Sales promotions and channel coordination

Consumer sales promotions are usually the result of the decisions of two marketing channel parties, the manufacturer and the retailer. In making these decisions, each party normally follows its own interest: i.e. maximizes its own profit. Unfortunately, this results in a suboptimal outcome for the channel as a whole. Independent profit maximization by channel parties leads to a lack of channel coordination with the implication of leaving money on the table. This may well contribute to the notoriously low profitability of sales promotions. This paper first shows analytically why the suboptimality occurs, and then presents an empirical demonstration, using a unique dataset from an Efficient Consumer Response (ECR) project; ECR is a movement in which parties work together to optimize the distribution channel). In this dataset, actual profit is only a small fraction of potential profit, implying that there is a large degree of suboptimality. It is important that (1) channel parties are aware of this suboptimality; and (2) that they have tools to deal with it. Solutions to the channel coordination problem should ensure that the goals of the individual channel parties are aligned with the goals of the channel as a whole. The paper proposes one particular agreement for this purpose, called proportional discount sharing. Application to the ECR data shows a win-win result for both the manufacturer and the retailer. Recognition of the channel coordination problem by the manufacturer and the retailer is the necessary starting point for agreeing on a way of solving it in a win-win fashion

Engaging the unengaged customer: The value of a retailer mobile app

Mobile apps are becoming a go-to tactic for retailers because they offer the promise of highly convenient digital engagement. We hypothesize that two types of customers are best served by these apps — “offline-only” customers currently purchasing exclusively from the retailer's physical store, and “distant” customers who reside far from the physical store. For offline-only customers, the app complements the physical engagement they currently have. For distant customers, the app offers convenient engagement their remoteness currently precludes. We model app access and purchase behavior of 629 customers who downloaded a retailer's app. We find that apps generate more incremental sales among distant customers compared to near customers, and more incremental sales among offline-only customers compared to online customers. On an illustrative base of 100 K app users, we find accessing the app would generate $2.3 M in incremental sales. Consistent with our segmentation results, we find that the users with the greatest purchase lift (9.5%) due to app usage are those that are distant and offline-only. Our results confirm the economic value of retailer apps and their role as a segmentation strategy to enhance customer engagement

Multichannel shopper segments and their covariates

The proliferation of channels has created new challenges for research, including understanding how consumers may be segmented with respect to their information search and purchase behavior in multichannel environment. This research considers shopping a dynamic process that consists of search and purchase phases, in which the total utility of shopping process is determined by the perceived consumer utility toward channel use, which is mainly driven by consumer characteristics. The authors (1) segment consumers on the basis of their attitudes toward multiple channels as search and purchase alternatives; (2) investigate the association among psychological, economic, and sociodemographic covariates and segment membership; and (3) explore how multichannel behavior might differ across different product categories. Using survey data from 364 Dutch consumers and Latent-Class Analyse, they identify three segments - multichannel enthusiasts, uninvolved shoppers, and store-focused consumers - and covariates, such as shopping enjoyment, loyalty, and innovativeness that predict segment membership. The category-specific analysis suggests that overall segment descriptions apply generally to a variety of categories, though some differences exist, including the impact of covariates, across categories. The authors discuss implications for further research and practice