How does the concept of “Buy one get one free” works in marketing? How does this strategy prove profitable for companies?
In: Economics
Most of the other answers are good but miss something.
A lot of bogof offers are on items near end of life, and this offer can get some value out of it rather than discarding.
Most products cost considerably less to make than to buy. For example a £5, or your chosen currency, item likely costs £2 to make or less. So on every day the company makes a £3 profit. BOGOF promotions persuade people to buy 2 of a product for £5, they’re still making a £1 as the production cost would be 2x £2 =£4. This is effective as people that wouldn’t previously buy the product, see an incredibly good deal and the company will increase sales.
Ever wonder why they make you walk past all those shelves to buy something?
People aren’t good with the small purchases. By offering 2 for the price of one supermarkets are trying to entice you by making you think that you’ll be saving (which you are) but by buying that, they make profit by making you buy something which you normally wouldn’t buy.
Furthermore they lure you into their shop, like bait lures a fish, past all their shelves. Then you see and scoop up all their other discounts, making them even more money.
TL;DR it’s a supermarket ploy designed to make people impulse buy.
Most retailers make about a 50 percent profit on one item. Advertising and selling you 2 items makes their revenue look larger in general, which is good for them, and helps them get larger volume discounts from their wholesaler, and they still make that 50 percent on that second item.
As each product is priced, it’s priced with the outgoings in mind + extra to make profit. So production + transport + shop bills etc + profit = total price. Usually before a buy one get one free offer comes on, the price will be increased to inflate the profit %. After a little while, the BOGOF offer will come on for a short period of time and be heavily advertised such as front shelves of supermarkets & adverts & shopping magazines etc. Then once the promotion/offer is over, the hope is that more people will continue to buy it when the price goes back to normal.
If they are already ripping you off at the msrp then its easy to cover costs of two and still make a profit.
Option 1. The cost of the two items is profitable or at least breaks even, at the sale price of 1 (ie it costs the seller $1 for one item they the sell for at least $2)
Option 2. Loss leader- you come in to buy the special and walk out with other items that are more profitable.
If you know say a supermarket often has lots of buy one get one free offers, you are more likely to go there to pick up the deals (which essentially sell at cost or just above, so no loss for the company), however you’ll do all the rest of your shopping there as well. So it’s simply to entice customers to come through the door, pick up some deals, and then spend full price on everything else they need
You can raise the price to compensate somewhat, ie. meat that’s usually $5-6/lb sometimes goes on sale for $2.99/lb and other times it might be $8/lb and buy-one-get-one, so it’s still $4/lb during that same, which isn’t even the lowest sale price.
And many products have huge markups of more than 100%, so that $20 t-shirt might have cost the store $8, and even at BOGO they still make profit.
Plus, it’s often used as a loss-leader, ie. sell you shirt at cost to get you to also checkout and hopefully buy the higher margin jeans.
And then there are brand acquisition goals. Lire somebody to try your product due to the deal, and then shift their brand preferences and they keep buying even at regular price.
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