The recessionary trends and increasing prices have made selling difficult for the retailers. Consumers buying behavior has become very cautious, and they look for discounts or wait for sales to start before they buy. To combat this seller have come up with offers like Buy one Get One Free; recently Buy one Get One Half Off has gained popularity and are being promoted by the sellers. The BOGO Half Off is making the sellers a bit richer and the buyer a bit poorer. The retailers are trying to confuse the buyer by using creative words and rephrasing them. For example, there is a scheme of BOGO Half Off on shoes. The price of shoes is $60; the next pair costs $30 to the buyer. Total amount spent is $90. The buyer gets a discount of 25% only which is a not a good deal, when compared to a straight 50% off. The consumer feels that he has got a good deal and his purchasing power has increased. Big brands like Marks and Spencer’s and Mango sell a lot by these offers. The deal is good if both the products are equal in price, at times the sellers give off on the lower priced item.
The phenomenon used by the retailers is called “Price Discrimination.” Through price discrimination, the same seller is selling two identical or similar products at different prices in different markets. This economic phenomenon gives the retailers the opportunity to make profits by increasing sales. A famous product giving such offers is the Pizza outlets. They offer BOGO half off the second pizza. The firm sells two pizzas at $20 which otherwise the customer would not have bought at full price. The scheme works well for the sellers and increases welfare in the long run as retailers are also a part of the economy.
The concept used by the purchaser is called as “reference pricing” in economics. The buyer is making a decision made the comparison. Apple does reference pricing really well in the electronic and gadgets segment. Apple cleverly sells I-Pod Touch at $299 and $399 (different storage capacities). The buyer buys for $299 thinking he has a got a good deal than buying the I-pod for $399, but forgets that he could have bought an I-Phone 4 at $199 with more features. The buyer makes a bad decision and is tricked by the retailer. The $399, had a great impact on the buyers mind and he is now happily willing to buy anything lesser than $399.
Another example is of the Royal Caribbean Cruise offering BOGOHO. Maximum people get hooked by the so called luxury travel schemes. The advertisement says that the buyer can save up to 50% by choosing the Royal Cruise. Buy one and the second guest gets at 50% off on the travel package. All beer drinkers would vouch for any such scheme. Mostly friends go in groups for drinks ,and they find this offer very attractive. People buy more in BOGOHO offer at times even when they don’t need another one. But in the end it is good for retailers as they increase their sales and ultimately adding to the national product.
Bibliography
- Tabarrok, Alex. “Buy one get one free.” Marginal Revolution. March 1, 2014. Retrieved from.
http://marginalrevolution.com/marginalrevolution/2004/03/buy_one_get_one.html
- "Buy one, Get One Free" Or "Half-Off"--I can't decide which is better!! September11, 2010.Retrieved from.
http://haywardeconblog.blogspot.in/2010/09/buy-one-get-one-free-or-half-off-i-cant.html
