The desire for good deals and perfect gifts is quickly transforming the season of giving into the season of self-giving. According to a recent poll conducted jointly by the National Retail Foundation and BIGresearch, nearly 60 percent of all holiday shoppers this year plan on "self-gifting," with smartphones and tablets topping the list of coveted items.
Recent research from the Yale Center for Customer Insights nicely complements these findings by showing how the sale of bundled items -- two or more items sold together -- can reduce the guilt often felt by self-indulgent, or self-gifting, shoppers.
When two unrelated items are bundled together -- a "utilitarian" good that is about functionality and practicality and a "hedonic" good that is about pleasure and fun -- shoppers are much more likely to purchase the bundle when a discount specifically ties into the hedonic good. That is, discounting the indulgent item in a bundle improves sales more than offering the same discount on the practical item or on the bundle as a whole.
In one among many studies that we conducted, a group of college students received money to purchase a set of binders, a box of chocolates or both items bundled together and discounted. When savings were advertised for the binders -- save on these binders with your purchase of chocolates! -- the likelihood of the students buying the package was 52 percent. When the savings targeted neither item, but applied generally to the bundle, 61 percent of students were persuaded. But when the box of chocolates was offered at a discount, if purchased with the binders, then more than 80 percent of students bought both items.
People don't look for excuses to purchase binders because they need binders for practical purposes. But people want excuses to buy a box of chocolates, which they generally don't need.
This behavior is grounded in the well-researched fact that shoppers feel guilty about hedonic purchases; an item like a box of chocolates tends to require an additional degree of personal justification. But guilt can be assuaged and justification provided by bundling and discounting hedonic goods along with utilitarian goods.
These findings also illustrate an interesting cognitive glitch known in the research field of mental accounting: consumers allocate money to distinct and non-transferable "mental budgets." Even though the final savings in the example above are equal in all cases -- $10 saved on binders and chocolate any way you slice it -- when a discount is offered people attach the savings to a particular item. If a bundle promotion targets binders, then shoppers will not mentally "reassign" that discount to chocolates in order to justify the more self-indulgent purchase. Rather, it is up to the marketer to make this assignment.
While somewhat whimsical in nature, these findings bear important implications for managers. Most straightforward, of course, retailers can increase the sale of bundled goods by focusing discounts on the items that consumers may have a harder time justifying.
More interestingly, managers may also trigger self-gifting sales by offering instant discounts directed at the buyer. For example, a flower shop, where people most often seek gifts for others, could bundle an order of 12 roses for a loved one with six half-price lilies for the buyer.
As both retail bundling and self-gifting increase in popularity -- and this is most definitely the case among major online retailers -- it's time to start thinking seriously about what the customer doesn't need, and at what price he doesn't need it.
Follow new findings from the Yale Center on Customer Insights here.
Follow Ravi Dhar on Twitter: www.twitter.com/YaleCCI