Free gifts (or premiums) are a popular promotional tool, and these days retailers are offering buyers a choice between multiple gifts to make the offer more relevant to them. However, if the number of options in the free gift menu is too high, buyers get turned off because of the cognitive costs involved in decision-making. Time and money constraints also sharpen this effect. So, retailers can maximise the benefits of offering a free gift menu by varying the number of options based on buyers’ cognitive costs and resource constraints.
Free gifts (also called premiums in sales promotion literature) are one of the most popular promotional tools used by retailers. When the gift is fixed (say, a ceramic bowl on buying an
electric kettle), buyers may not find it useful and may not be enticed to buy. So, retailers are moving away from the traditional option of giving a fixed free gift. Instead, they offer buyers a menu of free gifts to choose from. For instance, they might offer customers a choice between a ceramic bowl and a teacup set when they buy an electric kettle. However, there is little information about the value of offering a menu of free gifts. Therefore, a study tries to answer the question: Should the retailer offer limited options, or should the menu of free items be large?
The study found that the perceived value of free gifts varies with the number of gifts on offer. It first rises as the number of free gift options increases. Then it plateaus once the
assortment reaches a certain number. Finally, with the addition of more items to the menu, their perceived value declines. This interesting phenomenon is the result of two conflicting effects of choice. When given more options, buyers feel more freedom of choice, flexibility, and control over the decision-making. However, if the number of options keeps increasing, the cognitive effort of evaluating and choosing also increases (often called choice overload). So, beyond a particular point, more options lead to lower satisfaction and perceived value.
The study also found that time and money constraints also impact buyers’ perceived value of
free gifts. Buyers who are pressed for time endure higher cognitive costs as the gift-menu size increases compared to buyers who have no time constraints. Hence, the plateauing and falling of perceived value of an expansive free gift menu is sharper for them. That is, buyers with time constraints prefer limited options of free gifts over a large selection. Monetary constraints have a similar impact on the attractiveness of free gifts. Buyers who are not well-off prefer medium-sized free gift menus over expansive menus.
Many factors influence buyers’ purchase decisions. Here’s a look at how the choice of words in promotions affects them.
The study has important implications for retailers who are planning to offer multiple choices
of free gifts to buyers. They can design their promotional strategy keeping the impact of choice size and cognitive costs in mind. For instance, when shopping online, buyers have shorter attention spans; hence the cognitive costs of choosing from multiple free gift options is higher. Online retailers, therefore, will benefit from minimal assortments of free gifts. On the other hand, offline retailers can afford to have larger assortments of free gifts to attract buyers.
Retailers can also use the findings of this study to customise and personalise free gift menus.
For example, during rush hours (e.g., on Saturday evenings), they can offer limited options of free gifts to reduce buyers’ cognitive costs and make the offer attractive to them. Similarly, they can use sales data to estimate which buyers have more financial constraints and which buyers have more financial resources. They can offer a limited assortment to the former and a large assortment to the latter. Planning the assortment size of free gift menus while keeping these insights in consideration will help retailers maximise the gifts’ perceived value for buyers, making the offer more attractive.
Sweepstakes and Contests are two more popular promotional tools. How do they impact buyers’ decision-making? Find out here.