Personalized promos add up to a ‘win-win’ for retailers and consumers
A university study finds personalized promotions can potentially be a lucrative opportunity for retailers to extract money from consumers while also enhancing customer satisfaction.
In a statement, Yuqian Xu, a professor of business administration at the Gies College of Business at the University of Illinois and lead author of the study, noted that scholars have long argued over whether personalized pricing is good or bad for the consumer and for society.
“Personalized promotion is a bit like price discrimination, which is somewhat controversial historically, because you’re selling the same product at different prices to different consumers,” said Prof. Xu in a statement.
The research focused on the impact of “online-to-offline service platforms,” citing DoorDash as an example, that are providing retailers and delivery platforms with access to consumer data to drive personalized offers.
The study examined a leading online-to-offline platform in China with more than 50 million active users. Versus control stores, the study found those offering personalized promotion drove, on average, a 1.6 percent increase in the total monthly transaction amount; a 3.2 percent increase in the number of items purchased per order; and a 2.2 percent increase in the probability of a five-star rating.
“Our main results demonstrate the personalized promotion can be a ‘win-win’ for both the retailer and the consumer,” Prof. Xu said.
Still, the study had some stipulations to success:
- Overall, the effects are greater for new consumers and less for frequent and high-value consumers;
- The positive effects on revenue increase at first, but then decrease over time;
- The positive effects on consumer satisfaction become significant “only after a sufficiently long time period — nine months or so.”
The researchers concluded that, over time, retailers would need to re-target less engaged consumers and try to target new consumers.
“The platform and the retailer should be patient,” said Prof. Xu. “But since the positive effects decrease in the long run, that means that the platform and the retailer also should be aggressive about courting new customers.”
DISCUSSION QUESTIONS: What changes in consumer behavior do you expect to see should personalized pricing become more prominent? Are you a fan of more extensive personalized pricing?