For several years of my professional life, I spent a lot of time thinking about mulch.
Mulch was one of our highest volume items at Scotts MiracleGro. It sold during a narrow period of time in the early spring, when gardeners across the country would mulch their flower beds.
The peak season for mulch rolled up across the country, starting in Florida in February and reaching the upper Midwest and New England in late April or early May. Each city only had a few peak weeks. Even without a sale, those peak weeks saw 3x to 5x the mulch sales as the weeks before and after. But if we worked with our retail partners to do a 4 for $10 or 5 for $10 sale on mulch, we could easily see unit volume go up 6x to 10x higher than even the high seasonal peak would normally suggest.
All this made it very important to determine whether your promotion was working, or you just had good weather. I myself built the first couple versions of our seasonalized sales-at-list prediction model which would allow us to measure promo effectiveness. But as we tried to refine it further, I eventually hired a data scientist to build a more robust version.
This may seem like a lot, but having a seasonal demand model is really important to figure out if investing in a promo is working. When I was at Wendy’s I discovered that the reason we thought $1 Frosty promotions drove a lot of incremental sales was just because we ran them in the summer months, when sales were high anyway.
But I digress.
Once we could measure how many additional bags of mulch the garden centers sold when mulch was on sale, we started digging into the really interesting question: what kind of promotional offers were most effective.
For instance, it turned out that “5 for $10” increased sales more than either “$2 per bag” or “50% Off” even though all three offers were exactly the same price.
In fact, even "4 for $10” was as effective as “$2 per bag” or “50% Off”, even though it was actually a higher price per bag.
Why?
The 5 for $10 offer was hugely effective because it not only was clearly a low price, but it made it easy for people to think about how much they wanted to spend and how much they needed. Not everyone is great at mental math, but basically everyone is good at multiples of 5 and 10. Do if you knew you were prepared to spend $50, you bought 25 bags. Or if you thought you needed 50 bags, it was easy to figure out that would be $100.
We tried 6 for $12 at one point, but it did not perform as well. I think perhaps because people weren’t quite as good at multiples of 6 and 12.
I was reminded of this over the weekend, even though we’re still far too frozen here in Ohio to be buying mulch yet, because my mom had taken a picture of a sale tag at the supermarket for me.
Under the cans of soup, it said, “Buy 3, Get 2 Free”.
“Why do they do this?” she asked me. “It’s so confusing to figure out what price it is.”
As it happens I know exactly why they do this.
If you’re in the business of figuring out how best to spend your promotional dollars as a consumer-packaged goods manufacturer (of which canned soup makers are a classic example) you eventually want to experiment more than just doing things in store allows. (You could ask your retailers if they will let you break their stores up into test cells and try different things, but it makes a lot of extra work for them, so they will usually refuse.)
The solution is to use an online offers testing service, where you offer consumers ads with real live offers that convert into coupons they can use in-store. The service shows different consumers different offers, and they help you measure which offers are most effective.
It turns out that getting things free is something that really excites customers. So “Buy 2, Get 1 Free” is more effective than “33% Off” even though those are the same offer.
There are two things that make “Buy 2, Get 1 Free” work: first it has the magic word “free” in it. And consumers love getting something free. But also, if the sale sign says “Buy 2, Get 1 Free” (even if in small print underneath it says that actually this means that every single item normally sold for $3 is now $2) consumers will naturally buy 3 or 6 or 9 of the product.
Why a promotion which says, “Buy 3, Get 2 Free” rather than simply saying “40% Off”?
Because people will buy in increments of 5, and 5 is probably more than they normally buy.
The whole point of volume-based promotions like this is to get the customer to buy as many items as possible. And when it comes to a consumer product like canned soup (or even more so something like mulch) if you buy more, you use more.
With mulch, it’s simple. You aren’t going to save it for next year. If you buy less mulch, the layer of mulch on your flower beds is thinner. If you buy more mulch, the layer is thicker. However much mulch you buy, you will use.
For other consumer products the relationship is more flexible. If you are very conscious about how much you eat, it might be that more cans of soup or bags of chips in the pantry means that you simply take longer to work through your stored food.
But my family is pretty typical of consumers: If I buy five boxes of cereal instead of three, or four bags of chips instead of two, the family will eat all of them before the week is over. Availability means consumption.
Each brand should do their own testing, but in general, promotions which suggest higher and easily calculated unit consumption are going to drive more incremental units than promotions that just talk about price. And more incremental units will usually mean more units for the year as a whole. So long as you set up your promotion so that more units means more profit for you, you are better off.