Something Free or Something Off? A Comparative Study of the Purchase Effects of Premiums and Price Cuts

Bram Foubert*, Els Breugelmans, Karen Gedenk, Charlotte Rolef

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

14 Citations (Web of Science)


As an alternative to promotional price cuts, retailers and manufacturers often rely on non-price promotion techniques, such as premium promotions, where consumers receive a free gift with the purchase of a product. We compare the effectiveness of premiums to that of price cuts, and study moderators of this comparative premium effectiveness. We use data from a large online shopping simulation study with more than 2,000 participants to model consumers’ purchase decisions in response to premiums and price cuts. Results indicate that the impact of premiums on purchase behavior is systematically lower than that of equivalent price cuts. However, a premium’s smaller sales impact may be offset by a cost advantage. This is especially true for private label brands where the premium’s purchase effects do not differ too much from those of a price cut. We calculate how large the cost advantage has to be for a premium to be more profitable than a price cut, and show that premiums entail risks as well as opportunities, for both manufacturers and retailers.
Original languageEnglish
Pages (from-to)5-20
Number of pages16
JournalJournal of Retailing
Issue number1
Publication statusPublished - Mar 2018


  • Sales promotion
  • Premiums
  • Price cuts
  • Retailing
  • Purchase decisions

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