Buy-One-Get-One Promotions in a Two-Echelon Supply Chain

"Buy-one-get-one" (BOGO) promotions have become very popular among many retailers. With BOGO, the first unit of the product is sold for the regular price and if a consumer buys a second unit, then it is discounted by some percentage or it may be free. We analyze BOGO promotions in a manufacturer-retailer supply chain. We identify the conditions under which BOGO promotion outperforms the commonly used price reduction promotion. Surprisingly, we find that for some type of consumer goods, with or without consumers' stockpiling, BOGO will always be preferred by the supply chain, i.e. BOGO results in larger profit for the retailer and the same or larger profit for the manufacturer compared to a per-unit price reduction promotion. This is because BOGO promotion induces more consumers to buy and consume two units in the promotional period. With consumers' stockpiling, the retailer sets prices such that no stockpiling occurs. We also find that the retailer's share of the supply chain profit is the highest under BOGO while consumer surplus is smaller with BOGO than with price reduction promotion. In addition, we find that BOGO reduces the double marginalization effect. When consumers are time-inconsistent, which prevents the retailers from eliminating consumers' stockpiling, a price reduction promotion may outperform a BOGO promotion