In a research article published a few years ago, Professors Narayan Janakiraman at University of Arizona, Andrea C. Morales at Arizona State University, and Robert J. Meyer at University of Pennsylvania asked readers two questions:
“Consider a consumer who makes an urgent late-night visit to a local supermarket to purchase a pain reliever. Upon arriving she notices that the store is offering routine discounts on a number of unrelated goods such as milk and paper towels, and she makes a mental note to pick up a few on the way out.
“But she then encounters an unexpected shock: She sees that the pain reliever is being sold at twice its normal price. Will this negative surprise affect her decision to buy the other, unrelated, items she saw in the store?
“And what if the situation were reversed; would she be any more likely to buy extra items if the store was offering an unexpectedly large discount on pain relievers?”
From your retailing experience, how would you answer those questions?
The correct answers have to do with cross-category spillover effects. When a shopper encounters an unexpectedly high price on an item in a particular category, she becomes more likely to purchase an alternative in that same category, but less likely to purchase items in the store from other categories. If the name brand pain reliever is being sold at twice the price she expected, she’s more likely to buy the house brand pain reliever, but she becomes less likely to buy the milk and paper towels, even if they’re being sold at a discount.
The answer to the first of the two questions above is “Yes.”
That’s also the answer to the second question. In the Arizona/Pennsylvania study, participants had to buy an essential item at the store because they were completely out at home, and they also could buy other items while at the store. In one experimental condition, the essential item was priced 80% lower than usual.
This surprise discount resulted in about an 8% increase in the quantities purchased of other items available at the store. On average, this could much more than make up for the lower profit on the item sold at the 80% discount.
This study doesn’t stand alone. Other researchers found that giving shoppers an unexpected cents-off coupon for the purchase of one product in a store increased overall spending at that store.
Click below for more:
Have Unannounced Discounts on Common Purchases
Look at the Whole Picture in Profitability
Try Out Dollar Over Percentage Discounts
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