A: As suggested by our results, unlabeled products face a larger segment of more price-sensitive consumers than before regulation due to the consumer composition effect triggered by the warning label introduction. This suggests that these price-sensitive consumers that also pay attention to the healthfulness of their consumption would be very responsive to temporary price promotions of unlabeled products. On the other hand, labeled cereal products that face a more price-insensitive consumer clientele after regulation may have fewer incentives to put their products on price promotions. This would be a desirable side-effect of our results. However, we agree that this is a very interesting aspect that should be analyzed in future research.
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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?
The adjustment of prices plays a pivotal role in this equilibrium. From a policymaker’s perspective, one of the most notable discoveries is the substantial impact of price changes on products with calorie and sugar labels. Furthermore, the study highlights that equilibrium price adjustments result in significant shifts in demand for unlabeled cereals. The research demonstrates that a mere .44% increase in market share for unlabeled cereals translates to a remarkable 12% of their total market share within the new equilibrium established post-regulation.
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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?
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:
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.
Q: Since price is one of the most flexible marketing mix elements to adjust, how do you think promotional offers will influence the relationship between nutritional warnings and price for both price-sensitive and non-price-sensitive consumers?
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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.
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World Health Organization, “World Obesity Day 2022 – Accelerating Action To Stop Obesity,” World Health Organization, https://www.who.int/news/item/04-03-2022-world-obesity-day-2022-accelerating-action-to-stop-obesity.
A: The goal of the warning label regulation in Chile was to stimulate healthier product choices. In particular, policymakers targeted consumers with lower socioeconomic standards who often have less knowledge about a healthy diet and often have limited access to healthcare. However, the intended goal of the regulation may backfire if manufacturers responded by, for example, lowering the prices of labeled (unhealthier) products to compensate for the negative utility shock triggered by the warning label mandate. In this case, consumers with lower income (often more price sensitive) would face additional incentives to purchase unhealthier products. However, in our case, we find that the effect of the regulation is even amplified as more price-sensitive households updated more negatively on labeled products (referred to as a “composition effect” in the manuscript). Because of this, labeled cereals face a larger portion of less price-sensitive consumers than before, rationalizing raised prices after regulation. These price responses amplify the effect of the regulation as it becomes even more unattractive for low-income consumers to purchase unhealthy cereals. As the direction of price adjustments is usually unclear a priori, it is thus important to account for the supply-side’s adjustments of prices for judging the effectiveness of a public policy intervention, such as the warning label introduction in Chile.