One of the most popular and most compelling sales promotion offers in retail marketing in particular is BOGOF.
This stands for Buy One, Get One Free.
Sometimes it is shortened to BOGO (buy one, get one) but I like the F. It makes it seem naughty but nice.
It’s also known as the “two-for” or two for the price of one offer.
Why BOGOF Offers Work So Well
As humans’ one of our most basic (and not very attractive) emotions is greed.
We naturally want more of a good thing.
If one bar of chocolate is good, two bars are better.
We also respond very eagerly to the word FREE.
It attracts our attention and, if we have any particular desire, it leads us into action.
For the retailer, it:
- Makes us more likely to buy. We assume we are getting a bargain. Some may see the one that is free, others may see both as the equivalent of half price.
- Makes us more likely to buy more than one pair. Remember the greed emotion where more is better. These BOGOF offers can tempt us to spend much more than we anticipated.
- Will encourage us to try new things which we might decide to buy permanently.
But the basic arithmetic for profit doesn’t look good
If the margin is 40% and the product is £1, then, the cost is 60p
Buy one, the shop makes 40p profit.
Buy two under a BOGOF offer and the shop makes a 20p loss (£1 sales revenue minus £1.20 cost of sales)
That doesn’t look good.
So what if the profit margin is 60%?
The sales price is still £1 and the cost is therefore 40p.
Buy one, the shop makes a profit of 60p.
Buy two, the shop makes a profit of 20p (£1 sales revenue minus cost of sales of 80p).
It’s profitable but the profit has dropped sharply.
How Does The Store Do It?
First the promotion is backed by the manufacturer or distributor.
The retailers costs are cut sharply.
Ideally the retailer doesn’t want the profit on the transaction to reduce.
That’s hard with a BOGOF unless there is some cheating.
Unfortunately it has become sneaky to increase the reference price of the single item for a few weeks before the promotion.
This is reference price manipulation.
If the store increases the price from £1 to £1.30, the arithmetic looks very different.
At a base cost per unit of 60p (without support from the manufacturer), the loss on the transaction of 20p turns into a profit of 10p.
At a base cost of 40p, the profit on the transaction jumps from 20p to 50p. That’s not much shy of the original 60p profit, so if the manufacturer puts 15p into the pot, the retailer is gaining.
How Can You Use BOGOF To Increase Sales?
- Be honest, open and fair to your customers. Don’t try to trick them with false deals because it can severely damage your reputation, and they may never buy from you again.
- Select your products carefully. High margin, popular products that people want are obvious but are there products that will encourage customers to buy other things, now or into the future?
- Get support from your suppliers.
- Promote it to attract new customers to your business.
The Other Use Of BOGOF Offers
Sometimes this form of sales promotion can be used to get rid of excess stocks and inventory.
If you’ve bought too much and you need to convert it into cash quickly, a BOGOF deal can motivate customers to buy.
It won’t work for all products.
Some things you don’t want two, for example, two new roofs for the price of one anybody?
Others you don’t want at an implied 50% pricing discount.
What Do You Think About BOGOFs?
Do you find these offers hard to resist?
What’s the strangest BOGOF offer you’ve seen?