Thursday, August 23, 2012

Discount Partner Items Simultaneously or Not?

Researchers at University of Toronto and University of Alberta asked whether it’s better for a retailer to give discounts on associated items at the same time or at different times. If you’re advertising a big sale on the pasta sauce, should you also deeply discount the pasta?
     They concluded yes. If two types of products are often purchased together, the units purchased of each during the time of the sale will be greater if both are sold at a discount.
     That’s to be expected. Charge less for the pasta, and you will sell more. But it goes beyond this. The sales of the pasta will be greater if discounted during the same time period as the promotion on the pasta sauce than if the price promotions on the two product categories are during successive time periods. The shopper who’s thrilled at getting the pasta sauce at a big savings is saying, “Now what can I buy right now to put it on?” There’s less cross-category motivation when the discounts come in separate weeks.
     Note that the researchers’ “yes” answer seems to conflict with shopper psychology advice traditionally given to retailers: The peanut-butter-and-jelly principle of product adjacencies says that when you’ve assigned the peanut butter a bargain price to draw footsteps into your store, shelve the popular jelly flavors—priced for your profitability—next to the peanut butter.
     Is there a contradiction here? My answer to that one is no. The Toronto/Alberta study measured the number of units purchased, not the profitability of the sale. We certainly don’t want to put you in the position of thinking, “I’m losing money on every sale, but making it up on volume.”
     Therefore, let’s use these new findings to refine rather than reject the traditional advice: If you set your promotional pricing such that an increased quantity sale of each will produce a greater profit, then feature the discounts on the different categories during the same time period. Otherwise, though, promote brands across the two categories in different time periods.
     Previous research suggests an additional refinement as well: If one product is at a bargain price and the other is at the regular price, shelve the regularly priced one to the right of the other. Why to the right? Because that’s where a shopper’s eyes tend to go the instant after they recognize that they’ve gotten a really good deal on a purchase.

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Keep Your Eye on Merchandising to the Right

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