Wednesday, October 9, 2013

Target Temporal Discounts

A major contributor to the motivational thrust from a price discount is the time limit on the discount. Another major contributor is the consumer’s attraction to what is being discounted. These come together in the customized temporal discount in which the price cuts are tailored to the characteristics of the potential shopper. Different people get different discount offers.
     It’s a common practice now in retailing, made easier by all the data we collect on our customers and readily available data analysis tools. Done well, customized temporal discounts are also quite profitable. Researchers at University of Miami, University of Southern California, and Wake Forest University found revenue increases between 18% and 40% compared to discounts which weren’t customized.
     To achieve maximum gains, their research indicates, follow two rules:
  • Carefully consider the interaction between time limit and item. Looking at purchase frequency, you might able to estimate when your customer’s likely to exhaust her current supply and so will be returning to your store to purchase more of the same. This would be a perfect time to send or hand to that customer a coupon for a discount on a brand which yields a higher profit margin for you. 
  • Limit who you include. Running the analyses consumes time and money, and only some of the people for whom you have information will spend more with you when you give them customized discounts. In addition, some people will avoid your store if they feel their privacy has been violated by you knowing their shopping habits so well. 
     Customized temporal discounts are an NBO tactic. Decide what product or service your customer will want before he himself knows. This way, after he completes the purchase of one item, you can guide him toward the best subsequent selection. Researchers at Babson College, Citibank, and Deloitte Consulting LLP refer to this as identifying the NBO—Next Best Offer.
     Recognize how shoppers’ preferences move in time cycles. Researchers at University of Utah and University of Iowa discovered that monthly paycheck cycles affect the types of merchandise consumers find to be most attractive.
     In the days soon after receiving a paycheck, consumers with full-time jobs become particularly interested in products and services which help them gain more than what they currently have. As the days after the paycheck pass, these same people are progressively more attracted to items which help them avoid losing what they have now. 

Click below for more: 
Make Your Next Best Offer 
Ditch Deep Discounts via Adaptive Pricing

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