Friday, April 8, 2011

Increase Purchase Quantities with Discounts

Quantity-dependent price discounts can take two forms:
  • 20% off if you buy at least five packages
  • 20% off. Limit five packages per customer
     What’s the effect of those on the number of items purchased? Research at Bryant University and University of Illinois finds that…
  • When customers are required to buy a minimum quantity to achieve the discount, they are more motivated to purchase multiple items.
  • When customers are allowed to purchase only a limited number of items at the discounted price, they are less motivated to purchase multiple items.
     Consumers live up or down to the conditions of a discount offer. In another example, researchers at Massachusetts Institute of Technology gave promotional coupons to customers who came into a convenience store. For some, the offer was, “Spend at least $6 and get $1 off.” For others, it was, “Spend at least $2 and get $1 off.”
     The result: Those required to spend at least $6.00 did that, while those required to spend only $2.00 didn’t exceed that amount by much. To make sense of this, it’s important for me to tell you something else: The researchers knew that purchases at the convenience store averaged about $4.00. So it appears that the “Spend at least $2” customers were actually spending less than they would have without the coupon.
     But the Bryant/Illinois research goes beyond this to suggest that the nature of the motivation will spread to other purchase decisions on that same shopping trip. People who buy five of the items so they can earn the discount will be more likely to buy in quantity other items on their shopping list—whether or not those items are discounted. Customers who stopped at buying five items because they don’t get a discount beyond that quantity become less likely to buy in quantity other items on their shopping list.
     The “20% off if you buy at least five packages” is a straightforward way to increase the size of the total purchase. It is less confusing than, for example, the type of tensile pricing that would say “Up to 20% off on all items.” Researchers at Wayne State University and University of Memphis find that this does increase the size of the sale, but also have raised questions about whether tensile pricing misleads elderly consumers into believing they will be receiving a higher discount than is actually the case.

Click below for more:
Keep Discount Conditions Strict Enough
Maintain Purchase Momentum in Customers
Sweeten Scarcity with Ample Warning
Advertise Tensile Pricing Selectively

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