Tuesday, 15 January 2013

Loyalty+Coupons = Positive Price Discrimination

I was at a conference last week where the speaker was from the gaming industry and touched upon the topic of price discrimination - where essentially a customer is given a unique price based on both their price elasticity and potential value.

The thinking was that given a casino hotel gets near 100% occupancy, isn't it better to fill rooms based on the total potential value of a customer (i.e. including how much they might spend in the casino), rather than just look at the margin on the room itself.  In that scenario, if a lower value customer wants a room then you can simply price the room higher for them to ensure you get the same overall margin return from the customer (and the room).

Price discrimination is a really interesting concept and one most retailers would love - being able to price items individually based on what a customer is prepared to pay for the item - in essence maximising reach and margins.

This practice is quite common in some industries today such as airlines and hotels through yield management strategies and results in customers self selecting whether they are prepared to pay that price or not.  However this still isn't personalised pricing based on the profile of the customer.

A recent blog article discussed the topic of price discrimination and highlighted two recent studies into the practice that found no real evidence that it was happening in online retail - at least not on a per customer basis.

One of the reasons for this is that price discrimination can create negative publicity.   It doesn't seem fair if two different customers pay different prices for the same item, simply because one is "willing" to pay more for it.  There has been no additional value provided and from the customers perspective, no additional costs incurred for delivering it.

In fact, in the US, where retailer Staples was highlighted as using price discrimination based largely on a customers proximity to a competitors store, the customers affected said "I think it's very discriminatory", questioning, "How can they get away with that?".

Ways around this are to keep the headline price fixed and vary benefits and offers instead.  Coupons for example provide a means for retailers and manufactures to lower the price for those customers who are sensitive to it and yet maintain the premium for those who are not.

Loyalty points are obviously another key mechanic in positive price discrimination in that the same price is paid for the goods, but customers are given different levels of deferred discount as expressed through loyalty points depending on their membership of the programme and potentially their tier.

From a customer perspective, loyalty points are not seen as a cost or as part of the price they pay, they are seen as a reward.  I could pay the same price for the same item as another customer, but I wouldn't typically complain if the other customer earned double points on that purchase.

Increasingly though, where real value can be achieved for a retailer is through a combination of loyalty and coupons.  Using customer purchase behaviour derived from the loyalty programme allows for targeted couponing to reward and shift individual consumer behaviour.

The sticker price stays the same, but price discrimination on a customer by customer basis is alive and kicking.

As recent article in Forbes magazine discussed the emergence of individualised coupons and how they enable price discrimination saying:-

"Coupons are psychological, and that’s why they succeed so much. They are designed for the store’s benefit in profit, but they achieve this by making the customer feel good about the price they “scored.” [...]  With individualized coupons, we’re allowing stores to use personal transaction data to make us feel good, in an attempt to subtly modify our spending behavior for the store’s profit"

For ecnomists, price discrimination creates an almost perfect market where every customer gets the product they want for the price they feel it is worth.  There is nothing wrong with treating different customers differently and there is nothing wrong with recognising those customers who add more value to your business.

Whilst nothing is perfect and some would argue that rewarding one group is done at the expense of another, using loyalty in combination with targeted offers provides a powerful way for retailers to maximise margins, recognise customers and change consumer behaviour.  

Personalised pricing just got a lot easier to implement and loyalty is right at the heart of it!

7 comments:

Hua Cai said...

cheap jordans, http://www.jordan-shoes.us.com
oakley sunglasses
fitflop shoes
asics, http://www.asicsisrael.com/
air max 90
designer handbags,handbags outlet,cheap handbags,purses and handbags,wholesale handbags,designer bags,bags outlet,handbags wholesale,cheap purses,discount handbags,handbags sale,wholesale purses,handbags and purses,designer purses
jordan shoes, http://www.jordan-shoes.us.com
air force one shoes
ray-ban sunglasses, http://www.rayban-sunglassess.us.com/
hollister clothing
supra footwear
michael kors factory online, http://www.michaelkorsfactoryoutletonline.com
custom mlb jerseys
ray ban sunglasses
ralph lauren outlet
burberry outlet,burberry outlet online,burberry outlet store,burberry factory outlet,burberry sale,burberry
michael kors outlet online, http://www.michaelkors-outlets.us.com
michael kors outlet online, http://www.michaelkorsoutletonlinstore.us.com
salvatore ferragamo
michael kors factory outlet, http://www.michaelkorsfactoryoutlets.in.net/
tory burch outlet online
seattle seahawks jerseys
valentino shoes
toms shoes
lebron james shoes
chicago bears jerseys
longchamp handbags, http://www.longchamphandbag.us.com/
oakley sunglasses
cheap nba jerseys, http://www.nbajerseys.us.com
chicago blackhawks jersey
2015910caihuali

prashant sediwal said...

really good piece of information, I had come to know about your site from my friend shubodh, kolkatta,i have read atleast nine posts of yours by now, and let me tell you, your site gives the best and the most interesting information. This is just the kind of information that i had been looking for, i'm already your rss reader now and i would regularly watch out for the new posts, once again hats off to you! Thanks a lot once again, Regards, paytm coupons, flipkart discount coupons, coupons daily deals

Zhenhong Bao said...

coach outlet store
lululemon outlet
ferragamo outlet
cheap mlb jerseys
oakley sunglasses wholesale
ralph lauren outlet
michael kors handbags clearance
mulberry bags
true religion uk outlet
celine outlet online
tiffany jewellery
hollister shirts
michael kors handbags
omega outlet
tory burch outlet online
ralph lauren outlet
oakley sunglasses wholesale
longchamp pliage
rolex uk
coach outlet
mcm outlet
fitflops sale clearance
nike air max 90
cartier outlet store
discount michael kors handbags
ray ban sunglasses
kobe shoes
ralph lauren uk
true religion sale
cheap oakley sunglasses
polo ralph lauren
tiffany jewellery
versace sunglasses on sale
cheap nba jerseys
ray ban sunglasses
20160514zhenhong

柯云 said...

2016-05-30keyun
jordan retro 11
michael kors outlet
coach factory outlet
true religion jeans
nike running shoes for men
michael kors outlet
michael kors outlet
coach factory outlet
air jordan femme
michael kors purses
coach outlet online
gucci handbags
toms
oakley sunglasses
the north face jackets
polo ralph lauren
christian louboutin shoes
michael kors outlet online
ray ban sunglasses uk
adidas factory outlet
kate spade handbags
tiffany & co
ray bans
adidas originals
michael kors outlet
ray ban sunglasses outlet
louis vuitton outlet
coach factory outlet online
cheap toms shoes
michael kors outlet
air jordan shoes
cheap ray ban sunglasses
michael kors outlet
coach outlet
ralph lauren outlet
louis vuitton bags
burberry sale
toms outlet
louis vuitton outlet stores

xumeiqing said...

201606701meiqing
jimmy choo outlet
adidas nmd
cheap mlb jerseys
rolex watches
fitflop uk
adidas nmd runner
sac longchamp pliage
polo outlet
louis vuitton outlet
reebok uk
chaussure louboutin
vans shoes
true religion outlet
puma shoes
nike free flyknit
polo ralph lauren
adidas stan smith
adidas trainers
michael kors outlet online
coach outlet
nike air max
hollister clothing
ray ban sunglasses
louboutin
yeezy boost 350
michael kors outlet clearance
michael kors outlet online
ferragamo shoes
tiffany jewelry
louis vuitton borse
cartier love bracelet
nike free flyknit
ralph lauren outlet
birkenstock
ray ban sunglasses discount
ray bans
coach outlet online
ralph lauren outlet

Gege Dai said...

true religion outlet
michael kors handbags outlet
mlb jerseys
ugg boots
tiffany and co jewelry
omega watches
michael kors outlet
football shirts
ray ban sunglasses
louis vuitton sunglasses
longchamp outlet
mbt shoes
cheap uggs
fitflops sale
uggs outlet
christian louboutin outlet
prada outlet
converse shoes sale
fitflops uk
tory burch outlet online
foamposite shoes
ugg boots
lululemon uk
ferragamo shoes
coach outlet online
air max 90
longchamp outlet
true religion outlet
ugg boots
nfl jerseys
ugg boots on sale
true religion outlet
ugg boots clearance
longchamp solde
ray ban sunglasses sale
0727jianxiang

dong dong23 said...

ralph lauren
michael kors outlet
replica watches
toms outlet
gucci outlet
ralph lauren sale
louis vuitton outlet
adidas originals
michael kors handbags
oakley vault
michael kors handbags
coach factory outlet
fitflops sale clearance
michael kors outlet
michael kors outlet clearance
michael kors outlet
ghd flat iron
ghd hair straighteners
michael kors handbags
coach factory outlet
nike nfl jerseys
coach outlet store online clearances
coach outlet store online clearances
tory burch sale
nike air max
cheap jordans
jordans
replica watches
toms shoes
coach outlet
jordan retro
coach factory outlet
ray ban sunglasses
christian louboutin shoes
michael kors outlet
mont blanc pens
toms shoes
coach outlet
adidas outlet
kobe 9 shoes
20168.9wengdongdong