The Journal of Marketing did a test where a store marked down a product 35 percent for a week, then offered "50 percent more free" for a
second week. Which promotion is the better deal? Explain.
Extra credit: Which promotion was prefered by customers?
Solution to the Problem:
The markdown is a better deal but the freebie attracts more customers!In the example above, the "50% more free" amounts to a 33.3% discount as opposed to the 35% discount.
Here is the article by John Matarese from which the problem originated:
Which is better: A markdown or a freebie?
Don't Waste Your Money
John Matarese
9:20 AM, Aug 18, 2014
Freebies or markdowns: which do you prefer? A report claims that most customers prefer the wrong one.
While most us love a sale, a new study finds that simply lowering prices doesn't get people to buy more.
But it finds that adding a free bonus does.
Shoppers ignoring lower prices
JC Penney made headlines in the past couple of years with a new everyday low price strategy. But shoppers, for the most part shrugged, and sales dropped 15 percent. Why?
A study by the Journal of Marketing claims shoppers prefer bonuses, like BOGO (buy one get one) to markdowns, or a small freebie like a scarf, bracelet, or even a free tube of lipstick.
It did a test where a store marked down a product 35 percent for a week, then offered "50 percent more free" for a second week.
The store sold much more with the 50 percent free promotion, even though it was not the better deal. The markdown actually was a better value.
Doesn't that stink?
And from the "doesn't that stink?" file, what this means to you. It means that stores have found a way to avoid huge markdowns, but still make you think you are getting one.
Doesn't that stink?
So next time you see an an ad promising a free scarf if you buy something, you'll know the reason.
That little freebie sells more products than a big markdown. It's all basic psychology.
Correctly solved by:
| 1. James Alarie * | Flint, Michigan |
| 2. Brooks Garris * |
Lake View High School, Lake View, South Carolina |
| 3. Stephanie Sanders-Williams | Reno, Nevada |
| 4. Rick Emmers * | Heiloo, Netherlands |