Retail Science: Discounting dilemma and Dynamics in sales

Retail Science: Discounting dilemma and Dynamics in sales

“This was one of my most important principles: Never have a mandatory sell. This rule gets violated all the time; it just drives me nuts: ‘Buy now!’ You never give an order to a customer.”

– Joe Coulombe, Founder, Trader Joe’s

‘Success in retail industry is not a piece of cake’- every successful retail giant will vouch for this statement.

The very fabric and structure of the retail industry is becoming complex and intractable with the turbo fast growth of e-commerce. As a result, the customers’ shopping pattern and expectations keep changing. Notable brick & mortar stores are looking for life raft to survive in the retail sector. In this article, I would like to discuss on few sale booster mechanisms,

1) Dynamic discounting

2) Cost reduction

3) Customer engagement,

which can be developed as customized data science plugins that solve the retail-sales problem. In my previous posts on LinkedIn,

I have already discussed on the concept of discounting and the metrics used to measure the impact of discounting, still, let me reiterate the essential points.

Generally, retailers detest the very concept of discounting, but they are reluctant to completely disregard it. Why does this disorientated situation exist? The reasons are

1) Consumers are attracted to discounts.

2) There is a risk of creating brand value loss to a product if a retailer sells it to the customers at misleading discount rates.

I would like to emphasize that “discounting” can never be a permanent solution. It is a first aid fix to stem the bleeding.

So, the sale booster mechanisms I mentioned earlier are the options a retailer can choose, in order to escape the discounting quagmire and I am going to give a crisp explanation for each of these mechanisms.

Dynamic discounting:

Dynamic discounting is a deal between the supplier and the buyer (or retailer) where a supplier offers the choice of discount to a buyer for the previously bought goods whose payment is pending. Time of the settlement plays a role here as it increases the cash liquidity in the supplier’s side.

The payment made by the retailer or buyer can be a full settlement or partial settlement within the stipulated time agreed by both the parties. Earlier the settlement done, greater is the discount offered to the buyer.

Ultimately, the buyers can pass on and share the benefits acquired from this process to the end customers.

The process of dynamic discounting

Cost Reduction:

Cost reduction in a business is all about,

“Reducing the unnecessary spending without compromising on the product or service given to the customer”

Let me explain briefly about two important concepts,

i) Replenishment planning:

For bigger brands with exorbitant number of outlets, it always remains a challenge to track

· the stocks that must be ordered,

· when should the order be released?

· the quantity of stocks to be ordered

Replenishment planning should be done by a firm on a war footing basis using appropriate mathematical/machine-learning models.

ii) Inter-store transfer:

It is a process of moving the stocks from “a store in the slow lane” to “a store where the demand of the particular stock is high”. To do an effective inter-store transfer, it is important to forecast the intermittent demand of the stocks.

Customer Engagement:

Customer engagement is about building a strong relationship with the customers.

It is important to observe your customer activity time on your shopping portal, customer’s purchase pattern etc. Try to incorporate Gamification in your business (Wipro’s Bunchball is an apt example for this).

But how can one explain Gamification beyond “points and badges”?

It is an art of implementing gaming mechanics in marketing, lure the customers and make them actively involved in the loyalty programs of the Marketers.

Gamification is based on

· Human Psychology

· Persuasive Design (Neuroscience marketing)

· Behavior management.

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