Reducing health harms of foods high in fat, sugar or salt: economic modelling – final report

2. Literature review

2.1 The literature on the effects of sales promotions is substantial; therefore, we focus on two specific topics: (1) the effect of sales promotions on consumer behaviour, with a particular focus on food and drink and (2) the implications of consumers' choices of healthier and less unhealthier foods.

2.2 Modelling studies have shown that price promotions have an impact on sales, with research indicating that they can increase food and drink sales by 12-43 per cent (e.g., Watt et al, 2019). Sales promotions have been found to have short-term effects (i.e., immediate effects) and long-term effects (i.e., cumulative effects) depending on whether the promotions are monetary or nonmonetary. The review conducted by Sinha and Verma (2017) revealed that both monetary and nonmonetary promotions are effective in different contexts. Monetary promotions (e.g., price discounts, coupons), were found to be the most effective type of promotions to increase sales in the short term (e.g., Alvarez and Casielles, 2005), whilst nonmonetary promotions (e.g., free samples) are more effective for obtaining long-term results (e.g., Yi and Yoo, 2011).

2.3 On the short-term effect of sales promotions on consumers' behaviour, Satini et al. (2016) performed a meta-analysis based on 221 studies. They found a positive correlation between monetary promotions and sales volume. Their findings consolidated the results from previous studies that showed that monetary promotions increase the sales of habitual or everyday consumer products for most households (e.g., Alvarez and Casielles, 2005) and encourage consumers to try new products (e.g., Oly Ndubisi and Tang Moi, 2005), Furthermore, most of the papers on short-term effects of sales promotions focused on single-unit price promotions such as " per cent off" and "£ off" (e.g., McKechnie et al., 2012; Mishra and Mishra, 2011), However, there is a growing literature showing that multi-unit price promotions (e.g., "X units for £Y") actually achieve greater sales than single-unit price promotions (e.g., Blattberg and Neslin, 1990), For instance, Akaichi et al. (2015) examined the effect of different distributions of price discounts on consumers' willingness to pay (WTP). They found that an increasing price discount in the number of units ("5 per cent on 1st unit, 10 per cent on 2nd unit" etc.) was the most effective type of price discount in increasing consumers' purchases. Recently, Drechsler et al. (2017) provided empirical evidence for the superiority of the "Y for £X" above "X+some extra quantity free" price promotions.

2.4 Regarding the long-term effect of sales promotions (both monetary and nonmonetary), Satini et al.' s (2016) meta-analysis confirmed results from previous studies that showed that sales promotions have a positive long-term effect on the perception of quality (e.g., Chandon et al., 2000), brand loyalty (e.g., Empen et al., 2015) and consumers' attitudes (e.g. Esteban-Bravo et al. ,2009).

2.5 Finally, it is noteworthy that there is considerable evidence that sales promotions have some unintended consequences. For instance, frequent use of price reductions was found to render consumers price sensitive and, hence, make it difficult for companies to increase their prices after a price promotion campaign has ended (e.g., Yoo et al., 2000). Chandon (1995) suggested that, in the long-term, the use of price promotions may result in the devaluation of the promoted brand in consumers' minds, especially after the end of the promotion. Scriven et al. (2017) looked at brand loyalty and found that most consumers bought brands on promotion at least some of the time, with as many as half of all brand buyers buying the brand solely when it is on promotion. Furthermore, price discounts are likely to reduce consumption enjoyment by diminishing consumers' attention during the purchase and consumption of the discounted product (e.g., Hsee and Tsai, 2008).

2.6 In summary, price promotions are likely to increase the sales of the food products being promoted and decrease consumers' attention when buying and consuming discounted food products. However, does this imply that the use of price promotions may contribute to poor dietary intake? Mishra and Mishra (2011) found that consumers prefer price discounts to bonus packs for guilt-inducing unhealthier foods, but preferred bonus packs to price discounts for healthier foods because it is easier to justify buying them in bulk. Backholer et al (2019) found that shoppers are more receptive to price promotions on unhealthier foods and beverages compared with price promotions for healthier products, with evidence that promotions lead to impulse purchases, stockpiling and overconsumption. This might be because of what Yan et al (2017) described as consumer behaviour that leads to less self-control over unhealthier products and the view of price promotions as a persuasive temptation mechanism. This leads to price promotions having a stronger effect on vice than virtue choices of unhealthier food.

2.7 In the UK, the National Consumer Council reported that price promotions accounted for over half of all spending on alcohol and soft drinks and they were also extensively used on ready meals, confectionery, snacks, meat, sauces, and yoghurts (e.g., Yates, 2008). Dobson (2011) showed that in 2009 and 2010 the percentage of soft drinks bought under promotions was 48 per cent and 52 per cent of the total expenditure on the category. For confectionery, those percentages were 40 per cent and 45 per cent, respectively. On the positive side, they found that supermarkets also carried offers on healthier products.

2.8 Nakamura et al. (2015) found that after controlling for reference price, price discount rate, and brand-specific effects, the increase in sales associated with price promotions was larger in unhealthier than healthier food categories. They argued that since unhealthier products (e.g., confectionery products) were often less perishable than healthier products (e.g., fruits and vegetables), they were more stockpiled as a result of price promotions. In Scotland, Food Standards Scotland reported that in 2013/2014, 54 per cent of crisps and savoury snacks, confectionery and regular soft drinks were sold on promotions, whilst only 28 per cent and 30 per cent of the purchases of fruits and vegetables. (e.g., FSS, 2015). This information is not provided in the most recent report by the Food Standards Scotland (FSS, 2018).

2.9 More recently Watt et al. (2019) found that current evidence supports earlier findings that price promotions increase purchasing of unhealthier food. They concluded that the effect of policies removing or restricting the use of price promotions across the food sector needs to be evaluated for consumption and health effects.

2.10 The most recent systematic review, by Bennett et al. (2020), assessed the prevalence of healthier and unhealthier food and beverage price promotions, and their influence on shopper purchasing behaviour. They found that the "prevalence" studies showed that price promotions were more common for unhealthier foods and beverages and that a greater proportion of price-promoted purchases were for unhealthier compared with healthier products. They thus suggest that policies aimed at reducing the prevalence and/or influence of price promotions on unhealthier foods and beverages might shift consumer purchasing away from unhealthier products.

2.11 The evidence to date from analysis of the effect of price promotions on healthier and unhealthier products in the UK has focused on individual product categories rather than on the entire households' food and drink basket. Therefore, there is limited knowledge of the effect that price promotions in one category may have on another one, which is an important omission as this may affect the impact of sales promotions on final households' purchases. In addition, the evidence does not consider the effect of advertising the promotion as separate of the price or value reduction. This report therefore builds up the evidence base in this area by estimating the overall net effect of restricting the promotion of price within discretionary food categories, taking account of substitutions towards non-discretionary food products.