As food manufacturers navigate a shifting economy—marked by margin pressure, evolving demand, and persistent uncertainty—pricing strategy becomes more than a numbers game. It becomes a perception game. And that’s where behavioral economics offers sharp insight.
In particular, the foundational research of Kalyan Raman and Russell Winer on reference pricing is highly relevant for food executives today. Their 1994 work explored how buyers—whether end consumers or B2B purchasers—form internal benchmarks for what a product “should” cost. These reference prices aren’t objective; they’re shaped by past prices, competitor context, promotional cues, and even packaging.
Reference Prices Are Sticky—and Powerful
This research helps explain why some price increases spark pushback while others are absorbed with little resistance: the reference point has either been poorly or skillfully managed.
Once a low reference price is established—especially through repeated promotions or aggressive sell-in tactics—it becomes difficult to reset. A $28/case price introduced as a limited-time promotion may unintentionally become the new “normal,” undermining list price credibility over time.
Manufacturers Must Actively Shape Perception
Manufacturers don’t have to be passive participants in this process. They can intentionally shape reference prices in the minds of buyers. Strategies like bundled pricing, “good-better-best” tiering, and anchor SKUs priced slightly higher help position core items as strong value plays.
Even without lowering actual prices, reframing them in context can improve perceived value. A $1.99 SKU next to a $3.29 premium item feels like a bargain—because it is relative pricing that influences decisions, not absolute numbers.
Resetting Reference Points Requires Intentionality
Reference prices can be shifted—but not without a plan. Repositioning a product with updated packaging, sustainability attributes, or functional claims can justify higher pricing if the added value is clearly communicated.
The key is to pair the price increase with a narrative. Buyers must believe the change reflects improved quality or a more relevant offer—not just cost pressures.
Where Pricing Meets Psychology
In an industry often driven by reactive pricing decisions, Raman and Winer’s work serves as a strategic reminder: the most successful manufacturers proactively shape perception. Pricing isn’t just about covering costs or beating competitors—it’s about managing expectations over time.
At Foodservice IP, we help food manufacturers apply these behavioral pricing principles across operator, distributor, and retail channels—because in today’s market, pricing is no longer just economics. It’s psychology.
Foodservice IP is a professional services firm aimed at delivering ideas for managers to guide informed business decisions. To learn more about FSIP’s Management Consulting Practice, click here.
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