Momofuko Ando (Inventor of Ramen Noodles) R.I.P. - Your "10 for $2" Pricing Strategy Will Live Forever!
What’s not to love about Ramen Noodles? Toss that hardened noodle brick into boiling water along with a flavor packet and presto; three minutes later you have a wonderful bowl of soft noodles swimming in a tasty broth. Ramen noodles are a delicious and inexpensive meal.
Earlier this month, Momofuko Ando - the inventor of ramen noodles - died at the age of 96. Mr. Ando concocted his first batch of ramen noodles 49 years ago while experimenting in a shack behind his house. From these humble beginnings, he built his company (the Nissin Food Products Company) into a $3 billion multinational empire with 29 subsidiaries in 11 countries. Today, Nissin Food sells 16 different flavors of ramen including six varieties of chicken as well as beef, shrimp, vegetable, and spicy chili. The company sold 46.3 billion packs and cups of noodles in 2006, earning $131 million in profits. Worldwide, the industry sold over 85 billion packages of ramen noodles. Now that’s a successful product!
Don’t get me wrong, I enjoy ramen noodles as much as the next foodie does, but what I really love is the pricing strategy often used to sell these noodles. Who amongst us has been able to resist the charms of a pricing promotion phrased, for example, as “10 Ramen Noodle packages for $2.” Whenever I see this pricing promotion, it’s Pavlovian for me to load up my shopping cart with 10 packages: (to the tune of The Jeffersons) "we’re moving on up, to the east side, to a de-lux apartment in the sky… we are having instant noodles for dinner tonight!" Here’s what’s interesting about an “X Products for $X promotion (e.g., 10 products for $2): when a store offers this type of pricing promotion, they legally have to sell the products individually at a prorated price (in this 10 for $2 example, the store has to individually sell products for 20 cents each). Despite knowing about this legal loophole, most of us end up buying the quantity suggested in the pricing promotion anyway.
As you might suspect, pricing promotions that suggest quantities are quite profitable. Brian Wansink, Robert J. Kent, and Stephen J. Hoch wrote an interesting article (“An Anchoring and Adjustment Model of Purchase Quantity Decisions,” Journal of Marketing Research, February 1998) on the profitability of using “quantity suggestive” phrasing in sales promotions. The authors conducted a one week experiment at 86 grocery stores. At half of the stores (randomly selected), sales were phrased in terms of per product (e.g., “On Sale – 50 cents”). At the remaining stores, quantities were suggested in the sale phrasing (e.g., “On Sale – 6 cans for $3”). This experiment was implemented on 13 different products ranging from canned tuna to bathroom tissue. The average sale discount was 21%. The experiment results are fascinating. The authors found that when sales were phrased in terms of an individual price (“On Sale – 50 cents”), unit sales increased by 125%. However, when quantities were suggested in the sale price phrasing (“On Sale – 6 Cans for $3”), unit sales increased by 165%. By incorporating a suggested quantity in a pricing promotion, sales increased significantly… it should becoming very clear why your local grocery store sales flyer is full of quantity suggestive pricing promotions!
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