With an estimated 36% of people in the United States having some degree of lactose intolerance, an expanded market niche may be available for lactose-free or reduced-lactose ice cream - especially as those with lactose intolerance may be willing to pay more for such products, according to a study led by researchers at Penn State and the University of Wisconsin.
In an experimental auction of regular, lactose-reduced and lactose-free ice cream, the team found that lactose-intolerant consumers appeared more willing to pay a premium from the lactose-free ice cream. They published their findings, which suggest a potential market opportunity if that premium is large enough relative to the additional production time and costs of lactose-free ice cream, in the Journal of Dairy Science.
"As companies continue to find their way into this space, whether they're completely new companies or companies expanding their current product offerings, I think these results will benefit them," said study co-author Grace Lewis, assistant professor in Penn State's Department of Food Science and dairy foods manufacturing specialist for Penn State Extension. "Companies need to know if consumers actually will pay more for the lactose-free or lactose-reduced ice cream because it costs more to make those products."
Lactose-free dairy products are typically manufactured by adding lactase, the enzyme naturally produced in the small intestine of lactose-tolerant individuals, to dairy products to break the milk protein lactose into simpler sugars. The addition of lactase, along with longer processing times and other manufacturing adjustments, increases production costs compared with traditional dairy production.
In the study, 135 people bid in person on regular, lactose-reduced and lactose-free ice cream - they were actually bidding on real products. The team then gave participants additional nutritional and ingredient information about the ice cream varieties and conducted a second round of bidding. At the conclusion of the session, depending on their bid value, the auction winners received ice cream. The team utilized a scientifically accepted incentive approach that drives participants to honestly state their true value for the product.
The researchers used a statistical model to determine which factors - including preferred ice cream type, lactose intolerance, severity of the intolerance, age, gender, education, ethnicity and how often they ate ice cream - were associated with higher or lower bids. They found that the higher frequency of ice cream purchase increased the willingness to pay, while Asian ethnicity decreased the willingness to pay.
The average bid across the study was $5.43 per half gallon of ice cream, with those reporting very limited lactose tolerance willing to pay an extra $2.17 per half gallon of lactose-free ice cream. Those who reported limited lactose tolerance were willing to pay an extra $0.82, and those with moderate tolerance said they would pay an extra $0.55.
So, Lewis explained, someone with very limited lactose tolerance valued the lactose-free ice cream at $7.60 per half gallon.
"This suggests that lactose-free ice cream may have extra consumer value, particularly among lactose-intolerant consumers," Lewis said. "However, companies would need to compare this willingness to pay with the additional cost of producing and marketing lactose-free products before deciding whether they represent a profitable product opportunity. Companies that offer lactose-free products as a line expansion to their conventional products have not charged premiums, although that seems to be slowly changing. Companies that focus on lactose-free products do sell at a premium."
Charles Nicholson, first author on the study, is a clinal professor of supply chain management in the Smeal College of Business at Penn State. Contributing to the research were: Elena Krasovskaia, assistant teaching professor in the Department of Agricultural and Resource Economics at North Carolina State University; Jack Myers, doctoral candidate in dairy science in the Department of Animal and Dairy Science, University of Wisconsin-Madison; and Scott Rankin, professor and chair of the University of Wisconsin's Food and Nutritional Sciences Department.
This research was funded by the University of Wisconsin Consortium for Extension and Research in Agriculture and Natural Resources, with support from the University of Wisconsin-Madison Dairy Innovation Hub.
