Easter is the most wonderful time of the year. For a few glorious months each spring, you can buy Cadbury Cream Eggs, giant chocolate bunnies, and my personal favorite – Peeps. This particular spring, I decided to get an early start on my sugar-saturated celebrations and took an afternoon walk to the local grocery store, planning to buy a single Cadbury Cream Egg. To my delight, the eggs were on sale – two splendid eggs for the price of one. Like a bunny in a carrot store, I went crazy and walked out of the store with a plastic bag full of syrup-filled chocolate eggs.
When I awoke several days later from my sugar-induced coma, I realized that what I had done was the perfect demonstration of a pricing principle I had learned years earlier in business school. I had been enticed by a price promotion to buy large quantities of a product that I would consume according to its availability. In other words, as long as I had Cadbury Eggs on hand, I was going to continue to eat them. Certainly, I did not need the eggs and would stop consuming them as soon as they were gone.
These consumed-by-convenience products are the perfect candidates for price promotion because they entice people to purchase higher quantities of a product that they will not store for distantly future consumption. More durable, consume-as-needed products, on the other hand, are terrible candidates for price promotion. They merely entice customers (which would purchase anyway) to buy higher quantities at a lower price and store the unused portion for future consumption.
When I learned the principle, my marketing professor described the distinction as one between Coca Cola and toilet paper. Generally speaking, the amount of Coke consumed by an individual is in direct relation to the availability of the beverage to the individual. If they have Coke in their refrigerator, they will consume it. If they don’t have any on hand, they won’t consume it. Toilet paper, on the other hand, is not consumed in relation to its availability to the consumer. For obvious reasons, it is consumed only as it is needed.
Unfortunately, many companies fail to recognize the difference between these two types of products. As a result, they make poor decisions when it comes to price promotions. They either fail to reach potential sales levels for consumable goods or they facilitate the bargain-basement stockpiling of durable goods, stealing from future, full-priced sales. Either way, companies lose out on potential revenue.
Wise marketers will remember my joyous tale of Easter eggs and will remember to ask themselves if the consumption of their products is driven by availability or by necessity. Who knows, it may also make them wiser (and healthier) consumers!