Why is there a price difference between semi-skimmed milk in the same store? Is the milk different?

Answer

Dear Jeroen,

There are several reasons why the price of an apparently similar product can differ. Firstly, it may be the case that the quality is effectively better for the more expensive product, because, for example, other ingredients (base) are used, more actions are taken during the production process, etc. In other words: the production cost of the milk can be higher, so that a higher unit price in the store is required. Second, consumers are willing to pay more for certain brands. These brands have what is called ‘brand equity’ in marketing: consumers know the brand, trust it, link it to high quality and are willing to pay a price premium (an additional cost) even if the basic product (the core and actual product) is not different. Various blind taste tests show that a large majority of consumers do not taste the difference between Coca Cola and Pepsi. Nevertheless, Coca Cola is often preferred and they can pay a higher price in the store because they have a higher brand equity. Finally, and this is related to the previous point, there is also a lot of psychology involved in pricing. Consumers associate a high price with better quality, this is called the price-quality relationship. Brands that want to achieve a higher status (quality) will therefore often choose a slightly higher (premium) price. In many cases this is accompanied by a better basic product (effectively better quality), but that is certainly not always the case.

To answer your question: is the milk actually different – that is possible, but that is certainly not necessarily the case. (many national brands – which typically have a higher price – also produce the private label products. In other words: those PL products are made by the same companies, but typically with cost-saving aspects – less good basic product, less handling, different cheaper packaging, no advertising , etc.)

Hopefully this answers your question.

Good luck,

Els Breugelmans

Associate lecturer KU Leuven, Department of Marketing