October 07, 2009

OMS: Price Points

It's trendy in online marketing to entice customers to purchase with low price points, discounts, and promotions.

But is it healthy for you business, in the long-term?

Let's look at an example from the OMS Spreadsheet (e-mail me if you wish to follow along, I'll send you a copy).

Zero out cells D6 - G6.

Zero out cells B101 - B580.

Now we're going to compare the evolution of two segments of new customers.

Go to cell B419, and enter the number "1,000". Now go up to the top of the spreadsheet, and look at cells C17 - G18. In the future, these customers like to purchase 3-4 items per order, spending $30 to $40 per item. In the year the customers were acquired, they spent $159,000. These customers basically stay stuck in department 11.

Next, zero out cell B419, and instead enter "1,000 into cell B421. Now go up to the top of the spreadsheet, and look at cells C17 - G18. In the future, these customers like to purchase much more expensive items. In the year the customers were acquired, they spent $147,000 ... but these customers are likely to migrate to expensive items in department 15. These customers hold much more potential than do other customers.

Online Marketers have the opportunity to carefully link the micro-channel the customer purchases from with the merchandise the customer purchases and the price point of the merchandise purchased. The combination of micro-channel, merchandise, and price point yield a customer that has outstanding potential, or limited potential.

This is an important area for online marketers to provide attention to!!