The economics of
marketing
Obesity and junk food advertising
policies.







ECON7110 Semester 1 2019
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Contents
Contents .................................................................................................................................... 2
Summary ................................................................................................................................... 3
Background ................................................................................................................................ 3
Analysis A .................................................................................................................................. 4
Analysis B .................................................................................................................................. 6
Labelling practices ................................................................................................................. 6
Taxation ................................................................................................................................. 6
Portion control ........................................................................................................................ 7
Recommendation ....................................................................................................................... 8
Appendixes ................................................................................................................................ 9
References ............................................................................................................................. 9
Article ................................................................................................................................... 11


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Summary
The article selected for this essay is titled: “Supermarket special offers contribute to obesity,
report says: Study by Cancer Research UK backs up calls for restrictions on unhealthy food
deals.” Discussed in the article is research which suggests the marketing practices of
supermarkets to locate single-serve or small packages of sugary confectionery, chocolate,
and crisps at checkouts contributes to rates of obesity by influencing consumer bundle
preferences. This study has been published as a submission to the UK government for their
consultation into restricting promotions of food that is high in fat, sugar, and salt as a
component of their Childhood Obesity Plan. (Department of Health & Social Care, 2019).
These foods are commonly referred to as ‘junk food’.
Data was collected from approximately 30,000 household purchases across nine
supermarkets between 2013 and 2017. Three of these supermarkets implemented checkout
policies that were clear and consistent, three implemented vague or inconsistent policies, and
the remaining three were comparators. Overall the study found that checkout policies were
associated with a statistically significant decrease in purchases of these items after four
weeks of implementation. This effect was sustained at 12 months; however this long-term
change was not as strong following a sensitivity analysis (Ejlerskov, Sharp, Stead, Adamson,
White, Adams 2018). The limitations of this study are that it cannot be determined where in
the store the consumer purchased the goods, only the overall consumption bundle.
The article references two other studies exploring this issue. Associated research observed a
76 per cent reduction in annual purchases of sugary confectionary and crisps between
supermarkets that stock these items at checkouts when compared to those that do not
(Ejlerskov, Sharp, Stead, Adamson, White, Adams 2018). Another report, commissioned by
the UK government, found that marketing strategies increased consumer food and beverage
purchases by 20 per cent. The report recommended the implementation of a 10 to 20 per cent
tax on sugary items (Public Health England, 2015).
Background
Global rates of obesity have tripled from 1975 to 2018 with approximately 13 per cent of the
worlds adult population classified as obese (WHO, 2018). According to the Centers for
Disease Control and Prevention (2019), obesity is associated with poorer mental health, a
lower quality of life and significant health issues such as cardiovascular disease, diabetes,
and some cancers. These health conditions create significant costs to public health systems
related to diagnostic and treatment services, however there are broader social and economic
consequences due to absenteeism and reduction in productivity. In 2014 it was estimated that
obesity had a global cost of US $2 trillion, which was 2.8 per cent of global gross domestic
profit (Tremmel, Gerdtham, Nilsson, Saha 2017). This issue has a significant impact on the
health, wellbeing, and economic prosperity of the global population and current trends predict
that this cost will increase significantly without intervention. This discussion sits amidst
broader health policies related to education, promotion of healthier life choices, and exercise
schemes. Some of the suggested regulations are similar to interventions in the tobacco,
alcohol, and gambling industries with a strong focus on the role that marketing plays in
influencing consumer behaviour (Matjasko et al, 2016).
The disciplines of marketing and economics are highly integrated and some of the principles
of modern marketing stem from economic theories. Marketing heavily influences economic
outcomes and serves as a link between production and consumption (Nariu, 2014). Marketing
practices have developed alongside technological advancements that have augmented the
availability of information exchanged between firms and consumers. These developments
have shifted industries from a product driven approach towards a market orientated one that
focuses on consumer behaviour (Kermally, 2016).
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Firms have increased their investment in marketing research to understand consumer desires
to develop effective strategies intended to increase demand and maximise long run sales and
profits (Kermally, 2016). This is achieved by addressing internal factors of consumer
behaviour relating to perception of value and benefit. These factors include exposure,
attention, awareness, and retention (Kermally, 2016). In relation to the practices researched
by Cancer Research UK, these four factors are the exposure of luxury items that have a
perceived reward; the attention captured by being located where people are waiting to
purchase their groceries; the awareness of the value achieved through discounted pricing;
and the short-term retention due to the proximity to exiting the store. This explains how the
physical environment of a store can influence purchasing preferences.
Product placement is common practice for supermarkets to achieve the desired outcomes of
visibility, opportunity, and sales (Nariu, 2014). Compared to other marketing strategies,
product placement is cost effective as there are no external advertising costs once a
consumer has entered a store. Another benefit of this practice is that it creates an additional
market for their suppliers where they can charge for privileged locations of their products with
the recognition that this will increase their sales.
Analysis A
The results of the study suggest that policies which regulate the availability and location of
junk food reduce the overall consumption of these products. The purpose of marketing is to
increase the consumption of a good by slightly manipulating the consumer’s bundle
preferences. In the context of single package checkout goods, this shift is minor relative to the
overall groceries bundle. Figure 1 shows the intent of this strategy on a supply and demand
model. The first diagram shows the optimised bundle preference and the second shows a
slight shift towards junk food.
Figure 1: Indifference curves and budget constraints: slight shifts in bundle
preferences.

Bundle A Bundle B
It is expected that the budget constraints of a consumer will remain constant and the
consumer will move from bundle A to bundle B along the same indifference curve despite this
reducing utility maximisation (Perloff J, 2018). Given the goods are located at the checkout, it
can be argued that the actual outcome of this marketing strategy for some consumers would
be an increase in their original budget constraint whereby they decide to purchase an
additional good on top of their existing bundle. This is reinforced by the findings in the study
that middle and high-income households respond to advertised discounts at checkouts more
often than low income households (Ejlerskov et al, 2018). This implies that the low-income
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households may have met their budget constraint at the checkout and are unable to purchase
additional goods.
Implementation of checkout policies aim to reduce the demand of these goods, impacting the
suppliers, overall quantities consumed, and equilibrium price. Figure 2 shows that reduced
demand would lower the equilibrium price and quantity sold as these are considered normal
goods. As these goods are inexpensive this shift would be minor. The outcome for suppliers
and distributors would be an associated decrease in revenue. As mentioned, product
placement is a cost-effective marketing strategy therefore the removal of this opportunity may
increase investment in alternative marketing approaches to increase long run sales.
Figure 2: Demand reduction impact on price and quantity

The availability of substitutes within supermarkets could minimise the impact of checkout
policies as consumers can access other unhealthy foods throughout the aisles. Substitute
goods are those that can be consumed as an alternative to another good (Perloff, 2018). The
outcome of this could result in an increase in the consumption of substitutes, however this
may not occur as the intent of checkout placement is to provide a final nudge to consumers
who have already completed their bundle selection while in the store.
Analyses of marketing and economic principles would be incomplete without acknowledging
behavioural economics. Marketing practices and behavioural economics draw on similar
theories from psychology and neuroscience to understand the factors that influence a
consumer’s decision-making processes (Voyer, 2015). Some key principles include
impulsivity and influences from social environments that contribute to unconscious choices
(Matjasko et al, 2016). These principles are useful in analysing how marketing practices,
including product placement, play a role in contributing to the bundle preferences of
consumers. This is especially useful in developing public health policy for issues such as
obesity by leveraging existing behavioural patterns rather than seeking to reshape behaviour
(Volpp & Asch, 2017).


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Analysis B
There have been many policy-based approaches to reduce the consumption of junk food that
either focus on disincentivising unhealthy choices or promoting healthier options. The
approach highlighted by Cancer Research UK is that of restricting product placement
practices to reduce consumer exposure. While this study reveals findings that support this
argument, implementation may be a challenge for government given the availability of product
placement throughout other areas of the store. Predominant alternatives include labelling
practices, taxation, and portion control.
Labelling practices
Labelling practices focus on the information provided at the point of purchase with the intent
that consumers are well informed. Current Australian regulations ensure that the Nutritional
Information Panel is clearly visible, however this information relies on a high level of
education and literacy. Consumer health groups such as the Heart Foundation and Diabetes
Australia provide educational information to build consumer capacity.
An example of a simplified label in the UK is traffic light labelling which utilises a simple
grading scale to help consumers evaluate the contents of their purchase. To maximise impact
an educational social media campaign complemented this policy for 12 months. A cost-
effective analysis of traffic light labelling found that it would be considered excellent value for
money and positively impact population outcomes (Sacks et al, 2011). Limitations to this
policy are that, if implemented in isolation of other policies, it would only have a modest
impact on the healthiness of consumer choices and this would likely be for a small proportion
of the population that are engaged in determining the contents of their food choices (Sacks et
al, 2011).
A more severe example of labelling practices is the plain packaging of tobacco products
implemented in Australia in 2012 (Department of Health, 2016). This policy was controversial
with representatives of the tobacco and distribution industries concerned with the potential
impacts on sales and acquisition of property of their trademark (Pathi D, 2013). The intent of
the policy was to provide clear, visual information to consumers of the long-term
consequences of consuming tobacco products to achieve overall public health outcomes
(Department of Health, 2016). This level of regulation would likely be complicated to
implement and would likely evoke significant industry concern.
Taxation
Taxation policies can be used when a market externality delivers the community a higher cost
than the reflected equilibrium price (Perloff J, 2018). The most common approach to this a
Pigouvian Tax. Pigouvian tax is designed to include the social costs of a market in
determining the price of a good. Similar taxes applied to tobacco products are considered one
of the most effective strategies to reduce smoking rates and are an effective tool for
increasing the sales price of goods (Golden et al, 2014). This approach has been commonly
put forward as the most effective policy platform for regulating the food industry to address
obesity (Rollins, 2016). The result of this would be to increase the equilibrium price of goods
to reduce the appeal to consumers while creating a revenue from sales. Figure 3 shows the
effect of a Pigouvian tax in a supply and demand diagram.



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Figure 3: Pigouvian tax applied to a supply and demand model

An analysis of the Hungarian junk food tax implemented in 2011 found evidence that the
policy significantly decreased the consumption of food and increased the consumption of
unprocessed food (Biro, 2015). Low income households were the most responsive to the tax
as the increase in price is greater relative to their budget restrictions.
A cost effectiveness evaluation in the UK reported that, similarly to labelling practices, junk
food tax would be excellent value for money and would also create additional revenue to
reinforce wider policies such as education campaigns or subsidising healthier foods (Sacks et
al, 2011). The outcomes of reduced disease rates related to obesity are increased if the
revenue of a junk food tax is used to subsidise healthy alternatives.
Studies in the United States of America recognised that small taxes applied to unhealthy
foods create substantial revenue but in isolation are unlikely to address obesity. High
increases in tax have been recognised as politically unpalatable and difficult to pass
government processes (Franck et al, 2013).
Portion control
The International Journal of Obesity explored the possibilities of implementing portion control
in food service environments. The study draws on the research into fast and slow thinking that
delineates impulsive and well considered decisions. Opportunities to implement this approach
in the context of supermarkets could include reduction of the sizes of the single serve goods
that are sold at checkouts. Barriers identified to this approach include reduced revenue,
increased costs, and the range of implementation contexts in which food is provided.


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Recommendation
There is a role for government to intervene in a market that results in harmful outcomes for
their citizens, however junk food consumption is only one factor that contributes to obesity.
Education can reduce the consumption of foods that are high in sugar, salt, and fat; however
the low price, availability, and influence of marketing practices all leverage on consumer
behaviour. Marketing regulation, such as restricting product placement, appears to have a
significant influence in reducing consumption of unhealthy foods. These must be implemented
by government as voluntary industry regulation can be ineffective. Countries with statutory
policies on junk food marketing saw a decrease in sales while those that relied on industry
self-regulation saw an increase (Kovic et al, 2018).
The most effective and efficient approach is a combination of marketing regulation and
taxation policy with the tax revenue reinvested into health promotion and educational
programs.

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Appendixes
References
Biro, A (2015). Did the junk food tax make Hungarians east healthier? Food Policy: Volume
54, July 2015, pp 107-115. Retrieved from: https://www-sciencedirect-
com.ezproxy.library.uq.edu.au/science/article/pii/S0306919215000561
Davis, N (2019) Supermarket special offers contribute to obesity, says report: Study by
Cancer Research UK backs up calls for restrictions on unhealthy food deals.
Retrieved from: https://www.theguardian.com/society/2019/mar/27/supermarket-
special-offers-contribute-to-obesity-says-report
Centers for Disease Control and Prevention (2019). Overweight & Obesity. Retrieved from
https://www.cdc.gov/obesity/index.html
Department of Health (2016). Post-implementation review: Tobacco Plain Packaging.
Retrieved from: http://ris.pmc.gov.au/sites/default/files/posts/2016/02/Tobacco-Plain-
Packaging-PIR.pdf
Department of Health & Social Care (2019)
https://www.gov.uk/government/consultations/restricting-promotions-of-food-and-
drink-that-is-high-in-fat-sugar-and-salt
Department of Health & Social Care (2018). Childhood obesity: a plan for action, chapter 2.
Retrieved from:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachm
ent_data/file/718903/childhood-obesity-a-plan-for-action-chapter-2.pdf
Ejlerskov, K; Sharp, S; Stead, M; Adamson, A; White, M; Adams, J (2018). Supermarket
policies on less-healthy food at checkouts: Natural experimental evaluation using
interrupted time series analyses of purchases. Public Library of Science (PLOS)
Magazine. Retrieved from:
https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1002712
Franck, C; Grandi, S; Eisenberg, M (2013). Taxing Junk Food to Counter Obesity. American
Journal of Public Health 103, no. 11 (November 1, 2013): pp. 1949-1953.
Golden, S; Ribisl, K; Perreira, K (2014). Economic and Political Influence on Tobacco Tax
Rates: A Nationwide Analysis of 31 Years of State Data. American Journal of Public
Health; Washington Vol. 104, Iss. 2, (Feb 2014): 350-7. Retrievied from:
https://search-proquest-
com.ezproxy.library.uq.edu.au/docview/1490696516?rfr_id=info%3Axri%2Fsid%3Apri
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Kermally, S (2016). Marketing & Economics: An integrated approach to making effective
business decisions in the world of global marketing. Vernon Press: Malaga, Spain.
Retrieved from
https://vernonpress.com/file/1962/c191dfd773668207c174f4f9dc1abde6/1467374575.
pdf
Kovic, Y; Noel, J; Ungemack, J; Burlson, J (2018). The impact of junk food marketing
regulations on food sales: an ecological study. Obesity Reviews: Volume 19, Issue 6,
June 2018. Retirieved from: https://onlinelibrary-wiley-
com.ezproxy.library.uq.edu.au/doi/full/10.1111/obr.12678
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Rollins, A (2016). Time for a junk food tax [online]. Australian Medicine, Vol. 28, No. 9A, 07
Nov 2016: 6. Retrieved from https://search-informit-com-
au.ezproxy.library.uq.edu.au/fullText;dn=448717658065569;res=APAIS-
HEALTH> ISSN: 2202-1701
Matjasko et al (2016). Applying Behavioral Economics to Public Health Policy: Illustrative
Examples and Promising Directions. American Journal of Preventive Medicine:
Volume 50, Issue 5, Supplement 1, May 2016, Pages S13-S19. Retrieved from:
https://www.sciencedirect.com/science/article/pii/S0749379716000635
Nariu, T (2014). The Economics of Marketing and Distribution. Journal of Japanese
Economy:.Volume 35, Issue 2, p5-22. Retrieved from https://www-tandfonline-
com.ezproxy.library.uq.edu.au/doi/abs/10.2753/JES1097-203X350201
Pathi, D (2013). Is plain packaging plain simple? An analysis of the compliance of plain
packaging laws for tobacco products with Australian and international intellectual
property laws. Journal of intellectual property society of Australia and New Zealand.
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Public Health England (2015). Sugar Reduction: The evidence for action. London, United
Kingdom. Retrieved from
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ent_data/file/470179/Sugar_reduction_The_evidence_for_action.pdf
Riis, J (2014) Opportunities and barriers for smaller portions in food service: lessons from
marketing and behavioral economics. International Journal of
Obesity volume38, pagesS19–S24 (2014). Retrieved from: https://www-nature-
com.ezproxy.library.uq.edu.au/articles/ijo201485
Sacks, G; Veerman, J; Moodie, M; Sinburn, B (2011). ‘Traffic-light’ nutrition labelling and
‘junk-food’ tax: a modelled comparison of cost-effeciveness for obesity prevention.
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275,https://doi.org/10.1093/qjmed/hcw190
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Article
Supermarket special offers contribute to
obesity, says report
Study by Cancer Research UK backs up calls for restrictions on
unhealthy food deals
Nicola Davis @NicolaKSDavis
Wed 27 Mar 2019 17.00 AEDT
Special offers on unhealthy food and drinks should be restricted in an attempt
to curb Britain’s expanding waistlines, experts have said.
The UK government is consulting on restricting the promotion of foods high
in fat, sugar and salt, in terms of their price and their location in stores – for
example by the tills.
Cancer Research UK (CRUK) has released a report it says adds weight to
proposed moves, revealing shoppers who chase supermarket deals buy fewer
fruits and vegetables and more unhealthy food than those who do not, and are
more often overweight or obese.
“These promotions look like they are pushing us in the wrong direction –
certainly those people who are buying more promotions are ending up with
baskets that are more skewed than general towards less healthy products,”
said Malcolm Clark, a policy manager at CRUK.
Research has previously shown that removing unhealthy snacks from
checkouts immediately reduces their purchase by 17%, with the benefit
apparently long-lasting.
In the new report, the CRUK team analysed the shopping habits of 16,148
British households for up to seven months between January and July 2017.
Among the considerations were the use of promotional offers, the contents of
the shopping baskets and various aspects of the shoppers’ lives, including
whether they were overweight or obese.
The report reveals that, on average, just under a third of food and drink items
were bought on promotion, with no effect of social class, and only small
differences by region or life stage, although retired households were not
included. Wealthier households appeared to be slightly bigger fans of
promotions than those less well off.
When the team divided the participants into four groups based on the
proportion of items they bought on promotion, they found 72% of the top
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group – who bought between 38% and 82% of items on promotion – were
overweight or obese compared with 64% of the lowest group, who bought 21%
or less of promoted items. The trend remained even when income and other
factors were taken into account.
The team notes that the top group of promotion-chasers did not end up with
more items in their basket, or much more in the way of calories, than those
who opted least for deals. But promotion-lovers did go home with about a 25%
greater volume of food and drinks high in fat, sugar or salt. There was also a
noticeable swing away from fibre towards sugar, with more goods such as
cakes and sweets in the basket and fewer fruits, vegetables and staple “other”
foods.
Clark added that this skew might mean people are eating more of their main
meals out of the home, which could increase calorie consumption, or simply
getting more of their calories from snacks than meals.
The report chimes with previous studies on the issue: a 2015 report by Public
Health England found that price promotions ramped up the amount of food
and drink people bought by 20%.
However, the team behind the new study says it might under-report
purchases, while it does not include data on what people eat outside of the
home or specific calorie breakdowns of foods. What’s more, the analysis does
not prove that promotion-chasing shopping habits causes people to be obese
or overweight.
Nonetheless, CRUK is calling for the government to introduce restrictions on
special offers on unhealthy food and drinks, starting with a crackdown on
multi-buy offers.
Naveed Sattar, professor of metabolic medicine at the University of Glasgow,
backed the calls. “Some people cannot resist the offer of cheaper food or
‘tempting’ offers and these often lead them to eat more calories than they
would otherwise, and so put on weight,” he said. “Legislation for such offers
should be easy and should be implemented.”
Tom Watson, the deputy Labour leader, said Britain’s obesity epidemic is too
big to ignore. “Obesity is increasing our risk of serious conditions, like cancer
and type 2 diabetes, and placing a huge financial toll on our already squeezed
NHS,” he said.
“In this context, it’s a scandal that the food available on special offer is often
so unhealthy. We must work towards a system where fresh, healthy and less
processed foods are available and affordable for everyone. Achieving this is a
crucial part of improving the country’s health.”