FRBuyer: To BOGO or Not To BOGO
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
"Some BOGOs make sense, and some should be avoided."
That’s the view of Jim Hertel, managing partner at Willard Bishop.
BOGOs (buy-one, get-one offers) work best, he explains, when you have expandable consumption products. By that he means products you’ll consume more of if you have them around the house, such as ice cream novelties, perhaps.
"One of the sillier things I’ve seen was a BOGO on 625-count cotton swabs. So if you bought that, you’d go from having a 10-year supply to a 20-year supply. That’s a pretty ridiculous example, but it illustrates the point that BOGOs should be about increasing consumption," Mr. Hertel notes.
These promotions can move a lot of volume, but they are frequently overused and there are dangers involved.
"It’s a slippery slope," he warns. "Sometimes when retailers BOGO a category, they let their EDLP (everyday low price) creep up too much over time. Let’s say a $2.99 EDLP on an item works its way up to $3.49, so there’s less investment in price and it doesn’t hurt as much. Then you get hooked on selling two for $3.49 — most retailers blend out to a margin on a category or product over time. But if they keep raising the EDLP higher and higher, they get stuck there."
If you aren’t disciplined and purposeful in choosing items to BOGO, things can get out of hand and you’ll become addicted to the volume. Then you’ll need a tough course correction toward the end of the year, according to Mr. Hertel.
But BOGOs and deep promotions can certainly pay off in some circumstances, Mr. Hertel states. He’s seen shredded cheese promotions that drove volume on the promoted items as well as helping produce significantly bigger baskets. This type of merchandising may also be valuable in bringing in "swing shoppers" who split their food shopping between you and a competitor.
Dan Raftery, president of Raftery Resource Network, is somewhat of a skeptic over the longer haul, especially as the growing number of empty nesters tends to buy smaller-size products, or fewer of them at once. Increased concerns over portion control may also conflict with BOGOs. But he says BOGOs are tried and true and can work well.
"Don’t go with too much of a giveaway or with the top sellers in a category that move quickly anyway," Mr. Raftery advises. "Go with products that have mid-level volume, and make sure your vendor support is adequate."
Discussion Questions
What are the pros and cons of BOGOs in grocery and other retail channels? What common mistakes do you see in orchestrating such promotions?
Discounts are the lazy marketers way of moving product. Discounts are fine if you’ve overbought or are using them to reward those on your loyalty program, but many use them because it provides a temporary lift. The collateral damage is teaching your customers to shop price each and every time and further erode your own brand equity.
“Vendor support” translates to “make sure someone else pays for the discount than you.” Fair enough, but at some point, aren’t you just losing money in hopes the customer offsets it with other merchandise? And with the advent of coupon hoarders, aren’t you just playing into their hand rather than building a compelling brand time and time again? I think so.
I might be in agreement with Dan on this one. However, I think 50% off is a lot more compelling then to buy one and get one free. But then again, I am one of the empty nesters who may not need a 20 year supply of anything.
As a consultant and business development professional on the branded side of the business, I am not much a fan of the BOGO because in most cases, it does nothing to grow the business. In fact, what it really does is to take the consumer out of the market for a longer time. Certain promotions are for lazy promoters and I submit that the BOGO is the laziest of them all.
BOGOs may provide an instant lift in sales, but they don’t sustain loyalty or promote trial. They can be used to pantry load and counter a competitor’s sale. BOGO is not a good long-term marketing tactic, as it trains consumers not to respect everyday pricing.
It may be true that BOGOs are for “lazy marketers” but it’s also true that many retailers have to promote like this to have a chance against Walmart, when head-to-head price comparisons won’t work. Publix has their BOGOs right at store entrance and makes a strong point about offering them in their radio commercials. For an upscale supermarket operator, they can make sense because they make the statement that there are deals to be found, while also offering a superior shopping environment.
Buy one get one promotions act to load consumers with more product than they would normally buy in a single purchase occasion. As a result, consumers are effectively “taken out of the market” for that product until they work through the product they have already purchased. As the article indicates, this works well for products where consumption is elastic – where consumers can vary their consumption rate in response to having more of the product in-house. For products that are inelastic in consumption (e.g. toilet paper), consumers are effectively taken out of the market for twice their normal purchase cycle.
Retailers must think about the strategic reasons to execute a buy one get one promotion, and effectively lower their net margin per unit in exchange for loading consumers with more units. In addition to using these promotions where consumers can vary their usage rate, retailers can also use this strategy to take consumers out of the market in the face of aggressive competitive activity.
BOGOs are the by-product of the infertile lazy mind. As the key component of American population ages, it needs less consumable product daily—save for personal items beyond 625-count cotton swabs.
When “smart” folks orchestrate such promotions, it isn’t music of the night but melodies of hope—hope that enough consumers still believe that hoarding saves money in an age when stores are open almost every hour of every day of the year. Such hope deceives more people than creativity and cunning can.
Jim Hertel is correct in his assessment that BOGOs work best on expandable consumption products. However, BOGOs can also be applied to products and categories with a significant amount of brand switching to either protect share or have the customer consider an alternative.
While there may be benefits to the brand, keep in mind, when used this way by retailers, BOGOs are merely temporary volume builders subject to wash (at full price) in the ensuing period. In addition, it tends to commoditize these categories, resulting in little real category growth.
On most BOGO items many retailers just ring the items at half price, e.g. Giant Eagle, Harris Teeter. Especially for relatively perishable items the only people who might be interested in BOGO are “Brady Bunch” size families.
One evening at Kohl’s looking at belts that were buy 1 get one 50% off I remarked that I had no use for two. The Kohl’s clerk said, no problem, we’ll ring one at 25% off. Sale made.
I know of no better way of destroying a brand and eroding shopper price confidence than BOGO. Once in a while may not spell disaster, but when it becomes your unit driver, you are pretty much done. Remember you have to double unit volume just to hit base sales. BOGO along with 10 for 10 hurts category AGP and undermines the brands supporting the category and the retailer. As many have repeated, it is the lazy way of promoting and the toll over time is very costly.
Some common mistakes are listed in the article. I think retailers and CPG brands need to coordinate these offers better than most currently do today. Keep the offers relevant and appropriate for the shopper. However, these are basic rules for all promotions.
BOGOs still have impact in most markets. I think effective promotions of this kind still have a place in global markets, both in mature and growing regions.
True, many of the BOGO programs are filled with items at inflated prices so that the savings on receiving two for the price of one is a misnomer at best, a deceitful practice at its worst.
But for those retailers who do it right, many are beginning to cut back on the number and breadth of BOGO events as it is increasing difficult to garner sufficient profit from these events due to the depth of the markdown necessary to truly offer a BOGO at a competitive base price.
Consumers do need to be cautious about the nature of these deals. If the base price is significantly higher than the regular price other competitors are offering on that item, it should be a “red flag” that the deal is really not as good as advertised.
On the other end of the spectrum, contrary to trend, Publix has moved BOGOs to the forefront of their merchandising mix. Publix more often than not provides a true savings on BOGOs and a quick comparison to the BOGO promotional price to that of Walmart or other price leader is a good check for shoppers to understand if the deal is worthwhile. “Caveat Emptor” applies with this promotional technique, just as it does with all others!
Working on in-store programs for the last 4 years with over a dozen retailers and 30 national brands has taught me a lot regarding the merits of BOGOs and other promotional alternatives.
Big Y is king of the BOGO, in fact they often promote Buy 1 Get 2 Free. If that isn’t pantry loading I don’t know what is. Yes, you move the volume, but at the same time you take those consumers out of the mix for weeks if not months (As Jim stated maybe years).
Publix runs an interesting BOGO program that promotes their private brand. Buy 1 national brand get the PB of the same item free. Interesting since it builds trial of their PB. That said, mayonnaise is mayonnaise and if you have 2 in the pantry you won’t be buying any for some time.
Rather than a BOGO why not build combo deals that create meal solutions? I saw Mission drive huge volume of their tortillas by creating a Buy 2 Mission Tortillas get Stop & Shop shredded cheese for free.
Why a combo/meal solution is a stronger program:
No question, BOGOs have their place. But too much of anything is never healthy. Mix in a few combo/meal deals and watch what happens.
Unless it is a true BOGO from the manufacturer, I do not use this advertising style. It is misleading, as most stores raise the retail to do this, and it causes mistrust. I have seen this in stores’ meat ads which is even more ridiculous, as a London Broil is sold at $7.99lb, and then the next one is free, and my everyday price is $3.99lb.
I’ll price things at a single red hot special, and show the savings vs. our regular retail, which does a very efffective job of moving product, without consumers questioning the actual retail. They generally will buy more than 2 of this deal anyway, which is the goal for running the ad in the first place.