Striking a Balance: Setting the Right Purchase Requirements for Multi-buys
A study by Gedenk & Neslin (2010) revealed an inverted U-shaped relationship between purchase incidence and purchase requirements for multi-buys in price promotions. In other words, price promotions that require lower purchase quantities (e.g., buy 2 and get 20% off) tend to increase purchase incidence, while promotions that require higher quantities (e.g., buy 3, get 2 free) could lead to a decline in purchase incidence.
Why does this happen? It’s all about the numbers.
- On the one hand, thresholds create anchor points which influence consumer decision-making.
- On the other hand, thresholds increase the perceived burden associated with transaction and inventory cost.
How does this work? The acceleration of demand can be explained by the #anchor effect. Anchoring is a cognitive bias in which consumers rely on previously observed numbers (e.g. purchase quantity requirements) when making purchase decisions. Conversely, diminished demand occurs when the #disutility of inventory cost (e.g. storage limitations, risk of expiry and upfront cash investment) and transaction cost (e.g. is the deal worth it, trade-offs between products to stay within total budget, etc) outweighs the #utility of the price discount.
What does this mean for your price promotion strategy? It means if purchase requirements are set too high, a multi-buy is unlikely to accelerate demand (assuming the products are not discounted heavily). Therefore, purchase quantities in bundles ideally match the regular purchase quantities. For example, in a category where the average volume per buyer is 2.68, the purchase requirements for multi-buys should not exceed 2 units.
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A study by Gedenk & Neslin (2010) revealed an inverted U-shaped relationship between purchase incidence and purchase requirements for multi-buys in price promotions. In other words, price promotions that require lower purchase quantities (e.g., buy 2 and get 20% off) tend to increase purchase incidence, while promotions that require higher quantities (e.g., buy 3, get 2 free) […]
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Quantity requirements for multi-buys
A study by Gedenk & Neslin (2010) revealed an inverted U-shaped relationship between purchase incidence and purchase requirements for multi-buys in price promotions. In other words, price promotions that require lower purchase quantities (e.g., buy 2 and get 20% off) tend to increase purchase incidence, while promotions that require higher quantities (e.g., buy 3, get 2 free) […]