A Customer Segmentation Framework for Targeted Category Coupons in Retail

37 Pages Posted: 30 Jun 2019 Last revised: 26 May 2020

See all articles by Bernhard von Mutius

Bernhard von Mutius

WHU - Otto Beisheim School of Management

Arnd Huchzermeier

WHU - Otto Beisheim School of Management

Date Written: May 25, 2020

Abstract

It is customary for short-term measures to be used for designing customized marketing campaigns and evaluating their success. We consider the integration of customer lifetime value (CLV) thinking into the category selection problem for targeted coupons. This category selection problem entails two important considerations: Should the coupon be designed category-specific or not, and, if yes, should short-term or long-term objectives govern the category choice? We are the first scholars to address these questions by developing a data-driven customer segmentation framework based on the dimension of churn, frequency, and loyalty. We base our framework purely on transactional data available to every retailer and combine statistical tests and k-centroid clustering to allocate each customer to a (non-)category-specific targeting strategy. The personalized targeting strategy based on this framework enables multi-category retailers to exploit the full potential of customized marketing by optimizing the trade-off between short-term and CLV considerations. Our analysis reveals that this strategy – as compared with the common strategy in retail practice – can result in a significantly higher CLV even as it reduces wasteful marketing costs.

Keywords: customized coupons, targeted marketing, category selection, clustering

Suggested Citation

von Mutius, Bernhard and Huchzermeier, Arnd, A Customer Segmentation Framework for Targeted Category Coupons in Retail (May 25, 2020). Available at SSRN: https://ssrn.com/abstract=3411661 or http://dx.doi.org/10.2139/ssrn.3411661

Bernhard Von Mutius (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Arnd Huchzermeier

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany
+49-261-6509380 (Phone)
+49-261-6509389 (Fax)

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