Advertisement

The Magazine

Marketing

Making the Price of Indulgence Right

By Uzma Khan and Ravi Dhar

March 23, 2011

Want to increase sales of a bundle of goods or services that includes both pleasurable and utilitarian items? Research suggests that a discount will increase sales more effectively if it’s offered on the pleasurable item.

This article is free to subscribers. Subscribe today.

Three groups of consumers were offered an opportunity to buy a bundle of items — a box of chocolates and a set of binders — at a discount. Those who were told that the discount was offered on the chocolates were more likely to buy the bundle.

Offering consumers a price discount if they purchase a bundle of goods or services together is a common promotional tool. While conventional marketing practice has been to offer bundles that consist of complementary items — for example, a beverage, sandwich and French fries in a fast-food restaurant — the practice of offering cross-category bundles is growing. One reason: In online retail settings, technology makes it feasible for websites such as Amazon.com to bundle different types of products easily.

What happens when consumers face a bundle that consists of one item that is desired more for pleasure and indulgence — what we call a hedonic item — and one that is more practical and functional in nature? Three experiments we conducted, which were described in detail in the December 2010 issue of The Journal of Marketing Research, suggest that businesses considering offering such bundles will achieve better results if they associate the discount with the price of the more pleasurable, less utilitarian item in the bundle.

For example, in one study we offered consumers an opportunity to buy discounted products. The items were a box of chocolates — a pleasurable item — and a utilitarian set of three binders. The individual options were each offered at $6. However, an additional $2 discount was offered on the bundled purchase of both the items. Consumers were randomly divided into three groups. The first group was told that they could save $2 on the chocolates if they also purchased the binders. The second group was told that they could save $2 on the binders if they also purchased the box of chocolates. The third group was told that they could save $2 on the total purchase for buying both the binder and the box of chocolates. Although the amount of discount was the same across the three groups, the purchase results showed that the way the discount was framed had a significant impact on sales of the bundle. While 82% purchased the bundle when the discount was framed as savings on the hedonic chocolates, only 52% purchased the bundle when the discount was framed as savings

To reproduce or transmit one or more MIT Sloan Management Review articles by electronic or mechanical means (including photocopying or archiving in any information storage or retrieval system) requires written permission. To request permission, visit our online store (www.pubservice.com/msstore), call or e-mail:
Toll-free: 800-876-5764 (US and Canada)
International: 818-487-2064
E-mail: MITSMR@pubservice.com

This article was printed from MIT Sloan Management Review online: http://sloanreview.mit.edu/the-magazine/2011-spring/52304/making-the-price-of-indulgence-right/

Add a comment

FROM THE MAGAZINE

Spring 2012: Cover Story
Innovation

Achieving Successful Strategic Transformation

How companies successfully make major changes — without sacrificing financial performance.