Sales promotions that offer either price discounts or free goods (premiums) are often used to entice customers to buy products. But which is better?

Every family has one or two bargain shoppers—always looking for discounted products, and priding themselves on never paying full price. So, logically, marketers would assume that discounting prices in periodic sales gives their customers what they want. Right? Well, as often happens here, we must disagree.

Research is actually showing that, while sale prices do draw customers in, from the standpoint of long-term brand equity, companies are better off offering a premium rather than a price discount —  at least once in a while, anyway.

The reason? Apparently, consumers “incorporate” a price discount into the product’s regular price, making it look less expensive overall. (Once they see it marked down, they remember that lower price, and keep watching for it to return.) Because customers often make price-quality inferences like this, they may actually start to discount the quality of the product over time in their minds as well.

Free premiums, on the other hand, apparently enhance the overall value of the product. (For instance, that bottle of free conditioner packaged with the shampoo adds value to the regular price.)

The Point: Give ’em something to remember. Sales are fun, but occasional premiums are better for maintaining brand equity over time, because consumers see them as an added value.

Cheers, Skip

Source: The Price of “Free”-dom: Consumer Sensitivity to Promotions with Negative Contextual Influences. Sucharita Chandran and Vicki G. Morwitz. Journal of Consumer Research, 2006.