, main shopper age: 35+, with dependent children), post family (older couple, main shopper age: 35+, with no children living with them), and single elderly (age: 65+) Although there are different views on how to categorize the life cycle (e.g. Wells & Gubar, 1966; Murphy & Staples, 1979; and Gilly & Ennis, 1982), there is an agreement that each household progresses through a number of distinct stages from point of formation to death of both spouses (Murphy and Staples, 1979). The classification in this paper demonstrates five distinct phases in the household life cycle, from pre-family to single elderly, which is consistent with previous research using traditional household life cycle. The age cut-offs are based on the traditional flow in Murphy and Staples model of household life cycle, although due to data availability we are not able to separate out single parent households. Results and discussion Figures 1-8 show the results of eight product categories. As we can see, there is an S shape pattern across all categories. The pattern is also consistent across multiple years. Average price paid declines from the pre-family stage to the young family stage; then increases at the older family state and the post-family stage; and finally decreases at the single elderly stage. 2

3 The decline in average price paid from the pre family stage to the young family stage could be explained by the reason that there might be more financial burdens at the young family stage than the pre family stage. As such, households might increase their propensity to buy cheaper products at the young family stage. The increase in average price paid at the older and post family stages is possibly due to there is an increase in disposable income (e.g. higher salary, no dependent children). At the older single stage, average purchasing price declines. This could be due to the fact that most of elderly persons are retired. As such, there is a drop in their income compared to the post family stage. 2.2 Figure 1 - Shampoo Figure 2 - Toothpaste Figure 3 - Bleach 2.0 Figure 4 - Deodorant family family 3

4 3.2 Figure 5 - Instant Coffee Figure 6 - Soft Drinks Figure 7 - Breakfast Cereal 2.7 Figure 8 - Tea family 4

5 Conclusion The similarity of pattern of relationship between price paid and household life cycle across multiple categories and multiple years highlights the robustness and validity of the findings. The research highlights that this unexplored relationship is worthy of attention. Researchers and marketing managers can use this approach in segmentation exercise. The results indicate that consumers are conscious of price at a young family and single elderly stages of household life cycle while they are less price sensitive at pre-family and post family stages. The research has great value to product managers who are engaged in pricing strategies. For example, the knowledge can be used prudently for a discriminatory pricing strategy by having higher priced items targeting at pre and post family consumers and lower price items targeting at consumers that belongs to young family and older single stages. The results are useful for managers in designing their pricing strategies, product and brand extension strategies; segmentation and targeting strategies. In addition to the various implications for product and marketing managers, the findings present opportunities for useful academic research. There are some obvious prima facie explanation for these phenomena, such as variations in financial burdens and incomes. However, these are purely speculative at this stage. Further work is now required to investigate the underlying causes of these striking regularities. 5

6 References Bojanic, D.C., The impact of age and family life experiences on Mexican visitor shopping expenditures. Tourism Management 32, Du, R. Y., Kamakura, W. A.,. Household life cycles and lifestyles in the United States. Journal of Marketing Research 43, Gilly, M. C., Enis, B. M., Recycling the family life cycle: a proposal for redefinition. Advances in Consumer Research 9, Lansing, J. B., Morgan, J. M., Consumer finances over the life cycle. Consumer behavior. New York: New York University Press. Murphy, P.E., Staples, W.A., A modernized family lifecycle. Journal of Consumer Research 6, Putler, D. S., Li, T., Liu, Y.,. The value of household life cycle variables in consumer expenditure research: An empirical examination. Canadian Journal of Administrative Sciences 24, Schaninger, C. M., Danko, W. D., A conceptual and empirical comparison of alternative household lifecycle models. Journal of Consumer Research, 19 (March), TNS. (). Wells, W. C., Gubar, G., Life cycle concept in marketing research. Journal of Marketing Research, 3, Wilkes, R. E., Household life-cycle stages, transitions, and product expenditures. Journal of Consumer Research 22 (June),