Thursday, March 9, 2017

Brand Discounts Risky If Discouraging Purchase

How is it that a promotional discount on an item in your store would discourage people from buying the item again? Researchers at University of Iowa and Washington University found it happens when consumers think a special price on an item signals that another promotional discount will be coming soon. When shoppers see the regular price on the item after the promotion, they put off purchasing it, believing they’ll get more for their money by waiting until the next sale. In the meantime, you’re missing out on the sales revenue from the item.
     The discount has devalued the item in a way similar to the effects of a “Buy one, get one for free” promotion. When a product is seen by the shopper as being offered for free as part of the BOGO, the shopper resists paying full price for it afterwards. The remedy for the BOGO is to offer, along with the free sample, a coupon for a discount on the regular price, helping to develop a habit to purchase the item.
     In running promotions, your hope is probably most often for the other sort of interpretation studied by those researchers: A good sale on an item indicates it won’t be going on sale again in the near future. This interpretation can motivate quantity purchases. In fact, when it comes to products that are otherwise highly popular, you might decide to limit how many can be purchased at the discounted price. Otherwise, you could run out, irritating your other shoppers.
     With the commodity category the researchers studied—paper towels—this second interpretation occurred less often among shoppers than did the first one. Overall, the promotional discount was leading people to purchase the particular item less often, not more often, in subsequent weeks.
     This effect is risky for a retailer, but not always bad. It’s found to occur most strongly with brand loyal customers. Therefore, if you want to switch a customer to another brand—such as from a nationally advertised to your private label brand—a discount followed by a return to the regular price could facilitate that. Offer a discount on the private label brand at the same time that you restore the standard price on the nationally advertised brand.
     Analyze purchasing patterns to determine which of the two interpretations of your promotional discounts is happening more often. Then take the steps which best serve your store.

For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Go for BOGO Free Over BOGO Discounted
Increase Purchase Quantities with Discounts
Decide Whether to Limit Purchase Quantities
Use Customer Life Changes to Switch Brands

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