No trouble with double
3 minute read
Discounts and sales take many shapes in retail. Be it a flat 50% discount, buy one get one free or… pick your brain for the last discount you availed. I’ve often wondered what (if any) logic or science retailers use when designing their discount plans. For example, two very popular discount constructs are ‘buy two and get 50% off on the lower priced product’ and ‘flat 25% off when you buy 2 products’. Does customer purchase behavior vary between these 2 offer constructs? If yes, then which offer maximizes sales for the retailer? We explore this question through the work of some very intelligent curious folk.
A group of researchers hypothesized that the choice architecture for product purchase varies depending on how the discounts are structured, specifically the combo deal discounts structured as a flat x% off on the purchase of two items and 2x% discount on the cheaper item when buying two products. Studies indicated that when exposed to a combo discount deal, customers tend to follow a common behaviour of picking the product that they like the most, between the two deal constructs when it comes to choosing the first item to buy. However, when it comes to the choice of the second product, the construct where the 2x% discount is offered on the second item, customers tend to maximize the discount availed and are likely to select items that cost more when compared to the first construct (flat x% off on both items).
To test this, they asked ~600 people to visit an online fashion shop specially created for this experiment. These 600 people were divided into 2 groups. The first group was exposed to a banner message that read 20% discount on clothes when you buy two items while the second group was exposed to the banner which read 40% discount on the lower cost item when you buy two items. Expectedly, the people’s shopping behaviour revealed that while the price of the first item selected was similar (~$60) in both offer constructs, the average price of the second item where the 40% discount was on the cheaper item was ~14% more than when a flat discount of 20% was offered on both the items.
This experiment was repeated in a physical store setting under similar conditions and the data suggested that even here, people tended to spend roughly 15% more on the second item when the discount is structured in the 2x discount on the cheaper item construct.
This is a trick used by smart retailers who even in a discount setting want to maximize their sales revenues. Something to keep in mind the next time during your next shopping escapade.
Original research by Tatiana Sokolova and Yi Li