Ice-cream now and the vegetables later

Just a random econ/behavioral psych detour in the area of food shopping. After my little DoHa experiment (below), I began to ponder the supply chain and the behavioral economics of buying groceries online. Online groceries (that glorious meteor – Webvan comes to mind) are a complex business different from regular online shopping. While the DoHa business model is (obviously), different from ordering fruits and vegetables and having them shipped from, say, a warehouse in Kentucky, it does share some of the similar consumer behavioral challenges. The research firm Nielsen, found that the two most common reasons Americans give for not buying groceries online are delivery costs and the desire not to have to wait for a delivery. I suppose that this former inherent cost in the enterprise is what makes it somewhat cost-ineffective (as opposed to a centralized pick up system i.e. a grocery store) for the casual customer. Approximated via packaging, labor, fuel, depreciation and overhead, this is apparently not a trivial outlay for the business. The decision making for the consumer (as I found) in this case is therefore predicated on the value of time (for example, a busy person/family) or if the product being consumed is a “scarce” commodity (for example, truffles).

Back to behavior. I stumbled on some working papers from the Harvard Business School that were particularly fun: The first was the so-called “want” vs. “should” decision making process. How do decisions made for tomorrow or two days in the future differ from decisions made for several days in the future? This 2007 paper by Milkman et al. (talk about an appropriate author name) is titled – I'll Have the Ice Cream Soon and the Vegetables Later: Decreasing Impatience over Time in Online Grocery Orders. They find that consumers purchase more "should" (healthy) groceries such as vegetables and less "want" (unhealthy) groceries such as ice cream the greater the delay between order completion and order delivery. We, as consumers have a tendency to choose "want" items in the short run but weigh toward "should" items when the impact will be felt in the future. So interestingly, when ordering for things in advance (like 5 days ahead), we will always pick “healthier” options – A salad for a lunch 5 days from now but pizza for lunch today. However, ordering for delivery tomorrow does not show this pattern! So it would appear that feeling "good" while ordering produce for later delivery is almost "predictable" :)

Another paper, Mental Accounting and Small Windfalls: Evidence from an Online Grocer focused on windfall mental accounting where a person suddenly receives a small amount of money like a $5 gift or a $10 certificate. One would assume that these small amounts have no effect on spending decisions. BUT - For online groceries, the redemption of a $10-off coupon increases an individual's spending AND the increase in spending stimulated by this redemption is focused on groceries that customers would not purchase in the absence of such a coupon. This conclusion, in hindsight, seems rather obvious but it is fascinating how such “subtle manipulations” are increasingly appropriated into business practices. The double edged sword of how predictable we all actually are.