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Data Analysis And Interpetation: Buy One Get One Free

2547 words - 11 pages

The value of a rupee to each consumer is different, i.e in economics terms it is said that marginal utility of money for each consumer is different. Therefore it makes it difficult for the marketer to make consumers part with their money. Before Flipkart, e-commerce was done by credit /debit cards, where the payment had to be done on the time of placing the order. Offering high discounts (which is a common in e-commerce) many considered this risky and a potential fraud. Well, it's in the Indian mentality. No one likes to pay the entire payment in advance! Here retailers should know that delaying ...view middle of the document...

Suppose we see the example of bags sold at Flipkart. The price of one bag at Flipkart is 199 is bought as a single piece. But now Flipkart places an offer of buy-one-get-one free on the same bag and now it is priced at 299. What this offer does to the minds of the people is that they feel they are getting the bags at half the price because of the one plus one offer. What the consumers do not see is that as compared to the single piece price, the consumers are now actually getting only a 25 percent discount on the bags and they are doing nothing more than filling up the profit bags of Flipkart.

Single piece 80 199 119
Buy-one-get-one 80+80=160 299 139

One can say that this is just clever marketing by understanding the behaviour of the consumer of hoe he will respond to the word “FREE”. Behavioural economist Richard Thaler has noted that consumers are really bad at making decisions and they are useless at fractions. In this case consumers feel that they are getting a 50 percent off on bags just because of the offer of buy-one-get-0ne free whereas this is not true. This is the numeric blind spot of the consumers which has been perfectly targeted by Flipkart.

Introduction of a third decoy option by the marketers can make the consumers more likely to choose the option what the marketer secretly wants them to choose. This is called decoy effect or the asymmetric dominance effect. The decoy effect or asymmetric dominance effect is the phenomenon whereby consumers will tend to have a specific change in preference between two options when also presented with a third option that is asymmetrically dominated. An option is asymmetrically dominated when it is inferior in all respects to one option; but, in comparison to the other option, it is inferior in some respects and superior in others.

For example, on Flipkart, there is a consideration set of products of hair color and shampoos given as below:-

PRODUCT Loreal Shampoo
(A) Loreal Hair Color+ Shampoo
PRICE Rs. 225 Rs. 529

Here Flipkart might observe that consumers might choose the first option (A), although the second option is preferable to the marketer. But now as we see the Flipkart page the sellers have added a third option to the product line with the two already existing options, shown as below:-

PRODUCT Loreal Shampoo
(A) Loreal Hair Color+ Shampoo
(B) Loreal Hair Color
PRICE Rs. 225 Rs. 529 Rs. 529

As expected no one would choose the third option (C) but one would think that why such a option is added although the sellers know that no one would choose this third option.

The addition of the option C which consumers would presumably avoid, given that a same price can be paid for a better package B, causes B, the dominating option, to be chosen more often than if only the two choices in Consideration Set 1 existed. C affects consumer preferences by making option B look more attractive. The asymmetrically...

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