Know-How Exchange : Student Questions

The price per product for 30% discount is greater than a buy one, get one free. Given normal price elasticity, consumers would be likely to buy more at a buy one, get one free price tactic. The price per product at 70% discount is less than buy one, get one free. Again, under normal price elasticity, consumers would buy more product under the 70% discount tactic. The price per product is the same with a 50% discount and buy one, get one free. However, with buy one get one free, in the short term, the producer gets twice as much revenue and reduces inventory by twice as much. You'd think that this is great from the producer's side, right? Discount tactics and buy one, get one free tactics both have the side effect of creating lower consumer price expectations. Instead of paying full price, they will wait for the discount. Long term, they act as price permanent price reductions. The buy one, get one free tactic can has an added side effect of slowing consumer buying after the event because they have a stockpile of product. For most products, most likely the consumers wouldn't use up the product twice as fast, after all. Think about products like paper. There are exceptions. For products that spoil with time, the consumer must use twice the product in the time, doubling consumption. Think product like milk.

Discounts and buy one, get one free tactics have usefulness. For instance, if a producer has a big stockpile of product that has been redesigned with new features, then getting rid of the old product will require some discounting because the consumer won't want to buy the old product any more. The permanent price reduction doesn't enter into it because the lower price is for the old product. Consumer demand for the new product remains mostly unaffected because the new product has new features that the consumers want. There will some effect because buying an old product will delay some consumers from buying the new product. In the long run, however, the producer makes out.

I hope this helps.

Wayde

Buy 1, get 1 free is equal to 50% off.

We use a straight discount such as 30, 40, 50% off for items that are normally purchased or consumerd one-at-a-time. An example would be an oil change for your car.

Buy 1, get one free is more approriate for items that people normally buy multiples of. This is intended to capture more of their budget at the time of purchase to increase consumption. An example would be canned soup at the grocery store.

Good luck
JohnnyB