Essay On Thinking At The Margin

Buy one get one half off is one of the marketing strategies that is used by companies that produce goods in large quantities. This is because the pricing encourages the customers to buy more goods so that they can benefit from the discount. In return, this ensures that the goods produced by a company are sold within a short duration. The prices are set such that the company benefits at the end even though one item is sold at a lower price. The goods promoted in such a manner are such that its costs less to produce more items as compared to producing one item.
There are various reasons that make the customers to respond to this promotional method. First, the customers are in a position to buy more goods. Since they get a discount by buying a second item, the customers are left with more cash to buy more goods. The customers are therefore attracted to buy more goods so that they can benefit from the discount being offered. For example, if a product costs 10 dollars and a customer has 200 dollars, such a customer is able to buy 30n items instead of 20 items if the discount was not available. In addition, the company benefits since it is able to sell more items. The customer is able to keep the excess items for use later so there is no loss to such a customer.
The second reason why the customers respond is that a customer is able to save his/her cash. By buying the second item at half the price, the customer is left with some money as opposed to a situation whereby there was no such a discount. For example, if an item costs 10 dollars, and a customer has 20 dollars, a customer is able to buy two items at a cost of 15 dollars. If such a customer bought one item, he/she does not benefit from the discount. Such a customer will buy another item later and therefore end up spending 20 dollars instead of 10 dollars. Therefore it appears that it is advantageous to buy two goods and save some cash as compare to buy one item at a time.
Generally, consumers buy goods due to the utility derived from the consumption of such goods. The ore of a good consume, the more utility is derive for normal goods. In this case, rational consumers are expected to buy more of a good if it is cheaper so that their utility is higher. This is why consumers are likely to buy more of product if offered at a discount. Furthermore, if a second item is offered at half price, it means that the marginal benefit (utility) of consuming the second item is more that the marginal cost. This is why rational consumers will buy more products if the goods are sold on the basis of buy one get one half off.
The principle reflected by the consumers’ behavior in this case is the principle of thinking at the margins. According to the principle, the decisions that the consumers make are based on reasons. Therefore, the consumers reason before deciding on whether to buy one item or two incase goods are being sold on the basis of buy one get one half off. This is because the marginal benefit of buying an extra good is more than the marginal cost. Considering this principle, it is expected that the customers will buy more goods two items so as to benefit from the discount assuming that the customers are rational.