Sunday, September 25, 2011

Decide Whether to Limit Purchase Quantities

When you’re selling a product in high demand, you’ll want to decide whether to limit the number of items each customer can purchase. From a strictly business perspective, it would seem that if you allow shoppers to buy as many units as they want, you’re more assured of making quicker profit on the entire inventory.
     From a shopper psychology perspective, there are additional considerations:
  • Customers who come to your store looking forward to getting the high-demand item will feel betrayed if they encounter an out-of-stock.
  • On the other hand, customers who otherwise have an allegiance to your store and encounter an out-of-stock become more likely to come to your store promptly when sales on high-demand items are announced.
  • On the other hand, if the purchasers of large quantities then turn around and resell the items online—as USA Today reports is happening with the Missoni line featured by Target—your regular customers might conclude that they don’t need to wait in line at your store.
  • On the other hand, if the prices charged online are twice as much as your store’s purchase price—again, as is happening with Target’s Missoni line—that adds value to purchasing from you.
     Scarcity offers opportunities to you for higher profit margins. Customers will accept paying substantially more for items which are scarce, as long as the customers accept that the reason for the scarcity is genuine.
     In a classic consumer psychology study, participants were presented a set of Nabisco chocolate chip cookies and asked to answer questions like:
  • How attractive are the cookies?
  • How much do you like the cookies?
  • How much would you be willing to pay for one of these cookies?
     For some participants, two cookies were presented, while for the others, ten cookies were there. Which group gave higher ratings to the attractiveness, liking, and price willingness?
     Yes, the group that saw only two cookies.
     Moving from cookies in the laboratory back to fashions in the store, Target is saying their stores will limit purchase quantities of high-demand gift items during the Christmas season, but not at other times. According to the USA Today article, Abercrombie & Fitch and Saks Fifth Avenue do make it a policy to restrict large-quantity buys of items for which they predict online reselling.
     Target’s Missoni episode is a reminder to retailers to strategically develop in advance a policy on large-quantity purchases of high-demand items.

Click below for more:
Offer Scam-Free Scarcity

No comments:

Post a Comment