Consumers respond to the "Buy One Get One Half Off" (or BOGO 1.5) sales promotion because it gives an impression of savings and serves as an incentive for the consumer to get two items for one and a half price. Perhaps, rational consumers evaluate their choices and act systematically to achieve their objectives. Marginal changes are incremental changes to the existing plan of action. The rational consumer can precede a better decision when thinking of the margin. They only act if marginal benefit exceeds the marginal cost. If acting on the promotions, the consumers will receive a better value by purchasing the products. On the other hand, if the consumers choose to forego the deals then the promotion does not support consumers' objectives. …show more content…
Firstly, our example illustrates how people respond to incentive. In economics, an incentive is defined as any factor that provides a motive for a particular course of action. This example is exemplified in our first customer. Perhaps, the promotion encourages her to purchase an extra bottle of X shampoo now instead of later. By doing so, the BOGO 1.5 promotion can be classified as an incentive which ensures her decision. As she rationalizes her decision to purchase an extra shampoo, she demonstrates that everyone do respond to incentives. In contrast, the promotion does not have the effect on the second consumer because it does not provide incentive therefore not applicable to him and his choice as a consumer.
Secondly, our example also demonstrates how people think at the margin because each consumer evaluates whether the marginal benefit exceeds the marginal cost associated with the BOGO 1.5 promotion. The first consumer realizes that if she purchases the extra shampoo by paying for 50 percent (marginal cost) more now, she will receive her marginal benefit from not having to purchase another shampoo in the future. On the other hand, the second consumer would not use the X shampoo even if he purchased it. He shows no interest in such product. This explains why he does not gain any marginal benefits when his marginal
There is an example in Freakonomics shows the different incentives are complementary. For instance, the moral incentive has been taking place when parents were frequently late for pick up their children from Israeli care centres in Haifa and the moral incentive is that the parents will feel guilty and shameful due to their unpunctuality. Therefore, it does discourage parents from being late while economists decided to test their solution by enacting the bill which is paying $3 fine per child for the late arriving parents. In this case, economic incentive have been taking place by moral incentive because the feeling of guilt that parents felt was cheaply replaced by $3 fine. After the fine was enacted, it was supposed to dissuade parents from arriving late but the number of late pickups went up drastically. This shows that the incentive was obviously backfired. In this case, both incentives are complementary
They explained that: “Changes in incentives influence human behavior in predictable ways”. The main point of this concept is that the more attractive an option is the more likely an individual to choose it. Another point that they also focused on was the fact that if a particular product more costly, the more unappealing it will become to the consumer. They used examples such as employees will worker harder if they feel that they will be greatly rewarded or a student will study material that they feel will be on an
Managers in many cases are presented with sales incentives in a retail environment. These incentives may range from free products, to cash prizes, to trips, bonuses, etc.
* Incentives-a promise of a reward in the future, as a result of particular behaviour or achievement-the element of ‘if…then’.
“An incentive is a bullet, a key: an often tiny object with astonishing power to change anything”(Levitt 20). What professor Steven D. Levitt (a professor of economics at the University of Chicago’s dictum here is that the incentive has a lot of power in this world). And that the metaphor of comparing “incentives”to a bullet really speaks wonders to their strengths. They can change almost any situation by motivating someone to do something in a business situation, all the way to education fields. After many years of college, business and economics students are being taught how to be greedy in college. It is only a matter of time before greed is too powerful. Incentives and greed both have favorable and critical effects on individuals and the populace, but when connected together both can have dangerous effects on future selections.
The point of sale assessment depends on the consumer’s perceived shopping motives. Shopping motivation represents a fairly mature reach of research. Many retailers consider smart shopping comprises high sensitivity on process. Smart shoppers are always keen on getting a discount. Shopping on Black Friday is the consumer’s motivation. It gives them the excitement of the game. (look for competitive) Its part of the mystique, shoppers can celebrate their ability to get the best deals.
1. In Freakonomics, Levitt and Dubner built the book on the foundation of incentives. Incentives are described as a means of motivation that kick people to do more good or less bad in their daily lives. As the entire book hits the different types of incentives, economic, moral, and social, chapter one is the chapter that mainly focuses on economic incentives. Levitt and Dubner describes economic incentives by stating, “The chance of going to jail—thereby losing your job, your house, and your freedom, all of which are essentially economic penalties—is certainly a
In the book Freakonomics, Steven Levitt and Stephen Dubner note “An incentive is a bullet, a lever, a key: an often-tiny object with astonishing power to change a situation” (16). This is to showcase the amount of power an incentive can have over a person or a situation; either good or bad. Humans are found to use incentives when it comes to making daily decisions. Often, people need motives to proceed with their plans. Some tend to make either moral, social, or economic incentive. The moral incentive is about self-respect; keeping in check with what was taught to believe is right and wrong. The social incentive is how the public views the person; wanting to look good in front others. Economic incentive, however, would relate to monetary benefit. While all three incentives can affect people’s decisions, economic
Therefore, Chatime using psychological pricing strategy which is set those ending with nines or other odd numbers on all beverages to stimulate consumer demand and sometimes these are referred to as “just below” prices as they are often “just below” an even price such as RM1.99 vs RM2.00. For example, Chatime instead of charge RM6 for a milk tea beverage you might charge RM5.99 per beverage. Some consumers associate the price closer to RM5 than RM6 even though it is only one cent less and they may subconsciously be partially ignored. The theory that drives this is that lower pricing such as this institutes greater demand than if consumers were perfectly rational. Psychological pricing is one cause of price points to get more customers and the psychological pricing method helps Chatime build an impression of the brand without making significant changes to the product. Simply revising the pricing structure can make the product seem like the best on the market compare with other competitors or elevate the Chatime’s milk tea to the top of the available options. Although the price of Chatime’s milk tea is lower than competitors, customers are those who important of quality and price attributes will buy the products too. It is because customers are relatively insensitive to the product price. Customers willing to pay more for own
Multiple targeted promotion is used to lure customers. For example Single Use Promotion code (SUPC) is used specifically to target customers based on activity like abandoned cart, checkout drop, product view, customer review lookup etc.,
Best Buy has a Code of Business Ethics, known as “Code”. Their ethics code is followed by Best Buy Co., subsidiaries, agents, affiliates and joint ventures. If the Code is changed, it must be by a Board committee, the Board of Directors, executive officers, or directors. Shareholders are to be notified for the changes in a timely manner. Legal relationships are not defined by the Code; it is only used for business purposes.
Incentives are seen everywhere in daily life and they appear in a variety of ways. Whether a person is making a choice between what to eat for lunch or when to go to bed, they are being influence by incentives. For example, images of an appealing lunch meal in a TV commercial may make someone choose Subway over Mcdonalds. However, the same thought process can motivate someone to prefer a meal at McDonalds because of the company’s constant promotion of their “dollar menu” (Mcdonalds, 2013). Either of these incentives can appeal to a person, depending on what they are motivated by, in this case, either health or money.
In response to the profitability downturn, Tweeter began to carry more variety of products and joined the Progressive Retailers Organization in 1988. Unfortunately, public’s perception toward Tweeter remained unchanged. “Customers continued to view Tweeter as more specialized and more expensive than Lechmere and the other New England retailers”. In order to turn the profit around, the Tweeter’s management team came up with the new strategy on 1993 to restore price credibility at Tweeter. The main emphasis in their new strategy is “Automatic Price Protection”, APP. The objective of APP is to make sure customers are receiving the best price on an given product. “In its typical form, if a consumer purchased a product at one store and later found it for a lower price at another store, the consumer could return to the first store with proof of that lower price and get reimbursed for the difference”. Later on “Tweeter took it upon itself to track the local newspapers and send out rebates. If a consumer purchased an item at Tweeter and it was advertised for less in a major local newspaper within 30 days, Tweeter automatically mailed that consumer a check for the difference.” Tweeter’s shift in strategy was very effective and had a positive effect on financial
The bargaining power of customers is high. First of all, the customer size is tremendous globally, which also has an accelerating growth rate in recent years. Customers’ leverage is strengthening as a result of this. Another inevitable factor is that with countless retailors online, there is low switching cost for customers to find other alternative companies that suits their desire to conduct purchases. Moreover, consumers today are more sophisticated. Consumers are less commit to impulsive-buying, yet are more willing to study about product features and evaluate their options before purchasing online. Their purchase pattern can also be hard to learn too.
Buying: is when retailers purchase a large quantity of the product while it’s available at a lower price–to-retailer (PTR). It is somehow problematic because retailers could either raise the price-to-customer (PTC) back to the regular price level after the intended period of the promotion and pocket the difference, or they could continue to sell the product at a lower PTC beyond the intended period and thereby condition customers to expect prices to remain lower.