QUANTITY REQUIREMENTS FOR MULTI-BUYS

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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Author

Pim is the co-founder of RGM Consulting and a core member of the global executive leadership team. In the leadership team he oversees: sales, research & knowledge development, marketing, and delivery.

Pim has extensive experience supporting leaderships teams across the globe, having worked on projects in Europe, Latin America, and Africa. Through his work, Pim has developed expertise in revenue growth management, business turnarounds, innovation management and marketing. Furthermore, he has deep expertise in the consumer goods industry.

Expertise

    • Revenue Growth Management
    • Business Strategy & Transformation
    • Business Turnaround
    • Innovation Management

Education

    • Master of Philosopy in Business Research (graduated cum laude)
    • Master in Business Administration (graduated cum laude)

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