Lecture material:

The Just Noticeable Difference (JND) is the minimum amount of change in a stimulus that can be detected. Using sound as an example, if a decibel level change from 60 decibels to 62 decibels is undetectable and a change from 60 decibels to 63 decibels can be detected, we know that at an initial stimulus of 60 decibels, a change of 3 decibels is the Just Noticeable Difference.

Over 100 years ago, a psychophysicist names Ernst Weber found that the amount of change necessary to be discernable is not an absolute amount, but is related to the initial intensity of the stimulus. For example, discounting a $50 shirt by $5 may not be perceived by consumers as a meaningful change in price, but discounting a $25 shirt by $5 likely would. Therefore, the Just Meaningful Difference (JMD) is often described as a percentage. Apparel retailers have found that discounting the price of a garment by less than 20% does not usually result in consumers perception of a meaningful change in price, but discounting the garment by 20% usually does result in the perception of a meaningful change in price.

JMD highlights the fact that the JND should not only be discernable to the consumer, but should also signify a meaningful change. In the example above, consumers would surely be able to perceive that the price of a $50 shirt discounted by $5 has changed, but they would likely not perceive the discount as meaningful. In order for a change to affect consumer behavior, it must be noticed and perceived as meaningful. For the purposes of this case, we will use the term JND, but it should be noted that in a marketing context, the JND must be both noticed and perceived as meaningful by the consumer.

Another important point about JND involves the applications of the concept. Strictly speaking, the concept of JND implies that one need not go beyond the JND in order to affect consumer behavior. In other words, if the JND is 5%, one must only change a stimulus by 5% in order to affect consumer behavior; changing the stimulus by more than that amount is typically not cost effective. As an example, in the case of decreasing the prices of a product, if a marketer significantly exceeds the decrease dictated by the JND, he/she is giving away more money than is necessary. Simply meeting the JND would have been enough to alter consumers that a meaningful change in the price has taken place, and, according to this theory, affect their behavior.

Case:

You work for a large health food marketer, and you are responsible for the cereal line. One of your products is a raisin bran that comes in a 20-ounce box and currently sells at the retail level for $5. The raw materials costs for this product have increased significantly recently, all but eating up your profit margin. Your chief marketing officer (CMO) is now telling you that the retail price of the cereal has to be increased from $0.25 an ounce to $0.30 an ounce within the next year, or she will seriously consider deleting that product from the companys product mix.

Given the level of price competition in this product category, you know that consumers will definitely notice and perceive as meaningful an increase in the price of your cereal from $5 to $6. In fact, your research tells you that your target consumers JND for food products in this category is 12%.

You know you need to do what your CMO has demanded, so you make the price change that will result in an increase in the retail price of the 20-ounce box of cereal from $5 to $6, and you schedule the price change to take effect within the month. What other alternative(s) do you have?

(Hint: There are at least two distinct and different alternatives available to you.)