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."
What are the pros and cons of BOGOs in grocery and other retail channels? What common mistakes do you see in orchestrating such promotions?