Customer Analytics - Relative Price as Data Point

Relative Pricing in Customer Behaviour Analytics

We had some discussion on Price Sensitivity earlier. This was used for determining the Right Price of offer for that customer. However, the price sensitivity is more related to Demand Elasticity

Relative Price is the price of a product/service with respect to another product/service. The latter one is usually termed as the base product/service.

How to use Relative Price to understand Customer Behaviour

Relative price provides very much useful insight about the customer's behaviour. The following would be the typical values for Relative price

• High
• Medium
• Low

The relative price is applied to each item based on a base item from that category. For example a segregating a customer based on the
different price preferences (Twinnings Tea might be a High valued one, while Tetley might be Medium priced; depending on the purchase behavior of each individual across category the following Relative Pricing Table is created)

Cust ID	Category	Premium	High	Medium	Low
RF0000123	OVGT120980	0	6	16	0
RF0000227	OVGT120980	11	3	2	0

Relative Pricing Customer Table

)Looking at the above table, one could distinguish between the customers - (for a particular category) - the second customer mostly shops for Premium items, while the former is a bit conservative.

The above methodology can be used and the following can be used as Segmentation variables

• No of High Value Items
• No of Medium Value items
• No of Low Value items

Please try this out and let us know the difference it brought to your segments

How to measure effectiveness of Switcher Campaigns in Retail 

Switcher campaigns are the one that disrupt brand loyalty and tease an otherwise loyal customer to switch over to the competitor. Tetley and Brooke Bond are competitors - what would be the impact of providing an offer on Brooke Bond tea for a Tetley fan.

dunnhumby's analysis on offers finds Switcher campaigns are always the worst performing. According to the reporthouseholds tend to buy more of their favorites, such as Coke products, or a new Coke product, if offered an incentive rather moving to Pepsi for example

How to measure Price Sensitity of Customers

How to know if a Customer is Price Sensitive?

Understanding the customer based on his price bracket has lot of benefits. This would help the retailer stock products of appropriate price in the category and help the marketing team with sending suitable discounts / promotions.

What is Price Sensitivity?

Before we dive deep into this, it's better to have it defined to avoid ambuigity later. This is the change in buying behavior of the customer of a particular product / category due to the change in price. This means a customer will have different price sensitivities for different product or categories. This is sometime called as Price change sensitivity too

How to measure the price sensitivity?

There are various ways to measure it for a customer-product. One way is to find the demand elasticity.

We will discuss in detail on demand elasticity with some examples

Can a product's sales increase even when there is increase in Price. Though strange there are chances that it would be - these are called Giffen goods