How to hit the customer-promotion-channel bull’s-eye!
Faced with several options for retail promotions, retailers can rely on data to smartly segment their customers based on their deal proneness and use of channels. Different customer segments respond to promotions differently. Offline-focused segments are the least responsive to promotions. Online-focused segments and those using all channels are far more responsive to promotions. A retailer’s promotional efforts and resources, therefore, would be far better spent in reaching these segments.
Three forces determine retail promotions today: 1) the vast number of channels both traditional (stores, mailers, print) and online (email, mobile, websites), 2) emergence of consumer segments defined by channel preference (online-only, offline-only, and both), and 3) retailers’ adoption of omnichannel management. In this scenario, retailers are faced with the question: How to target customers with the right promotions via the right channels? A study surveyed over 1000 consumers to find the answer to this question.
The study tried to answer this question by looking at segment-based deal proneness of consumers. Deal proneness is the tendency of customers to look for and utilise promotions. Deal prone customers (also called bargain hunters in other contexts) redeem more coupons, spend more on sale items, and buy more consumables influenced by display. The segments that the study identified were based on the channels preferred by customers for accessing and using promotions.
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The study found that within each product category (e.g., groceries, electronics, clothing), different consumers use different channels to obtain and use promotions, leading to multiple channel-based segments. For instance, there are 3 such channel-based segments in electronics—1) online deal shoppers looking for entertainment, 2) physical store-focused, and 3) “on-the-go” deal shoppers that utilise both online and offline channels per opportunity. Moreover, some segments dominate the category, while others are niche. For example, the top segment in groceries accounted for 58% of respondents, while the other four together accounted for 42%.
The study also found that customers belong to the different segments based on motive, opportunity, and ability. Motive refers to the perceived benefits of using promotions such as saving money, exploring new ideas/products, entertainment, and self-expression. Opportunity refers to factors that create a chance for a customer to utilise promotions, such as time spent on mobile devices, brand loyalty, time spent visiting stores, and access to promotions. Ability refers to factors like experience with buying the product, promotion fatigue, and home resources. Surprisingly, opportunity is the most critical factor among these three, followed by ability and motivation.
While most of the segments utilise more than one channel to obtain and use promotions, there is a clear divide between the preferences of the most prevalent segments. They prefer either online or offline channels to get and utilise promotions, but not both. For example, a segment that prefers mobile promotions would not avail print promotions and vice versa.
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Different customer segments also respond to promotions differently. Offline-focused segments are the least responsive to promotions of all. That is, they are the least likely to use promotions that they do receive. Online-focused segments and those utilising both online and offline channels are far more responsive to promotions. A retailer’s promotional efforts and resources, therefore, would be far better spent in reaching these segments.
The study has significant practical applications for retailers vis-à-vis how to design and target promotions. Retailers can use the data for each product category to identify their target segments of deal seekers, create promotions that will appeal to them most, and disseminate the promotions using their preferred channel. For example, clothing retailers could target frequent shoppers seeking deals online (29% of category respondents) through their website, banner advertisements, or emails. Using the optimum combination of segment, promotion, and channel will lead to increased reach, a more efficient promotion process, and greater sales.