Merchant Innovation

Data Helps Stores Use A Scalpel (Instead Of An Axe) To Operate On Prices

It is easy, as a consumer, to get the feeling that somehow the world is full of people paying less money for the same goods you are. They shop at the same stores, they go to the same sites, but somehow when it is time to pull out payment at the POS, these folks always seem to be paying less.

As it turns out, that feeling is increasingly based in reality, as merchants have found a new use for all of the customer shopping data they have spent the last several years gathering: dynamic discounting.

Increasingly passing into history is the mass email blast touting discounts, clearance sales, coupons and all make and manner of announcements about ways potential customers can save money. Because everyone likes saving money right?

Well, actually, no. According to new data from AgilOne Inc., which works with 150 retailers to analyze customers’ purchases and predict their behavior, only about 20 percent of shoppers are “discount junkies” who don’t buy if the item is not on sale. On the other end of the spectrum are an almost equal number of full-price fanatics (15 percent of consumers) who pretty much always pay full price. Most other consumers fall somewhere in between on that spectrum

In the past the digital marketing to these groups has been almost identical, but data is changing that practice.

“Smart retailers understand discounting only moves the needle for a portion of their customers,” Omer Artun, chief executive of AgilOne and a former marketing executive at Best Buy Co. told The Wall Street Journal. “You don’t want to offer discounts to full-price shoppers because over time your profit margins will erode,” he said.

And so stores are changing their pitches. Some consumers now get emails advertising sales, if data about them indicates they are a value shoppers, while others get emails highlighting new products if the information about them indicates they prefer novelty to savings. This runs the risk of alienating consumers, who do not always like to see their data used in such a ways. The method is also not universally popular with retailers.

“Surgical discounts that give an advantage to certain people would take away our credibility,” said Farooq Kathwari, CEO of furniture retailer Ethan Allen Interiors Inc., which offers a single price on each product at its 300 U.S. design centers.

However, by and large, the dynamic or surgical discounting model seems to be marching toward being a norm, instead of being an exception.

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