Freebies better than discounts, study says

Posted July 02, 2012 |

A new study of buying habits has found consumers prefer to receive free, added extras instead of price discounts because they struggle with discounting fractions.

The ‘When More Is Less’ paper was published in the Journal of Marketing and employed in-store experiments, surveys and a lab study to discover consumer thought processes prior to discount or special offer purchases.

Overall, consumers preferred to shun percentage discounts where possible and demonstrated poor comprehension of the true value of special offers.

In one experiment, the consumer study group rated a 50 per cent increase in quantity as superior to a 33 per cent discount, despite the two offers being equivalent. Further, in an in-store exercise, researchers sold 73 per cent more hand lotion when it was placed in a bonus pack compared to a lotion with a comparable discount.

The findings came as no surprise to Marketing Focus managing director and regular Jeweller columnist Barry Urquhart, who said customers rarely understand and consider retail promotions thoroughly.

“Australia is the fifth most literate society in the world,” he said. “We can read but we don’t read, we read selectively, we read headlines, but seldom read and comprehend the full nature of an offer. Many people are also financially illiterate with statistics, money and prices, and don’t really understand discounting.”

Urquhart said these attributes meant customers based purchase decisions on emotional factors instead of rational considerations, which explained the study’s findings.

“Seventy per cent of purchases are based on emotion, not rationality,” he said. “In the eyes of the customer, it is more rewarding to get more than to pay less. It turns the old marketing adage ‘less is more’ on its head. It’s emotional, not rational. All jewellers need to understand that the marketplace is being driven by sentiment, not economic or financial fundamentals.”

Urquhart believed using discounting as a main promotions strategy was flawed because it ultimately threatened to hurt the brands being discounted.

“We’ve come to conclude that the thing that is discounted most when prices are discounted is the brand value,” he said. “I think jewellery retailers have got to take the focus away from price and focus on value, and customise and individualise every offer for the customer. Tell customers ‘you will be satisfied with the value you will get’.

"Jewellers are saying to me ‘if I get more people in store, I can sell them more product’,” he added. “The art of retail selling still resides with the jeweller and the retail staff, don’t think you can be passive and make advertising do the work for you.”

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