A New Approach to Product Discounts


What if the next time you went to the local supermarket in order to do your groceries you would receive a discount on your favorite brand of cereals or beer? How about if you received a discount for chicken meat, but you’re a vegetarian? Two supermarket chains from the United States, Safeway and Kroger have come up with a way of tailoring discount coupons to each customer according to their shopping history. As soon as you swipe your loyalty card when paying, the system records your shopping list and a complex algorithm uses it, along with all the previous ones, in order to generate product offers that would interest you.

As such, the next time you go shopping for pasta, you might get a discount for the specific type of pasta that you like, or a discount for another type, but produced by the same company, if the system detects that you have a strong loyalty to the brand. At the same time, the algorithm ensures that you are never given discounts for products or brands that your shopping history indicates that you have a low chance of choosing.

And since we live in an age where almost everything is online, the two retail chains have each created smartphone apps in order to assist their customers: you can add or remove discounted items to or from your shopping list in real time, and when you arrive at the cash register, the system will automatically adjust the prices for eligible items.

When examining the bottom line, the differences in financial terms are significant: according to Catalina Marketing, one of the biggest firms of its kind in the United States, each dollar given away as a discount generates another eight in extra sales. Not entirely surprising, given that the same company has found that consumers using mobile apps shop 41 percent more often, and their basket size, which is the total amount of goods that they purchase, is 43 percent bigger than a consumer who hasn’t been targeted by personalized pricing.

In the end, this approach to personalized pricing helps create value for both parties involved: besides the monetary value derived from tailored discounts, the customers also tend to develop a loyalty towards the supermarket chain that implements this solution, because they feel like they are being treated as unique individuals, instead of just another client among millions.

 

References
Clifford, S. (August 2012). Shopper Alert: Price May Drop for You Alone. New York Times.
Farnham, A. (December 2013). Prices Now Pegged to Your Buying History at Some Markets. abcNews.
Kharif, O. (November 2013). Supermarkets Offer Personalized Pricing. Bloomberg Businessweek.

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