Tuesday, December 30, 2014

Using information to price discriminate more profitably

WSJ spills the beans on retailers strategies:  they try to figure out what motivates each shopper and then give it to them.

A fifth of online shoppers are considered true “discount junkies,” people who make purchases only when plied with discounts, according to new data from AgilOne Inc., which works with 150 retailers to analyze customers’ purchases and predict their behavior. About 15% of shoppers generally pay full price for items and don’t bother searching for sales.
“Smart retailers understand discounting only moves the needle for a portion of their customers,” said Omer Artun, chief executive of AgilOne and a former marketing executive at Best Buy Co.
“You don’t want to offer discounts to full-price shoppers, because over time your profit margins will erode,” he said.
Shoe brand Donald J Pliner, which is sold online, in department stores and through an eponymous six-store chain, divides its customers into three types based on their previous shopping behavior: Discount shoppers who buy clearance items and last season’s styles once they are priced at more than 25% off; full-price shoppers who rarely buy clearance items; and customers who fall somewhere in between.

HT:  Erin

15 comments:

  1. Using information, in other words, big data analysis to price discriminate can maximize profit and create new revenue streams. Even though this new phenomenon is very promising, it is not the “be all end all “ in and of itself as it relates to the online marketing. Of course, the more information we have, the more profitable price discrimination will be. Consequently, as big data and online consumer buying increases the information that business have on us, the opportunity and profitability of price discrimination will become challenging to ignore.

    On the side of caution though, while there is an attractive business opportunity via price discrimination, conclusions made from having more information is not always reliable. Circumstances in life and negative changes in the economy can change consumers shopping habits and skew expected trends. Thus, big data does not tell the whole story and more profit is not a given. Furthermore consumers are not robots and they have the ability to do a 360 behavioral change. In business models such as mega stores that offer discounts coupons on certain products or to a targeted groups, the desires for discount coupons could then be that of the majority. This change could significantly increase sales on the discounted products and a decline in sales of the more expensive products. This shift would cause, discount exhaustion, create cannibalization and ultimately a loss in profit (Froeb.2014).

    Leo Palmer ESC Econ

    Reference:

    Froeb, MCcann, Ward, Shor. (2014) Managerial Economics. A problem Solving Approach.
    Ohio:South-Western Cengage Learning.

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  2. Retailers (sellers) target a specific group of shoppers to offer discounts to in order to increase their sales, it’s actually genius. Almost all the time when a person is at the checkout counter the cashier asks for their email address so that they can be put on their mailing list. Is this information really used just for the “mailing list”? Sellers use this information to decide whether or not they will be offering discounts based off of what was purchased, if coupons or discounts were used, and how much money was spent. The consumer that doesn’t use coupons or special discount offers might not necessarily be in the high income range. There are consumers that are just in a hurry to get their shopping done or they are just not smart savvy shoppers. The same goes for the consumers who use coupons or discounts for shopping; they might want to save or they find it exciting to save a certain amount of money when shopping. Either way consumer shopping habits will always have an effect on the economy, good or bad.
    Reference:
    Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage Learning.

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  3. With the ever growing era of technology, it has become even easier for customers to find the good deals. Websites such as Groupon.com and reatailmenot.com offer financial relief to consumers as well as exposure and advertising for businesses. These online deal-finders do come at a cost to both customers and businesses. Shoppers are required to create an online account offering personal information while businesses are required to pay a fee for the service. As Kathy Carr tells us in her article, “The Effects of a Coupon Economy”, these avenues for finding deals are beneficial for both the consumer as well as the business by offering great deals as well as business exposure to a new audience. (Carr, 2010).

    In today’s economy, the use of coupons has become a staple in my home. I very rarely pay full price for anything when I go shopping. If I do not have a coupon, I will often ask the cashier if they have one behind the register. Even though sometimes they do not, most cashiers have the authority to at least offer a percentage discount. Since I started to use coupons, my price floor has plummeted. I am not willing to pay outrageous pricing when I know discounts are available.
    References:
    Carr, K. A. (2010). The effects of a coupon economy - Cleveland Business News - Northeast Ohio and Cleveland - Crain’s Cleveland Business. Retrieved February 19, 2015, from http://www.crainscleveland.com/article/20100809/BLOGS02/100809881/the-effects-of-a-coupon-economy

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  4. Indirect price discrimination targets consumers in a different way than direct price discrimination by offering different levels of a product or different offers so that all groups can be satisfied with the product. This pricing strategy not only gives all buyers the opportunity to possess products it allows the sellers to raise profits. Coupons are used to offer discounts and they are usually given to those consumers who have used coupons in the past and who are not willing to pay full price. Most of the time sellers hike the prices up so that they are not losing money by offering coupons. At times the seller doesn’t increase the price which results in little or no profit, however it keeps that type of consumer coming back and produces a profit in the long run.

    Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage Learning.

    ReplyDelete
  5. Keeping track of consumer behavior has always been an integral way for organizations to anticipate future consumer activity, as well as a source of data necessary for marketing to consumers. Since the onset of e-commerce, this practice has become simpler. The data has also become more readily available and organizations or individuals can actually purchase information on actual consumer buying habits as it becomes available.
    In 2013, the New York Times reported that companies like The Acxiom Corporation, a marketing technology company, have amassed details on the household makeup, financial means, shopping preferences and leisure pursuits of a majority of adults in the United States. Using this information will be helpful to determine who is a high value consumer versus the low value consumers, so that retailers then know when to use price discrimination. As reported the Wall Street Journal, 15% of shoppers are willing to pay full price for an item and do not bother looking for sale prices. Knowing this, retailers can then avoid the cost and effort of marketing or offering promotions to those high value consumers and avoid cannibalization.
    References:
    http://www.nytimes.com/2013/09/01/business/a-data-broker-offers-a-peek-behind-the-curtain.html?_r=0
    http://www.wsj.com/news/article_email/SB10074553206008064160104580355363837479700-lMyQjAxMTA0MDI3OTQyNTk1Wj?mod=wsj_share_email

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  6. Who doesn’t like a bargain? Even if it is not, the perception of saving money makes us feel better about spending it. I think we all would agree that a sail item is not price discrimination. It is simply retailers pricing goods to move – to make room for the next season of goods. When it comes to fashion, perhaps you will need to store that new jacket away for a few months before you get to show it off (not this year in New York). When it comes to food, picking up the manager’s special from the meat counter may be ok for tonight’s dinner but I would not save it for a few days – that’s why it’s the manager’s special (check the dates first).

    With today’s technology, it would seem difficult for retailers to practice deceptive pricing. The Victoria’s Secret example is men just not thinking straight – do your homework. However, some men may be spending more because they do not want to appear cheap in front of the woman they buying for. Chain stores taking advantage of location or the community they serve is a different matter. If people are willing to pay more for sugar at Whole Foods good for them, but people with limitations such as transportation or options should not be taken advantage of because there is not another grocery store close by.

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  7. Having all these information is really good and that is makes a successful person, if we take note of everything perfectly then we can definitely be successful in that thing, I consider myself extremely lucky to have OctaFX broker at my side, it’s a really perfect broker to work with due to their low spread of 0.2 pips, high leverage up to 1.500 and it always keep me updated with the market situation, so that helps so much in working.

    ReplyDelete
  8. Tracking customer habits is nothing new for retailers, and the internet makes it all that much easier. As a “true discount junkie” I can verify that there is certainly a die hard group of people who will not online shop without a discount. I typically will not buy something if I have to pay for shipping. I have an entire email folder just for emails from stores regarding sales and discounts. There is always the opportunity to save a bit of money as long as you shop around. While the internet makes this easier, it also can be more difficult. For example, if you are researching airlines, your IP address is logged. The internet knows that you want to buy an airline ticket, and the more you research the less discounts you will find, as each site realizes you want this ticket and although you are searching for deals, you are going to buy that ticket eventually regardless of price, so why bother offering you a discount. But I’m sure there will be away around the IP logging soon enough, which isn’t soon enough for me. So no more airline research in my future!

    ReplyDelete
  9. Chapter 13 Direct price discrimination
    “Using information to price discriminate more profitably”
    “A fifth of online shoppers are considered true “discount junkies,” people who make purchases only when plied with discounts, …”
    Oh my goodness!!! I’ve just been described to a “T”!
    My favorite spam email is the extra special surprise ones from Staples, Office Depot and the competing office supplies merchants. Just today I received the “Holy Grail” $100 off on a $200 purchase online from Quill. I have until tomorrow to use. Running a dental practice is running a business, it uses “all kinds of stuff.” Even though we are deeply immersed in digital technology, the need for “paper” has for so many ancillary uses has grown with time. And of course the markers, paper clips, and folders to correlate and contain. $100 is enough to ply me to go online and order something that I need.
    Since I need a new UPS (universal power supply) backup for my 2D/3D CBCT panoramic digital x-ray unit (cone beam computerized tomography) and prefer the APC brand, I will try tomorrow to use the coupon towards a APC Smart-UPS 750 backup with a posted price of $329.99. Makes for a decent price of $229.99, plus tax, a good enough deal for me.
    I even buy my vehicles online with an email start, followed-up with phone call and more emails to negotiate the best price. Currently I am buying a new 2016 Chevrolet Tahoe 4WD with a Chevrolet dealer in an adjacent state (PA) at basically the tissue price, having their shop do some “alterations” per my requests. (I pay for the parts and labor, of course.) And both the dealership owner and I feel good about the deal. This will be the fifth vehicle purchased in this manner from this dealership. I was their very first internet buyer back in 1998 and the relationship continues. None of the local dealerships match the final discount no matter how polite I attempt to negotiate. Few buyers understand the “holdback” accounting that occurs between the manufacturer and dealer. And few still practice how to negotiate on a regular basis. Like going into a casino to gamble, the house has the odds. Generally, the automobile dealership holds the cards, they are not going to sell at a loss. (Assuming a “normal economy and business atmosphere” and no major disruptions occurring in the industry and financial markets.)
    A modification of price discrimination to satisfy the wants and needs of both seller and buyer to an agreeable outcome.
    Lee Lichtenstein
    references: email to LML Thu 11/12/2015 9:13 AMQuill.com REMINDER: $100 coupon expires soon
    Healthcare quill@cprpt.com 100 off

    your order of $200 or more.(1) (2)






    ReplyDelete
  10. Chapter 13 Direct price discrimination

    “Using information to price discriminate more profitably”

    “A fifth of online shoppers are considered true “discount junkies,” people who make purchases only when plied with discounts, …”

    Oh my goodness!!! I’ve just been described to a “T”!
    My favorite spam email is the extra special surprise ones from Staples, Office Depot and the competing office supplies merchants. Just today I received the “Holy Grail” $100 off on a $200 purchase online from Quill. I have until tomorrow to use. Running a dental practice is running a business, it uses “all kinds of stuff.” Even though we are deeply immersed in digital technology, the need for “paper” has for so many ancillary uses has grown with time. And of course the markers, paper clips, and folders to correlate and contain. $100 is enough to ply me to go online and order something that I need.

    Since I need a new UPS (universal power supply) backup for my 2D/3D CBCT panoramic digital x-ray unit (cone beam computerized tomography) and prefer the APC brand, I will try tomorrow to use the coupon towards a APC Smart-UPS 750 backup with a posted price of $329.99. Makes for a decent price of $229.99, plus tax, a good enough deal for me.

    I even buy my vehicles online with an email start, followed-up with phone call and more emails to negotiate the best price. Currently I am buying a new 2016 Chevrolet Tahoe 4WD with a Chevrolet dealer in an adjacent state (PA) at basically the tissue price, having their shop do some “alterations” per my requests. (I pay for the parts and labor, of course.) And both the dealership owner and I feel good about the deal.

    This will be the fifth vehicle purchased in this manner from this dealership. I was their very first internet buyer back in 1998 and the relationship continues. None of the local dealerships match the final discount no matter how polite I attempt to negotiate. Few buyers understand the “hold-back” accounting that occurs between the manufacturer and dealer. And few still practice how to negotiate on a regular basis. Like going into a casino to gamble, the house has the odds.

    Generally, the automobile dealership holds the cards, they are not going to sell at a loss. (Assuming a “normal economy and business atmosphere” and no major disruptions occurring in the industry and financial markets.)
    A modification of price discrimination to satisfy the wants and needs of both seller and buyer to an agreeable outcome.

    Lee Lichtenstein
    references: email to LML Thu 11/12/2015 9:13 AMQuill.com REMINDER: $100 coupon expires soon
    Healthcare quill@cprpt.com 100 off your order of $200 or more.(1) (2)






    ReplyDelete
  11. Direct price discrimination scheme is a price discrimination scheme in which we can identify members of the low-value group, charge them a lower price, and prevent them for reselling their lower-priced goods to the higher-valued group.
    This article states “A fifth of online shoppers are considered true “discount junkies,” people who make purchases only when plied with discounts, according to new data from AgilOne Inc., which works with 150 retailers to analyze customers’ purchases and predict their behavior. About 15% of shoppers generally pay full price for items and don’t bother searching for sales.” Well I totally agree with this analysis. When I made more money I really did not care about prices. If it was something I wanted well, I would just go out and buy it. However, due to company downsizing, my salary decreasing. I no longer fall in the high-valued group. Today, I am a true “discount junky”, and I am proud of it. I only make major purchases after I have received some type of coupon or discounts, or I wait until Black Friday, or Cyber Monday, and after Christmas sales to purchase major products. I have everything that I need in life to survive on a daily basis, so I no longer go out to the malls or department stores to shop on paydays or weekends. I stopped that about 5 years ago, and I do not miss it. Nevertheless, because of my past history of shopping every week days, all the stores that I love have my email address. Now they send me coupons each week and daily sales ads, which I must admit are extremely tempting. Consequently, I do give in, if the discount is right, because I am a “discount junky”. This is an excellent scheme to get low-valued individuals to buy goods and services.

    ReplyDelete
  12. Companies want to keep consumers to identify with their brand so as to create repeat business. It’s highly likely that a low price consumer might elevate themselves to a higher price consumer over time so companies do not want to lose a loyal customer, regardless of whether a low value or high value customer. Once they lose that customer, it becomes more difficult to recapture them so why not have pricing incentives to address all consumer needs? There is a 60-70% probability that a company will sell to a repeat customer but only a 5-20% chance of selling to a new customer. Why not cater to keep customers even is its break-even.
    Retailers know what products are purchased using discretionary funds so they can position a discount to try and incite the buyer to purchase. These direct discrimination tactics are specifically designed for targeting the consumer while not cannibalizing the high value consumer purchases. A perfect example is a car manufacturer. Yesterday I went to look at a Dodge Challenger. They are offered in a few different trim/option packages. The low end entry model had several thousand dollars rebate and incentives. A few steps up is the R/T version and SRT versions. Both are not really discounted. The high end “Hell Cat” was list plus $8,500! A low value customer will go for the base model and maximize discounts. The high value customer might go for the Hell Cat and pay the premium. They all are the same car and have similar styling except for engines and trim. By offering consumers the multiple choices, they are more likely to capture or retain that customer than others.

    Smart move Dodge!

    ReplyDelete
  13. With the holiday shopping season upon us, as an avid online shopper I am always looking for a bargain. I would not call myself a “discount junkie”, but purchasing decisions in my household are very often based on coupon codes, free shipping, and perception of a great value. If a company can identify the groups of consumers “with different demand elasticities, and prevent arbitrage between the groups, they can increase their profit by charging higher prices to the low-elasticity group” (Froeb, McCann, Shor, & Ward, 2014, p. 169). With increased competition in retail, companies who can correctly forecast the behavior of their customers by analyzing information, will allow them to tailor product offerings and pricing strategies to try and give them a competitive advantage.
    References
    Froeb, L., McCann, B., Shor, M., & Ward, M. (2014). Managerial Economics - A Problem Solving Approach (4th ed.). Boston: Cengage Learning.

    ReplyDelete
  14. Price discrimination is defined in the text as charging different prices to different buyers based on differences in demand (Foreb). There are three degrees of price discrimination: first degree is charging different prices for each unit purchased, second degree is giving discounts for buying in bulk, and third degree is charging different prices to different groups of customers (Price Discrimination). The example in this post falls into the third degree discrimination. The different types of individuals (discount shoppers, full pricers, and the in-betweeners) are each willing to pay a different maximum amount for the same product. Another example is Microsoft Office charging different amounts for educational institutions compared to buyers to use at home. In order to set price discrimination, an organization needs to be able to identify which customer fall into which group and target them, keep these markets separate. It is important to not allow a discount shopper to buy low and then sell to a full price shopper on the streets. Finally, there must be a degree of monopoly for the organization. If consumers can go to a competitor and buy a substitute product cheaper, they will (Price discrimination).

    --
    References:
    Froeb, McCann, Shor, & Ward. Managerial Economics. Cengage Learning. Boston; 2016. Print
    Price Discrimination. Economics Online. N.D. 25 February 2016. Web. < http://www.economicsonline.co.uk/Business_economics/Price_discrimination.html>.


    ReplyDelete
  15. This article relates very well to me and how I shop for clothes for work. I am in sales and have to wear a suit everyday. As a result, I go through several suits a year (a not inexpensive problem). After years of wearing suits, I have concluded that the best value for the moe y for me personally is at JOS. A Banks. Their suits seem to hold up the best, fit the best off the shelf (lowest tailoring cost) and can be purchased for the least amount of money.

    The purchase price for all things JOS. A Banks has always amazed me and it wasn't until I read about price discrimination that I figured it out. The best suits in the store can go for upwards of $800-$1,000 a piece. However, several times a year they have a buy 1 get 2 or 3 free sale. The same can be said for all of their shirts, ties, belts and shoes as well. What I learned very quickly is that you never buy their merchandise unless it is on sale.

    The pricing discrimination that they display goes a step farther, because they will often have members only sales that they announce via email or direct mail. These sales are not displayed in the store and are only good if you mention them. I have often wondered who would ever shop there if they were not taking advantage of the sale prices. I for one would not. When you can get two to three times the amount of merchandise during a sale, why would you ever shop regular price?

    ReplyDelete