Taillie, Lindsey Smith, Maxime Bercholz, Barry Popkin, Marcela Reyes, M. Arantxa Colchero, and Camila Corvalán (2021), “Changes in Food Purchases after the Chilean Policies on Food Labelling, Marketing, and Sales in Schools: A Before and After Study,” The Lancet Planetary Health, 5 (8).
Across the globe, over one billion individuals—including 650 million adults, 340 million teenagers, and 39 million children—are considered obese (World Health Organization 2022). This number is still rising, and with dangerous expected outcomes. According to the World Health Organization, by 2025, 167 million adults and children will have worsening health due to being overweight or obese. Consequently, regulatory bodies around the world are working to combat this issue. Professors Max J. Pachali, Marco J.W. Kotschedoff, Arjen van Lin, Bart J. Bronnenberg, and Erica van Herpen study such a regulation in Chile to develop a model that sheds light on the impact of warning labels on cereal prices. Their Journal of Marketing Research study reveals a fascinating trend: Labeled cereals experience price hikes, while unlabeled products either witness a decrease in price or only marginal price increases. This intriguing finding presents compelling evidence that price-sensitive consumers remain within the unlabeled product category.
Q: Chile was the first country to implement nutritional warning labels. Was this a reason to choose Chile to study the effect of nutritional warning labels on price? In 2020, Mexico enacted a law requiring warning labels on the front of food packages that contain “excess” sugar, calories, sodium, or saturated fat. How do you think the findings of this study apply in Mexico?
Q: Most research on nutrition labels in marketing has focused on changes in consumer behavior. What prompted you to study the effect of a warning label mandate on both consumer and manufacturer behavior?
Read the full article:
Araya, Sebastián, Andrés Elberg, Carlos Noton, and Daniel Schwartz (2022), “Identifying Food Labeling Effects on Consumer Behavior,” Marketing Science, 41 (5), 982–1003.
Go to the Journal of Marketing Research
A: Chile was one of the first countries that adopted a warning label regulation. We chose Chile because a mandatory regulation creates a clean setting to evaluate the effect of warning label introductions on consumer behavior and retailers’ price setting. As mentioned in our response to previous questions, the consumer composition effect may apply in Mexico as well, depending on which consumers will be most responsive to the introduction of warning labels—price sensitive (generally lower socioeconomic groups with lower income) versus less price sensitive (higher socioeconomic groups with higher income). Please also consider our previous answer on how policymakers can ex-ante test whether this is likely the case using, for example, conjoint analysis.
A: As other research shows (Araya et al. 2022), consumers may not respond as strongly to introducing warning labels in categories where they expect unhealthy products, such as chocolates and cookies. The reason is that labels only influence purchase behavior if consumers’ beliefs about the healthiness of products were biased before the label introduction. Thus, our findings may not be generalizable to categories in which consumers are already aware of the unhealthiness of products regarding sugar, calories, fat, or salt. We cannot therefore say with certainty that our findings would also apply to the fast food category. However, in other categories where the healthfulness of products is less clear for most consumers a priori, such as bread, we would expect similar price responses.
The authors’ findings reveal an unexpected outcome in response to the warning label regulation: a price equilibrium that aligns with the objectives of policymakers. Notably, cereals deemed less healthy and labeled as such experience a significant loss in market share, whereas their healthier, unlabeled counterparts witness a substantial gain. In other words, firms increase the prices of unhealthier (labeled) products and drop or increase less the prices of healthier (unlabeled) products—a striking and perhaps unexpected pattern that is driven by the way different consumers respond to the warning labels.
We had the privilege of conducting an insightful interview with the authors, who generously shared captivating perspectives on their research for this article. Brace for an extraordinary journey that unveils the covert strategies of the market, where labeled cereals encounter the daunting challenge of skyrocketing prices:
Q: The U.S. is one of the countries with an obesity epidemic. Considering the cultural and socioeconomic differences between countries like the United States and Chile, do you think similar behavior would be encountered in the U.S.?
Ishita Nagpal is a doctoral student in marketing, Georgia State University, USA.