Reducing Dairy Milk Waste Through Dynamic Pricing Model Execution in a Retail Setting

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Food waste is a significant challenge worldwide, with far-reaching implications for sustainability, food security, and economic efficiency. In the United States alone, an estimated 40% of total food produced goes uneaten, amounting to 218 billion dollars or 1.3% of Gross Domestic Product (GDP). Perishable food waste, including dairy products, constitutes a substantial portion of this waste, with dairy waste alone estimated at approximately 25 billion pounds annually. This study focuses on dairy milk waste, which is a major contributor to overall food waste, and explores the use of dynamic pricing as a potential solution to reduce waste in the retail sector. We developed a dynamic pricing model based on pasteurized milk shelf life and we evaluated its performance by deploying it in a retail store setting. The study evaluated consumer choice and willingness to pay when presented with (i) product groups that have three different levels of remaining shelf life left (high, medium, and low), (ii) two different pricing models (static, dynamic), and (iii) three different types of dairy milk products (whole, reduced, and fat-free). The study also evaluated the potential food waste reduction at the retail level and the economics for the retailer when static vs. dynamic pricing model is used. The study hypothesized that the implementation of shelf-life-based dynamic pricing would not significantly affect overall consumer demand for fluid milk and the factors governing consumer preferences. Additionally, it was hypothesized that consumer purchasing behavior for milk with the highest shelf life would partially but uniformly shift towards milk with lower shelf life. Finally, the study hypothesized that the implementation of dynamic pricing would weakly improve retailer revenue from fluid milk sales. We conducted a two-week study using ½ Gal pasteurized milk from Cornell Dairy, categorized into High Shelf-Life (21-8 days left), Medium Shelf-Life (7-4 days left), and Low Shelf-Life (3- 0 days left). Each week a different pricing model was implemented and evaluated; static pricing model in week 1 where all products had a uniform price of $2.59, and dynamic pricing model in week 2 where product with high, medium, and low shelf-life had a price of $3.39, $2.59, and $1.39, respectively. The product was placed with other brands of pasteurized milk, but clearly separated and marked, including (i) displaying the shelf life left with color coded sticker on each container, (ii) displaying shelf life left, price, and milk type with stickers on the product shelves, and (iii) providing a large informational sign with information on the study, shelf life left, and prices. Results indicated a noticeable impact of dynamic pricing model on consumer purchasing patterns, with a shift towards purchasing milk with shorter shelf lives. This suggests that dynamic pricing can be an effective tool in reducing food waste while maintaining consumer engagement. Additionally, there was a weak increase in retailer revenue, indicating that dynamic pricing can be economically sustainable for the retailer. These findings underscore the potential of dynamic pricing strategies to balance economic viability with environmental sustainability in the retail sector. This study contributes to the limited body of research on impact of dynamic pricing strategies on food waste reduction, highlighting the importance of innovative approaches in addressing this complex food industry challenge. The findings of this study have implications for policymakers, retailers, and consumers, emphasizing the need for collaborative efforts to reduce food waste and promote sustainability.

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Wiedmann, Martin

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