The Grocery Dilemma: To Click or To Carry?

 

Have you ever torn between restocking your pantry by braving the trip to the store or opt for the convenience of online shopping but at a higher price? It’s a tempting proposition: pay a premium for the convenience of staying put. Yet, as you weigh your options, you realised “Is this ease worth the extra expense?”.

Come along as we delve into the minds of shoppers, where we seek to uncover the motivations behind their decisions as well as the trade-offs they consider when making everyday decision. Our blog will explore different consumer preferences.

The Economics of Everyday Decisions: Budget Constraint and Choices

Picture this: you’ve set £20 for your weekly grocery haul. Your goal? To stretch your budget to its utmost.

• Budget constraint:
•      Think of £20 as your spending borderline. You have the freedom to play within this space (point A, B, C, D), but you need to navigate without crossing into the red zone (overbudget!)

• Opportunity Cost:
•     Picking anything from the shelf is saying 'no' to other options. We call it opportunity cost.
•      You have two options: a few clicks and you’re done or the thrill of in-store shopping.

It’s a classic dilemma. Every choice has its perks and its trade-offs, and it’s all about what makes those £20 works hardest for you.

When Logic Meets Impulse: The Grocery Shopping Perspective

Introducing the 'Rational Consumer’, individual who approaches shopping with pure logic based on the economic theory. For them, the choice between clicking "buy now" online and in-store shopping comes down to cost and convenience. They consider all the options to get the most bang for their buck.

But wait, enter actual humans—stars of behavioural economics. It turns out that our shopping trips don't always go as planned. Forget about logic. It's all about our moods, biases, and that irresistible temptation of a sale sign. They're the ones in control now!

This comparison highlights the complexity behind our everyday choices like grocery shopping. Now let’s look at the two different perspectives.

Freshness at Your Fingertips: Quality Assurance in an Asymmetric World

Although online shopping is convenient, many prefer the tactile experience of a store. Why? Well, when consumers opt to purchase groceries online, there’s a challenge in directly assessing the quality of their purchases due to information asymmetry, a situation whereby the buyer and seller have different payoff-relevant information. Imagine a scenario where buyers have two choices for acquiring chicken:  

• Option 1(Reliable store visit): Both the seller and buyer can directly assess the freshness of the chicken.
• Cost: £10/kg
• Quality: Consistently high
• Option 2 (Online gamble): The same product but at a discounted rate of £8 per kg. Sounds awesome, but it's kind of a hit-or-miss situation with the poultry’s freshness.
• Cost: £8/kg
• Chance of reduced quality: 70%
• Let's say that if the quality is reduced, you'll need to remove 40% of the chicken. So, the adjusted cost would be 40% higher than the original cost per kg. (£11.2/kg)

Calculate the weighted average:

• Expected value = (Cost of chicken * Probability of high quality) + (Adjusted cost of chicken* Probability of low quality).
• E(X) = (£8 X 0.3) + (£11.2 X0.7) = £2.40 + £7.84
• E(X) = £10.24

The expected value of the online gamble (£10.24) is slightly higher than the cost of the reliable store visit (£10) suggesting a potential cost for lower quality online. Decision-making here hinges on risk tolerance and preferences for quality. With food, especially perishables like meat, many consumers opt for in-store purchases to assess quality first hand. 

A July2022 YouGov survey confirms this, showing 60% of global consumers prefer buying groceries in-store, reserving online shopping for non-perishables. Supermarkets mitigate this disparity by offering quality assurances and transparent sourcing to address consumer concerns about product quality.

Did you know that Information asymmetry is also evident when shopping at traditional wet markets? Sellers use first-degree price discrimination by offering the same chicken but at different prices:

Customer A: usually buys premium cuts (assumed higher income), pays more.

Customer B: usually buys whole chicken (assumed is price-sensitive), pays less.

This strategy matches prices to willingness to pay benefiting sellers. This potentially increases allocative efficiency but fosters inequity.

 

Time as Currency: The Efficiency of Online Shopping

Why battle for parking and navigate crowds on Saturday when you could relax, spend time with loved ones, or sleep?

There are customers who highly value time and priorities it over other considerations when it comes to shopping. Both time and money are scarce resources, a fundamental concern in economics. Hershfield H.E.'s study underscores that individuals who prioritize time are happier. This observation resonates with the notion that choosing delivery that usually cost more over a time-consuming shopping trip, can profoundly influence overall well-being.

For example, you are a tutor and earn £25 per hour, your time has a certain monetary value. You might say “I value my time more than the extra little cost”. 

Let's say that you plan to you purchase groceries in person. The cons:

·        travel costs

·        waiting lines

·        carrying the bags home

Additionally, online retailers often offer discounts and incentives to consumers like "£10 off on orders above £35". This not only provide immediate savings but also target higher-budget consumers who are likely to value their time.

Thus, online shopping can be done between tutoring sessions or at your convenient time, fitting seamlessly into a busy tutor's schedule. You are increasing your earnings and getting groceries sorted as well. You are maximising your overall satisfaction and utility.

In essence, while a rational consumer model would suggest that in-store shopping is often more cost-effective, behavioural economics helps us understand why many people might still prefer the convenience of online shopping despite the higher cost. It’s not just about the monetary trade-off; it’s about how people value their time, effort, and the overall shopping experience.

References:

Hershfield, H.E., Mogilner, C. and Barnea, U. (2016). People Who Choose Time Over Money Are Happier. Social Psychological and Personality Science, 7(7), pp.697–706. doi:https://doi.org/10.1177/1948550616649239.

Mark, C. (2022). Global: Consumers still prefer to buy groceries in-person rather than online. [online] business.yougov.com. Available at: https://business.yougov.com/content/44376-global-consumers-still-prefer-buy-groceries-person.