Know-How Exchange : Strategy

Hoch and colleagues (1995, Journal of Marketing Research) discuss this issue in detail for Dominick's finer foods in Chicago. A recent follow-up found that several demographic and distance-to-competion factors induce retailers to use zone pricing:
(1) More educated consumers have higher
opportunity costs, so they devote less attention to
shopping and therefore are less price sensitive.
(2) Large families spend more of their disposable
income on grocery products, and therefore they
spend more time shopping to garner their increased
returns to search; they are also more price
sensitive.
(3) Households with larger, more expensive homes
have fewer income constraints, so they are less
price sensitive.
(4) Black and Hispanic consumers are more price
sensitive.
(5) Store volume relative to the competition is
important, suggesting that consumers self-select for
location and convenience or price and assortment.
(6) Distance from the competition also matters.
Isolated stores display less price sensitivity than
stores located close to their competitors. Distance
increases shopping costs
(7) However, competitive characteristics are not as
important as consumer characteristics in
determining store price elasticities