TITLE:
Free Product as a Complement or Substitute for a Purchased Product – Does it Matter
AUTHORS:
Uriel Spiegel, Uri Benzion, Tal Shavit
KEYWORDS:
Discount, Present, BOGDIF, Promotions, Substitutability, Complementability
JOURNAL NAME:
Modern Economy,
Vol.2 No.2,
May
17,
2011
ABSTRACT: The purpose of this paper is to examine whether price discounts or buy one get a different item free (BOG-DIF) offers are more attractive to consumers. This paper examines empirically (through the use of two different questionnaires) the effect that the relationship between the purchased and the free product has on consumer preference. A rational framework is presented and tested empirically for differing scenarios. When comparing a 50% discount to BOGDIF, it is found that the promotion’s attractiveness is influenced by the relationship between the products, i.e. whether the products are substitutes or complements. Interestingly, we find that the empirical results are inconsistent with the rational framework. This inconsistency is explained by the effect of a desired “gift”. The results are important for theoreticians and practitioners who desire to develop efficient tools and innovative avenues for sales promotions.