The Effectiveness of Customized Promotions in Online and Offline Stores

Abstract

This study investigates the effectiveness of customized promotions at three levels of granularity (mass market, segment specific, and individual specific) in online and offline stores. The authors conduct an empirical examination of the profit potential of these customized promotion programs with a joint model of purchase incidence, choice, and quantity and through optimization procedures for approximately 300 conditions. They find that (1) optimization procedures lead to substantial profit improvements over the current practice for all types of promotions (customized and undifferentiated); (2) loyalty promotions are more profitable in online stores than in offline stores, while the opposite holds for competitive promotions; (3) the incremental payoff of individual-level over segment- and mass market–level customized promotions is small in general, especially in offline stores; (4) for categories that are promotion sensitive, individual-level customized promotions can lead to a meaningful profit increase over segment- and mass market–level customized promotions in online stores; and (5) low redemption rates are a major impediment to the success of customized promotions in offline stores. Optimal undifferentiated promotions should be the primary promotion program in this channel, and firms can benefit from offering a combination of optimal undifferentiated and customized promotions for suitable categories in offline stores.

Loyalty Programs: Generalizations on Their Adoption, Effectiveness and Design

“…The effectiveness and profitability of customized promotions depend on the market context (Zhang and Wedel, 2009). Customized price promotions are more viable in online settings, whereas low redemption rates are a major impediment to the success of customized promotions in offline stores (Zhang and Wedel, 2009). In addition, personalized marketing can evoke negative reactions if members perceive it as discriminatory.…”

Advertising Bans and the Substitutability of Online and Offline Advertising

“…Our finding that online display advertising is a substitute for offline display (primarily billboard) advertising contributes to a growing literature in marketing that explores the relationship between offline and online environments for customer acquisition (Bell and Choi, 2009), brands (Danaher et al, 2003), word of mouth (Bell and Song, 2007;Forman et al, 2008), purchases (Forman et al, 2009;Brynjolfsson et al, 2009), customized promotions (Zhang and Wedel, 2009), ad pricing (Goldfarb and Tucker, 2009), search behavior (Lambert and Pregibon, 2008) and price sensitivity (Chu et al, 2008). We believe ours is the first study to empirically investigate consumer substitution between online and offline advertising.…”

How Can Stores Sustain Their Businesses? From Shopping Behaviors and Motivations to Environment Preferences

“…play vital roles in providing consumers' shopping opportunities and inducing shopping satisfaction and experiences on a daily basis. Previous studies have focused on investigating consumers' different shopping behaviors between online stores and traditional physical on-site stores [12,[18][19][20]. Some of the most commonly cited reasons for buying online (through computers and/or mobile phones) were convenience of shopping from home, products not being available locally, and low prices.…”