Customizing promotions in online stores

The main objective of this paper is to provide a decision-support system of micro-level customized promotions, primarily for use in online stores. Our proposed approach utilizes the one-on-one and interactive nature of the Internet shopping environment and provides recommendations on when to promote how much to whom. We address the issue by first constructing a joint purchase incidence–brand choice–purchase quantity model that incorporates how variety-seeking/inertia tendency differs among households and change over time for the same household. Based on the model, we develop an optimization procedure to derive the optimal amount on price discount for each household on each shopping trip. We demonstrate that the proposed customization method could greatly improve the effectiveness of current promotion practices, and discuss the implications for retailers and consumer packaged goods companies in the age of Internet technology.