Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / The Psychology Behind Buy One Get One Free Offers
Transcript
- Lucas: So Luna, you know that feeling when you walk into a store just to buy a pair of socks and you walk out with two pairs of jeans because there was a sign that said buy one get one free? Luna: Oh, absolutely. And I always tell myself I'm saving money, but deep down I know the store is the one making out. Lucas: Exactly. That's the magic and the manipulation all wrapped into one. Today we're diving into the buy-one-get-one-free, or BOGO, deal. We're going to look at the psychology behind it, why retailers use it, and where it sometimes fails. Luna: And I feel like we should start with the basic premise. Why does BOGO work so well on us? Lucas: Right. So the core mechanic is anchoring. You see a shirt priced at fifty dollars and the sign says buy one get one free. Your brain immediately anchors on that fifty-dollar value for the second shirt, even though you might not have bought it at full price. The perceived value is that you're getting a fifty-dollar item for zero dollars. Luna: And that feels like a massive win, even if you never planned to buy the second shirt in the first place. Lucas: The framing flips the decision from spending money to saving money. You're not out fifty dollars, you're gaining a fifty-dollar item. It's a classic loss aversion play. The fear of missing out on that free shirt outweighs the actual cost of the first shirt. Luna: So in a way, the retailer is counting on us to overvalue the free item and undervalue the total spend. Lucas: Precisely. And there's a real-world example that shows how powerful this is. In 2018, a study by the Journal of Marketing found that BOGO promotions increased sales volume by an average of 42 percent compared to a straight fifty percent discount. Luna: Forty-two percent. That's huge. But wait, aren't they economically the same? Two items for the price of one is a fifty percent discount per item. Lucas: Mathematically they're close, yes. But psychologically they're not. With a straight fifty percent discount, you're still spending money, just less. With BOGO, you're getting something for free. And free is a very powerful word. Luna: And that's why we end up with two pairs of jeans we didn't need. But let's talk about why retailers love this beyond just the psychological pull. Lucas: There are a few operational reasons. First, it helps move inventory. If you have an overstock of a seasonal item, say summer sandals in August, BOGO clears them out fast without you having to discount them to a price that might hurt the brand's perceived value. Luna: So it preserves the price integrity of the item while still getting rid of the stock. Lucas: Exactly. And second, it increases the average transaction value. The customer who was going to buy one fifty-dollar shirt now buys two for fifty dollars instead of one for fifty. The store's revenue per customer stays the same or goes up if that customer also buys accessories or other items while they're at it. Luna: And then there's the basket-building effect. You walk in for the BOGO item, but you leave with socks, a belt, maybe a coffee. Lucas: Right, that's part of the profit math. The BOGO itself might be a break-even or even a small loss leader, but the add-ons make up for it. This is why grocery stores love BOGO on staples like pasta sauce or cereal. They know you'll throw in something else. Luna: And I've definitely been a victim of that. I go in for the buy-one-get-one pasta, and I leave with a block of parmesan that costs more than the pasta. Lucas: That parmesan is exactly what the store is counting on. Now, before we go further, I want to say something. We do this show ad-free, and that's because of listeners like you. If these pricing insights have helped you in your own work or just made you a smarter shopper, consider supporting us over at buy me a coffee dot com slash fexingo. Luna: It's a small way to keep the show going and we really appreciate it. Lucas: Alright, back to BOGO. So we've talked about why it works, but let's talk about when it doesn't. Because BOGO is not a one-size-fits-all strategy. Luna: What's an example of a BOGO that fails? Lucas: Consider high-end or luxury goods. If you're a premium leather goods brand, a buy-one-get-one-free on a handbag would cheapen the brand. It signals that the product isn't worth its full price, and that erodes the exclusivity that justifies the premium. Luna: So BOGO is really more for fast-moving consumer goods, not for status items. Lucas: Exactly. Another failure mode is when the deal is too complicated. If the sign says buy one get one fifty percent off, or buy two get one free but only on select colors and sizes, customers get frustrated and walk away. The simplicity of BOGO is what makes it work. Luna: And what about the customer who doesn't want two of the same item? That's why you see some retailers offer a BOGO on different items within a category. Lucas: Right, that's a variation, like buy one get one free on any jeans in the store. That helps the customer feel like they have freedom, but it also helps the retailer move multiple items. But here's a subtlety: the threshold for the free item often matters. Some retailers set the free item as the lowest-priced item, while others let you choose the higher-priced one. That decision changes the perceived value significantly. Luna: So if you're a customer, you want to make sure you're getting the more expensive one free. Lucas: For sure. And there's a whole other layer when you move online. You see BOGO offers on e-commerce sites all the time, but the psychology shifts a bit because the customer has more time to think. They might not be as impulsive as they would be in a physical store. Luna: So does BOGO work as well online? Lucas: It still works, but the effect is weaker. The impulse drive is lower, and customers are more likely to compare prices across sites. That's why online retailers often combine BOGO with a limited-time countdown timer to reintroduce a bit of urgency. Luna: Interesting. And now let's talk about the consumer side. How can we train ourselves to see through the BOGO illusion? Lucas: The first step is to ask: would I have bought this item at full price today? If the answer is no, then the BOGO is probably tempting you to buy something you don't need. Even if the second one is free, you're still spending money on the first one. Luna: And that's a simple rule, but it's so easy to forget when you're standing in the aisle. Lucas: Another technique is to translate BOGO into a percentage. Two for the price of one is fifty percent off, but only if you actually need two. If you only need one, you might be better off with a straight thirty percent discount and no requirement to buy a second. Luna: So the key is to evaluate your actual need, not just the deal's framing. Lucas: Exactly. And there's also the stockpiling trap. BOGO deals often lead to overbuying, especially in groceries. You buy two jars of pasta sauce when you only needed one, and you might end up wasting one. The money you saved is gone if the product goes bad before you use it. Luna: So the savings can be illusory. And that's something to keep in mind the next time you see a BOGO sign. Lucas: Before we wrap up, let's talk about a trend we're seeing in 2026. Some retailers are moving away from BOGO and toward membership or loyalty-based discounts. For example, Amazon Prime Day has its own version of deals, and many direct to consumer brands are offering exclusive discounts to subscribers. Luna: So instead of BOGO, they're focusing on building a long-term relationship with the customer. Lucas: Right. But BOGO is still a powerful tool, especially for clearing inventory and creating a sense of urgency. I think we'll continue to see it in certain categories, but the way it's used might evolve. Luna: So, bottom line: BOGO works because it plays on our psychology, but the smart consumer can outsmart it. Lucas: And that's the takeaway. Next time you see a buy one get one free sign, take a second to ask yourself if you really need two. If you do, it's a great deal. If you don't, it's just a cleverly framed way to get you to spend more.