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Friday, June 11, 2010

Skippy and Media Prices?

Several years ago some of you may have read about the change in the Skippy peanut butter jar. What they did was put an indentation on the bottom of the plastic jar that, in effect, removed some peanut butter from it. The old jar was 18 ounces; the new one a mere 16.3. Yet the price per jar stayed the same.

In effect, the new jar allowed Skippy to take a de facto 10% price increase and take it very quietly. By 2008, others hopped on the bandwagon. Kellogg's made cereal boxes thinner for several brands and cut the amount of flakes at the same time while maintaining the old price. Zest deodorant bar got into the act by shaving 1/2 ounce from each bar. Again, the old price remained intact. Few people noticed although in focus groups a surprising number said that they ALWAYS looked at unit price data below the product and knew cost per ounce. I doubt it. When I see people buying Skippy or other package goods, it is usually a parent with a couple of children with them, one running around and one in the cart. They are preoccupied to put it mildly. If a price registers with them from past purchases, they probably drop the item in the cart without another thought.

In Consumer Behavior, this practice is referred to as Coherent Arbitrariness. The researchers say that consumers do not really have a handle on what anything should cost. The sensitivity is to relative prices but not absolute prices. If people really knew about the 10% Skippy increase some would have shifted brands or shopped around a bit in the category. So, cynical marketers can take advantage of this. According to the concept of Coherent Arbitrariness, consumers will play along as long as they do not know there is an increase.

The same concept broadly has been in play in TV pricing for some time. For 7-8 years, the trade press has been full of stories about how network advertisers are complaining that every year they pay more to get less. The price of network inventory crept up each year as ratings for the majority of shows declined. Now, with network broadcast, you have a group that is far more sophisticated than the harried Mom or Dad tossing a jar of Skippy into the grocery cart. They are bidding up the price of the inventory even though the audience is less than it was a year earlier.

But the concept is the same. Someone contacted me recently boasting about how he had paid the same price for a local TV property for the past four years. I laughed and said but the rating has gone down. "Not very much", he countered. I had a friend check and the vehicle audience has shrunk 21% in the four year time frame. So, my acquaintance paid the same out of pocket for several years but the cost per eyeball has risen 21% and the advertising impact is likely diminished to the same degree.

If advertisers and their agents are willing to pay more to get less, it is their business. But a day of reckoning is coming as digital becomes more prominent. Soon, some major players will blink and simply refuse to pay more.

Stay tuned.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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