User:StartupLife/sandbox/Variable Discouting

Variable Discounting
Variable discounting is a form of dynamic pricing [1] based on a collection of patented methods (2 held, US8655703[2], US8694348[3], and 4 pending) by which retailers engage in transactions that take into account the individual price sensitivities[4] of customers and falls under the greater category of pricing strategies[5].

“Dynamic pricing” means that customers are charged different prices for the same item, a strategy used for decades in industries such as entertainment, travel, and retail. The aim of dynamic pricing is to extract maximum profit from each sales transaction by adjusting prices to account for the existence of competition, expected variability or sudden changes in supply and demand, consumer demographics, and so on.

Although most dynamic pricing strategies rely on external factors to assess a customer’s willingness to pay, variable discounting aims at discovering each customer’s individual price sensitivity. Some customers are highly price sensitive and are willing to spend a great deal of time conducting price comparisons, waiting for sales, or performing tasks for discounts (such as rebates[6]/ebates[7]). Other customers are less price sensitive and choose to pay higher prices to avoid the hassle or time associated with seeking discounts.

Variable discounting involves the customer to as little or as great an extent as the customer desires, enabling the seller and buyer to engage in a transaction based on individual price sensitivities. Customers are given the option to either pay the full list price for a product or service or to perform a task—such as watching a short video advertisement, answering a quick survey question, sharing on social media, etc.—in exchange for a variable discount. The discount range (from 1-99%) is set ahead of time using algorithms, but the discount offered to the customer is variable. The customer can then decide to purchase the product at the discounted rate within a time limit or can decide to perform the task again and receive another variable discount offer. Customers who are willing to pay full price do not perform the task at all, while customers who are price sensitive will do this as many times as they like until a discount is reached that motivates them to buy thus discovering each customer’s individual price sensitivity point. Price sensitivity = desire to get best price vs time/effort spent to get desired discount.

For retailers, variable discounting addresses several the key issues arising around dynamic pricing strategies: 1) avoiding “race to the bottom pricing[8]" triggered by price comparison technologies and maximizing profits by differentiating between customers based on price sensitivity while remaining within existing margins; 2) allowing retailers to offer discounts on luxury items without affecting brand reputation or causing issues with MAP[9] (minimum advertised pricing regulations set by manufacturers); and 3) instituting a system of variable pricing based on a consumer’s “willingness to pay” without triggering negative emotional and ethical reactions.[10] Variable discounting uses mechanisms that are both transparent (potential customers know how it works before deciding whether to “play”) and fair (each customer has an equal chance at obtaining the lowest price). Specific manifestations of variable discounting Skinnyprice, a company using variable discounting technology, was founded in 2011 by Daniel Owen McGuire. Variable discounting technology first appeared in the form of a SaaS plug-in on heels.com in December 2014; in 2015, it was deployed on the Skinnyprice website for discounts on restaurant gift cards; in 2016, it is being rolled out to some multi-billion dollar retailers.

External Links:

 * How to Make Discounting a Game Retailers Can Win, PYMNTS.com
 * The Price is Right: The Next Big Thing in E-Retail, Dell.com
 * Choose Your Own Discount the Evolution of Restaurants Seeking Your Attention, Medium.com