The Economics of Half Priced Diapers

How do you make sure that consumers come to your supermarket for their weekly stock-up? One traditional tactic is to offer some high-visibility, high-need product at a rock bottom price to get people in the door, then count on their doing the rest of their shopping there as well. In Norway, several retail chains apparently tried this with heavily discounted diapers. One can certainly imagine winning parents as loyal customers with such an offer. However, in this case, it seems that the offer proved rather too attractive when Norwegian supermarkets took prices for Norwegian diapers down to levels half that in Poland and Lithuania.

Customers come into Norway from Sweden, drive along the coast to fill their cars, then take a ferry back to the continent, said Helge Breilid, the chief of customs in Kristiansand on Norway's southern coast.

Some have been stopped with diapers worth up to 50,000 crowns (5,750 pounds), roughly 80,000 diapers, a legal shipment even though Norway is not part of the European Union.

"They told us that the only reason they came to Norway was to drive around and buy diapers to bring back home and resell," Breilid said.

"These people mainly come from Poland and Lithuania, and we have no reason to believe that they are part of any criminal gangs."

Norwegian diapers cost as little as 30 crowns (3.4 pounds) for 50, less than half of the prevailing price in Lithuania. Coincidentally, the Internet is heaving with Lithuanian sellers advertising Norwegian diapers.

This influx of additional buyers has apparently thrown off the Norwegian market, resulting in empty supermarket shelves. Working in pricing, I'm kind of shocked such a situation has lasted long enough to have an article written about it. If you sell through everything on your shelf and go out of stock, your price is clearly too low for your supply, so you should pull it up immediately. Customers may like low prices, but they like empty shelves even less. (I would think this particularly applies to diapers where running out can be... messy.) I'd be curious to know where there's some kind of price or advertising commitment that's responsible for keeping the retailer from adjusting faster, or if the article is playing up some fairly isolated circumstances.