V/S
Its festive season again and we see a flurry of offers in departmental stores and on ecommerce websites. The retailers (online or offline) offer freebies, insane discounts, and cashbacks.Now, how do such offers compare against each other from the perspective of buyers (i.e., the end-consumers) and sellers (i.e., the retailers or manufacturers)
100% Off v/s BOGO
Let's compare two typical offers... 100% off and Buy One Get One (or BOGO)
For the customers:
As far as 100% off is concerned, the customers pay half the actual rate of the item and may end up purchasing multiple units of the item, due to the discount. However, frugal customers may just end up buying according to their usual requirements. The 100% off (or rather any discount) may help the customer save some money at the cost of the seller.
On the other hand, BOGO offers bundle products together for the customers, even though the bundle as a whole may not be required by the customer. The customer may perceive value in the offer, but actually the customer may be tricked into buying two units of the product instead of just one (which may be the required quantity). Further, BOGO may not generally be combinable with any other offer or discount. The customer may thereby have to pay the entire price of the single unit of the product.
Thus, 100% off may be more budget friendly for the customers as the customers may actually save some consumable money, while BOGO may encourage the customers into stock piling and may lead to an expenditure, which may be in excess of the budget.
For the retailers/manufacturers:
In case of offers such as discounts (such as, 100% off) and cashbacks, the retails may end up cutting their bottom lines to trade off with an increased top line. Offers like 100% off may drive sales and increase revenues, however, cost per unit may increase, which may affect the bottom line.
BOGO offers may not increase the top line as much, as the revenue may remain the same or marginally increase due to the offer. However, as the units may be sold in bundled packs, the quantity of units sold may increase. Considering efficiencies and cost reduction from economies of scale, the cost of manufacturing or marketing of the bundled packs may be lower than that of the two individual packs of the product. Also, package bundling may help stock clearance by reduction of dead stock. Hence, the bottom line may increase.
Thus, discounts and BOGO type offers may have different effects on the top line and the bottom line for retailers and manufacturers. While discounts may drive sales and affect the top line, BOGO type offers may help increase the profits, i.e., the bottom line.
I have started writing blogs very recently and this is my first blog after a very long time. Will try to cultivate this habit about writing blogs on technical and economical topics. Please feel free to let me know your views on this one. Please note that the above is my personal opinion and I am no expert in economics. This is just my perspective on the topic.
Thank you,
Have a nice day,
Subin
