This research is supported by the Center for Sustainable Business Practices (CSBP), Lundquist College of Business, University of Oregon, Oregon, USA.
Reducing Packaging Waste and Cost via Consumer Price Discounts†
Article first published online: 23 OCT 2012
© 2012 The Authors Decision Sciences Journal © 2012 Decision Sciences Institute
Volume 43, Issue 6, pages 1063–1089, December 2012
How to Cite
Aydinliyim, T. and Pangburn, M. S. (2012), Reducing Packaging Waste and Cost via Consumer Price Discounts. Decision Sciences, 43: 1063–1089. doi: 10.1111/j.1540-5915.2012.00385.x
- Issue published online: 6 DEC 2012
- Article first published online: 23 OCT 2012
- Manuscript Accepted: 30 MAY 2012
- Manuscript Revised: 2 FEB 2012
- Manuscript Received: 8 SEP 2011
- Center for Sustainable Business Practices (CSBP)
- Operations/Marketing interface;
- Source Reduction
Low-waste packaging may imply an inconvenience to consumers and cause firms to offer a compensating price discount. For example, Starbucks’ “Take the Mug Pledge” campaign provides a 10-cent discount for customers who purchase coffee without a standard cup (i.e., customers provide their own cup). Understanding how such a discount drives demand and profit is the focus of this article. We consider a monopolist that can offer a reduced-packaging option for its product at a variable cost savings. That option implies a transactional “inconvenience” cost for consumers. While that transactional cost is generally positive, our model also permits some consumers to associate convenience with reduced packaging. We derive the optimal price and discount that maximize profits. We show the optimal discount is bounded by the magnitude of the variable cost savings associated with the packaging reduction. We explore when the optimal discount is negative (a price premium), which requires a specific proportion of consumers to associate convenience with reduced packaging. We also derive conditions under which the firm should price to eliminate demand for the standard product, rather than segment the market, to leverage the variable cost savings of reduced packaging. When the variable cost savings are low (e.g., as is true for Starbucks), we show the profit curve for the segmenting policy is relatively flat for a discount up to several multiples of the cost differential. Finally, we demonstrate the potential for the reduced packaging option, with optimal discounting, to simultaneously increase profit and consumer surplus while reducing waste.