Frequent Promotional Discounts on Sin Taxes

Shoppers began upping their hunt for promotional discounts on sugary soda at the same time sellers began offering relatively fewer promotional discounts on those items. The University of North Carolina at Chapel Hill and University of Amsterdam researchers witnessed this as they tracked the impacts of areawide soda tax introductions at 208 retail stores located in Boulder, Oakland, Philadelphia, San Francisco, or Seattle.
     When your sales promotions fall out of synch with shopper sensitivity to the sales promotion characteristics, profitability opportunities suffer. In reporting their findings, the researchers discuss sound reasons that manufacturers, suppliers, and retailers may hesitate to offer or feature promotional discounts in response to a soda tax. And by pointing out the failure to match shopper preferences, they stimulate us to reconsider our sin tax strategies.
     Other findings from the five-city study also have implications for action: With introduction of a well-publicized soda tax, shoppers become less sensitive to non-discounted pricing. Therefore, consider passing on as much as 100% of such a tax amount to the purchaser. Also, after introduction of the soda tax, the presence or frequency of a price discount became more relevant to purchase decisions, while the depth of discounts became less relevant. Take this finding into account when setting your promotional discount strategy.
     A rationale for soda taxes is that the increased price will curb consumption of these unhealthy beverages and perhaps shift preferences toward purchasing juices or bottled water. Research has documented mixed successes. Across studies, about 60% to 100% of the additional tax amount is passed on to consumers in item price increases, with consequent decreases in sales ranging from as high as about 50% to as low as none at all.
     Another study of the effects of the soda tax in Philadelphia found that 97% of the amount of the increase was passed on to purchasers. This resulted in a 34% increase in the total item price and a subsequent drop in sugary soda demand of 46% within the city. But this set of Imperial College London, Northwestern University, and Washington University in St. Louis researchers further explored the public policy implications by expanding their data collection to the greater Philadelphia area. This revealed that consumers shifted their soda purchases to stores outside Philadelphia, offsetting more than half of that 46% sales reduction.
     Moreover, there were only modest increases within the city of purchases of the untaxed natural juices.

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