May 28, 2008
BOGOFs Bounce Back
By Bernice Hurst, Managing Partner, Fine Food Network
“Every day low prices” and “every little bit helps” are straplines for two of Britain’s biggest supermarkets. As consumers are struggling to make ends meet and adjust to what has been called the end of cheap food, lower prices were allegedly going to replace special promotions.
According to trade magazine The Grocer, however, the idea was short-lived. Buy-one-get-one-free (BOGOF) deals reappeared within weeks of analysts announcing their demise.
The Daily Telegraph reported that The Grocer’s survey of promotional items revealed BOGOFs totaling one third of all offers on the weekend of May 10 and 11, up from 19 percent in the first three months of the year. During the first quarter, Tesco had reduced the proportion from 36 percent to 12 percent. Sainsbury’s apparently stuck with them, though, increasing its percentage of BOGOF promotions from 30 percent in the year to date to 65 percent for the weekend studied. Other supermarkets were following Sainsbury’s lead, according to The Grocer.
“Despite BOGOFs having shown signs of declining in popularity in other multiples, last weekend Tesco, Morrisons and Somerfield all had BOGOF as their primary mechanic,” The Grocer reported.
During the previous week, several retail industry experts had predicted the demise of BOGOFs. The analysts felt pricing would shift to straight price cuts as consumers seek to control their overall spending and look for ways to cut down on food waste.
By way of explanation, The Daily Telegraph attributed the return of BOGOFs to the credit crunch, which has increased the need for stores to entice shoppers to part with their money.
Discussion Questions: What do you think are the pros and cons of BOGOF (buy-one-get-one-free) offers? What is their impact on traffic and margins?
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BOGOFs are a never ending spiral that diminish perceived product value, decrease margins and blow out trade spend.
Great offers are only that if they happen infrequently and are exclusive to your banner. When every main retailer has BOGOFs every week, the only winner is the consumer as the offer is no longer differentiated and consumers will pantry stock and buy nothing at full price.
BOGOFs fit into the same category as loss leaders–promotional types that as suppliers we’d avoid if given a choice as they just add to the squeeze already being applied from retailers.
BOGOF offers have been a staple of UK retailing for years. I’m surprised that retailers thought that they could get rid of them by switching to an EDLP strategy. Remember that couponing is not big in the UK, so that tactic is not widely used the way it is in the US.
As with any promotional tactic, it waxes and wanes in usage. In these troubled economic times, any tactic that brings consumers into stores is welcome. I don’t see BOGOFs going away.
BOGOFs are a great idea if they bring in traffic and increase total ring and profits–it is an empirical question, not an opinion question. We might assume it is more successful with items that have a longer shelf life (not subject to spoilage). But retailers need to understand whether they are using this tool to give consumers value, increase the traffic and make up for lost profits, for competitive purposes, etc.
BOGOFs are at the extreme end of price promotions. BOGOFs serve only 2 purposes in retail operations. Firstly, they can be an effective tool in clearance markdowns. Nothing blows out old inventory like a BOGOF. Secondly, they are used as excitement and traffic generators. We hope that the traffic coming in is NOT of the cherry picking variety.
As a loss leader, BOGOFs generally kill margins and increase cost of goods sold BUT, with proper merchandising and staffing, retailers can and should shield themselves with a high margin, high velocity product in and around the BOGOF display. A few weeks ago, a large pharmaceutical chain here in Canada was selling Colgate toothpaste as a BOGOF. Every store was mandated to bin their private label toothbrushes within the end display. Excellent add on and huge margin maker, so it takes some of the sting out. BOGOFs are an excellent way to drive traffic but a strong merchandising plan is needed to protect margins and convert cherry pickers into upsells.
BOGOFs definitely build sales and traffic–up to +800% for a brand, and +150% for the category. The downfalls of running BOGOFs on national brands: it kills sales on everything else in the category, and overall category profit can even be negative. And usually the hardest hit brand is private label.
I like Nikki’s idea for running a private label as the “second one free”–but who pays for that? Typically it’s the supplier who pays for most (or all) of the BOGOF, so I’m not sure how that works with a Private Label offer.
Another option is to run smaller sizes on the BOGOF, so that the sum of the price for two is not as good value as the large size price of the same brand/flavour. Then consumers may trade up to the large size, and realize that there’s great value in the large size (and typically also more profit for the retailer).
It’s important to use BOGOF for categories/items that draw traffic for retailers, not ones that are made as purchase decisions in the store (that’s when retailers are “giving away” the product). All you do then is establish price expectations with the consumer when they go to purchase the product in the future.
In the produce department, BOGOFs are less appealing to consumers than bigger volume discounts, such as 10 navel oranges for a dollar. Particularly, BOGOFs seem a bad fit for highly sensitive or perishable items like berries.
Many consumers are just as apt to buy berries at a 25% discount using a shopper loyalty card as they are to buy them as a BOGOF.
Well, there’s BOGOFs and then there’s BOGOFs. The most brilliant one that I have heard about is one that Publix did, where if you bought a nationally-branded item, you got the Publix private label brand for free. The consumer gets twice the value, and Publix gets an opportunity to have their private label stuff compared to the national brands where it matters most: on the dining room table. Has anyone heard how that promotion has impacted their private label sales? The only thing I’ve heard is that they are adding it to their arsenal of promotions on an on-going basis.
Ditto to KWagar. As a former Retailer and a Category Manager, my former mentors would be turning in their graves even discussing a BOGO. The suspicion created in the mind of the consumer about retailer margin is only one aspect. Pantry Loading, Activity Based Costs, and the cannibalization of the profitable segments of the category only add to the lists of why not? I think back to my days as a Manager Trainee and the philosophy that anyone can give it away.
The views expressed here about BOGOFs and their useful life are well-stated. They can be good traffic builders…but they can also be terrific margin breakers.
In the UK, where laws regarding promotion of price are quite limiting (especially within pharmacy where we apply our category management expertise), BOGOFs were a staple. Not surprising–in a down economy–their re-emergence. They’re trying anything to create excitement and drive sales.
I would love to see empirical data that shows BOGOs increase traffic and overall store sales. There is no question they move vast amounts of the target item but they also cannibalize the sales of competing items and often take the consumer out of the market for the targeted item for some time.
In 15 years of category management data analysis and statistical modeling I have yet to find a correlation between BOGO promotions and overall dollar sales and or store traffic counts.
Trying to blunt the profit impact of cherry-pickers is like trying to hold back the Atlantic Ocean with a really big spoon. Smart retailers make peace with other and don’t enter into no-win price wars.
Consumers have always told me that half price specials are always clearer than BOGOS. In addition, there are many consumers who prefer to buy only one item rather than being forced to purchase two or more if they need only one item. This is especially true for singles and senior citizens.
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BOGOFs are a never ending spiral that diminish perceived product value, decrease margins and blow out trade spend.
Great offers are only that if they happen infrequently and are exclusive to your banner. When every main retailer has BOGOFs every week, the only winner is the consumer as the offer is no longer differentiated and consumers will pantry stock and buy nothing at full price.
BOGOFs fit into the same category as loss leaders–promotional types that as suppliers we’d avoid if given a choice as they just add to the squeeze already being applied from retailers.
BOGOF offers have been a staple of UK retailing for years. I’m surprised that retailers thought that they could get rid of them by switching to an EDLP strategy. Remember that couponing is not big in the UK, so that tactic is not widely used the way it is in the US.
As with any promotional tactic, it waxes and wanes in usage. In these troubled economic times, any tactic that brings consumers into stores is welcome. I don’t see BOGOFs going away.
BOGOFs are a great idea if they bring in traffic and increase total ring and profits–it is an empirical question, not an opinion question. We might assume it is more successful with items that have a longer shelf life (not subject to spoilage). But retailers need to understand whether they are using this tool to give consumers value, increase the traffic and make up for lost profits, for competitive purposes, etc.
BOGOFs are at the extreme end of price promotions. BOGOFs serve only 2 purposes in retail operations. Firstly, they can be an effective tool in clearance markdowns. Nothing blows out old inventory like a BOGOF. Secondly, they are used as excitement and traffic generators. We hope that the traffic coming in is NOT of the cherry picking variety.
As a loss leader, BOGOFs generally kill margins and increase cost of goods sold BUT, with proper merchandising and staffing, retailers can and should shield themselves with a high margin, high velocity product in and around the BOGOF display. A few weeks ago, a large pharmaceutical chain here in Canada was selling Colgate toothpaste as a BOGOF. Every store was mandated to bin their private label toothbrushes within the end display. Excellent add on and huge margin maker, so it takes some of the sting out. BOGOFs are an excellent way to drive traffic but a strong merchandising plan is needed to protect margins and convert cherry pickers into upsells.
BOGOFs definitely build sales and traffic–up to +800% for a brand, and +150% for the category. The downfalls of running BOGOFs on national brands: it kills sales on everything else in the category, and overall category profit can even be negative. And usually the hardest hit brand is private label.
I like Nikki’s idea for running a private label as the “second one free”–but who pays for that? Typically it’s the supplier who pays for most (or all) of the BOGOF, so I’m not sure how that works with a Private Label offer.
Another option is to run smaller sizes on the BOGOF, so that the sum of the price for two is not as good value as the large size price of the same brand/flavour. Then consumers may trade up to the large size, and realize that there’s great value in the large size (and typically also more profit for the retailer).
It’s important to use BOGOF for categories/items that draw traffic for retailers, not ones that are made as purchase decisions in the store (that’s when retailers are “giving away” the product). All you do then is establish price expectations with the consumer when they go to purchase the product in the future.
In the produce department, BOGOFs are less appealing to consumers than bigger volume discounts, such as 10 navel oranges for a dollar. Particularly, BOGOFs seem a bad fit for highly sensitive or perishable items like berries.
Many consumers are just as apt to buy berries at a 25% discount using a shopper loyalty card as they are to buy them as a BOGOF.
Well, there’s BOGOFs and then there’s BOGOFs. The most brilliant one that I have heard about is one that Publix did, where if you bought a nationally-branded item, you got the Publix private label brand for free. The consumer gets twice the value, and Publix gets an opportunity to have their private label stuff compared to the national brands where it matters most: on the dining room table. Has anyone heard how that promotion has impacted their private label sales? The only thing I’ve heard is that they are adding it to their arsenal of promotions on an on-going basis.
Ditto to KWagar. As a former Retailer and a Category Manager, my former mentors would be turning in their graves even discussing a BOGO. The suspicion created in the mind of the consumer about retailer margin is only one aspect. Pantry Loading, Activity Based Costs, and the cannibalization of the profitable segments of the category only add to the lists of why not? I think back to my days as a Manager Trainee and the philosophy that anyone can give it away.
The views expressed here about BOGOFs and their useful life are well-stated. They can be good traffic builders…but they can also be terrific margin breakers.
In the UK, where laws regarding promotion of price are quite limiting (especially within pharmacy where we apply our category management expertise), BOGOFs were a staple. Not surprising–in a down economy–their re-emergence. They’re trying anything to create excitement and drive sales.
I would love to see empirical data that shows BOGOs increase traffic and overall store sales. There is no question they move vast amounts of the target item but they also cannibalize the sales of competing items and often take the consumer out of the market for the targeted item for some time.
In 15 years of category management data analysis and statistical modeling I have yet to find a correlation between BOGO promotions and overall dollar sales and or store traffic counts.
Trying to blunt the profit impact of cherry-pickers is like trying to hold back the Atlantic Ocean with a really big spoon. Smart retailers make peace with other and don’t enter into no-win price wars.
Consumers have always told me that half price specials are always clearer than BOGOS. In addition, there are many consumers who prefer to buy only one item rather than being forced to purchase two or more if they need only one item. This is especially true for singles and senior citizens.