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Price premiums of fortified foods

08/23/2016

Fortification is the practice of deliberately increasing the content of an essential micronutrient, such as vitamins and minerals in food and beverages. We took a look at the price premiums associated with fortification after eliminating other effects such as branding, pack size and geography.

We find that fortified foods command a 11% price premium over non-fortified equivalents, but with wide variability.

We collected fortified and non-fortified price points and other product characteristics in the United States, Singapore, Hong Kong, Mexico, and the Philippines, with 2/3 of the observations in the U.S. Using this data set, we ran a regression:

Price = f ( branded, fortified, pack size, multipack, country dummies )

We then backed out the effect of the non-fortification characteristics to derive the price premium associated with fortification. The results are highly significant (better than 99.9% confidence). The price premium is almost as high as the one gained from branding:

Bar Chart

One cannot help comparing the cost of branding and the cost of fortification (including reaching consumers with the message). It would seem that fortification is an effective way to raise profits.

The price premium varies significantly though. Below is a histogram with the actual price premiums. It shows the importance of finding the right premium.

Bar Chart

Finally, the analysis demonstrates how one can statistically break out various attributes in a product even though it it only has one price. We have applied the same method in the airline industry to quantify how much of the ticket price can be attributable to, e.g., class, seat location, leg room, baggage allowance, pre-boarding, or lounge access. Similarly, any product or service can be analyzed.