Because most philosophies that frown on reproduction don't survive.

Monday, February 04, 2013

The Economics of Half Priced Diapers

How do you make sure that consumers come to your supermarket for their weekly stock-up? One traditional tactic is to offer some high-visibility, high-need product at a rock bottom price to get people in the door, then count on their doing the rest of their shopping there as well. In Norway, several retail chains apparently tried this with heavily discounted diapers. One can certainly imagine winning parents as loyal customers with such an offer. However, in this case, it seems that the offer proved rather too attractive when Norwegian supermarkets took prices for Norwegian diapers down to levels half that in Poland and Lithuania.
Customers come into Norway from Sweden, drive along the coast to fill their cars, then take a ferry back to the continent, said Helge Breilid, the chief of customs in Kristiansand on Norway's southern coast.

Some have been stopped with diapers worth up to 50,000 crowns (5,750 pounds), roughly 80,000 diapers, a legal shipment even though Norway is not part of the European Union.

"They told us that the only reason they came to Norway was to drive around and buy diapers to bring back home and resell," Breilid said.

"These people mainly come from Poland and Lithuania, and we have no reason to believe that they are part of any criminal gangs."

Norwegian diapers cost as little as 30 crowns (3.4 pounds) for 50, less than half of the prevailing price in Lithuania. Coincidentally, the Internet is heaving with Lithuanian sellers advertising Norwegian diapers.
This influx of additional buyers has apparently thrown off the Norwegian market, resulting in empty supermarket shelves. Working in pricing, I'm kind of shocked such a situation has lasted long enough to have an article written about it. If you sell through everything on your shelf and go out of stock, your price is clearly too low for your supply, so you should pull it up immediately. Customers may like low prices, but they like empty shelves even less. (I would think this particularly applies to diapers where running out can be... messy.) I'd be curious to know where there's some kind of price or advertising commitment that's responsible for keeping the retailer from adjusting faster, or if the article is playing up some fairly isolated circumstances.


Brandon said...

It definitely is a bit puzzling. Looking around for other sources it looks like the bare-shelf problem has been going on for months, and that the response of most retailers has not been to raise prices but to restrict how many packages customers can buy at a time. But since the deals (which seem to be of the 'buy three at half price, get one free' kind) are extremely generous, seem to be offered by all retailers in southern Norway, and seem to have been offered continuously since 2011, there has to be something more here than just trying to get customers in the door.

Jenny said...

I wonder how much shipping from Norway costs? Is it a better deal than Amazon Mom?

Bob the Ape said...

Deadpan line of the week: "...we have no reason to believe that they are part of any criminal gangs."

Truly, Nemesis strikes like a viper -
I danced, now I must pay the piper;
'Twas a very dear dance
When they found down my pants
A hot Scandinavian diaper.

Rebekka said...

Hmm, my comment was eaten, I think.

Stores here in Denmark are totally different than in the US and I assume (especially from the article above) that the Norwegian stores are like the Danish ones. The stores are smaller in general and have a much smaller inventory and are ranked in "discount" stores where they pretty much only have basic groceries and household stuff, "supermarkets" where you have a larger selection (but are still way smaller than an American supermarket, more like a local non-chain market), and a very few top-of-the-line stores where you can get lots more organic, a better choice of wines, spirits, coffee, etc. Most people buy most things at the discount stores, where it's not unusual to see things "displayed" on the wooden pallet it was transported on, and where you need to check all your veg to make sure it's not smashed or moldy, and where you get to dig through jumble bins. On the other hand, they have the freshest meat because the turnover is so large. And no matter where you buy your groceries, no one is going to bag them for you, even if you're a quadruple amputee with five kids.

Once a week they send out the weekly "tilbudsavis" which is a little pamphlet with all their more or less insane deals, which are on a first come first serve basis. Some people actually plan their shopping according to these pamphlets and go to all the different stores to get the different things according to which one has the cheapest prices. The crazier it is, the more likely you'll be met by an empty shelf if you show up late. So if you know there's a deal somewhere that you want in on, you should go Monday or Tuesday.

Most people also shop several times a week at least, some every day. We have a baby carriage and our bicycles - we can get two shopping bags under the baby carriage, but only one on the bicycle if she's sitting in her seat. And I'm definitely not going to more than one store - so if I go somewhere because they have a good deal, you can bet I'll be doing the rest of my shopping there, too.

That said, we don't really run after the deals, because once you're in a bigger store you buy a bunch of stuff and you don't really save anything because their basic wares are more expensive. I can understand people going after diapers, because the name brand diapers like Pampers or Libero are really expensive, so you can save a lot of money - they're 130 kroner for about 50 of them (about $24), whereas if you get the ones at Rema1000 like we do it's 50 for 50 kr ($9) and they're fine - but half the time we use cloth, so it's not something we get all excited about.