Monetization of eCommerce data
CASE STUDY: Design a product or solution for an eCommerce company that has a huge user base but is losing money due to heavy discounts across products to ensure they have a fair share of the market among competitors
Goal:
Design a solution to help an e-commerce company from losing money due to heavy discounts.
Assumptions:
1. Same percentage of discount on all range of products for all customers.
2. Building the feature in-house
3. Offers different products from many different sellers
Users: e-commerce company & customers
Key problems:
- Managing discounts among customers (new and existing customers)
2. Cut in Business profitability
Use cases:
❖ Avoiding unnecessary discounts with the optimal price point
❖ Focus on specific promotions /discounts based on the different catalogs for different users
❖ Increase brand value and trust on the platform
❖ Give the best price to the user
❖ Attract new customers
❖ Customer Genuinity check
❖ Manage fraud by customers
Priority: First we will solve the problem of managing the discounts among customers ( New & Existing). As per our assumption that we are applying the same percentage of discounts on all products in the catalog for all customers, and because of that reason the company is facing heavy loss. Solving the first problem will help increase profit for the company automatically.
Metrics
1. Conversion Rate: The conversion rate is the number of conversions divided by the total number of visitors. The average conversion rate of a website depends on several factors, such as niche and target audience.
2. Retention Rate: The percentage of users who continue using the company’s product or service over a given time. It refers to customers who continue to pay for a product over a given timeframe.
3. Average revenue per user (ARPU): This is the average revenue per active user in your online platform. The total revenue is divided by the number of active users over a given time.
4. Return on investment (ROI): The formula is clear: profits achieved are divided by the amount invested in the action.
5. Cost per acquisition (CPA): CPA indicates the cost of acquiring a single customer who placed the order in your store, often with an indication of the sales channel from which they came. CPA frequently measures the average cost of gaining one paying customer via a given campaign channel.
6. Sales Indicators: Volume and frequency of sales can provide data on overall business success. Sales to new customers, existing customers, profit per sale, which products/services are making the most money, or any other categories that might be important to the business.
7. Net income ratio/profit: profit: The money left over after operating expenses are subtracted from revenue
8. Net Promoter Score (NPS): survey question asking customers how likely they are to recommend your product or service to others on a scale of 0–10. Customers are categorized into three groups promoters, passives, detractors, depending on how they answer the question. Promoters (score of 9 and 10) Passives (score of 7 or 8) Detractors (score of 0 to 6, included)
9. Customer satisfaction score (CSAT): It measures customer satisfaction after an interaction or on the overall experience of the customer with the company, product, or services. Respondents usually rate their satisfaction with answers in the Very Satisfied — Very Unsatisfied range.
Solution:
- Dynamic Pricing
The solution is a dynamic pricing feature. It is the concept of selling the same product at different prices. The price of the product readjusts, based on a few critical factors, including
❖ Supply and Demand
❖ Market Trends
❖ Competition and industry standards
❖ Consumer expectations
The algorithms can help to analyze data, detect patterns and price changes and produce effective price recommendations so the e-commerce company makes informed pricing decisions. It allows the company to change prices frequently and gather real-time feedback data. This way the company can respond to demand changes effectively, automate price management and help to monitor discounts and sales, and optimize pricing for profitability or sales volume, reducing the risk of loss. A dynamic pricing strategyuses competitive pricing intelligence and automates the process. The platform knows the important variables, has all the market data needed, and re-prices the SKUs( Stock Keeping Unit). The discount rules include the following fields:
● Rule Name: Name for the discount rule
● Discount Label: Visible for customers in the Cart, Checkout, and Order Page, which shows how much discount is being applied.
● Priority: When there are multiple discount rules, you can set priority on which one to be applied first.
● Product List: The list of products where you want to apply this discount rule. ● Discount Type: You can select the ‘Discount Type’ — that if to apply a discount based on Cart Price or the Product Price, or the Percentage value.
● Discount Value: It is this value that will be applied as a discount. In the case of Percentage Type, add the percentage value (Eg: 20 for 20%)
2. Promotion Engine
Designed to deliver personalized promotional offerings to each customer based on unique characteristics. Promotional engines use data on products and buyer behavior and improve the customer experience by presenting the right offer at the right time. A promotion engine needs to be integrated with the e-commerce infrastructure. Promotions can be applied to a specific segment of products by defining either an inclusion or exclusion list. Discounts can be applied as a percentage or nominal amount and can be created in different tiers based on cart value or quantity of products. It allows limiting promotion usage based on user segment, individual use, and site-wide value. The engine can process the data at a much faster rate than humans to be able to price products accurately to maximize conversion.
3. Fraud Engine: To detect the fraudulent order of the customer. Rules commonly include
-Location: outside of the common area where the user usually makes their purchase.
-Frequency: Account being used more frequently than ever before.
-Unknown sender/receiver: Are accounts being newly created, someone creating several accounts from the same IP address in a short time.
Using these features, we can optimize discount values given to all the customers. Our main focus is to save money on discounts given to every customer.
Implementation:
1. Define commercial objective: Commercial objective is like the company’s compass: it’ll help to navigate any institutional changes and keep the company heading in the right direction.
2. Define pricing strategy: With a price penetration strategy, the company could undercut certain competitors (competitor-based), while staying above a margin level (cost-plus). Competitor-based pricing, in which you follow your competition’s prices.
3. Choose the SKUs: First, decide which Stock Keeping Unit to be repriced dynamically. Some of the products will be better suited for this pricing strategy. It could be an entire category, a specific type of product, a whole assortment, or another segment.
4. Set the pricing Rule(s)
■ Choose the products: Example: Choosing the products can be anything from a category, stock, or whatever data you have. For instance: “for smartphones with a stock >10, apply pricing rule X”.
■ Formulate the pricing rule Now that we have the products, we can make an applicable pricing rule, which would fill in “Pricing rule X” for example: “follow the average of competitor X & Y” or “price based on price elasticity
5. Configuring Price Bounds- With dynamic pricing, the algorithm could set a new price that is lower or higher than your brand or based on the margins. Price bounds prevent that. It sets just a minimum price and a maximum price for rules.
6. Setting Up a Schedule Set a schedule for the price changes, exactly when the company wants to test prices for a set time, and then review the results.
Launch Strategy:
1. Email Marketing:- Using information about consumers and prospects personalized messages can be crafted to a potential or current customer, to send advertisements, limited-time offers with discounts, Special Offers & Deals announcements.
2. Google Ads:- Advertising service by Google for businesses that want to display ads on google search results. It allows you to advertise in different places, using different Campaigns/Offers/ Sales types.
3. Referral Marketing:- Referral marketing is an incentive strategy that encourages existing customers to naturally tell others to buy products or services from the company. It can be implemented by using Coupon Code Offers and Discounts. For example, if customer A refers to customer B, customer B receives rs X off of the first purchase, and customer A will receive rs X/loyalty points/ discount which can be used in their next purchase once B places their order.
4. Social media marketing:- social media can be a great opportunity for showcasing the brand’s newest offering & Attracting quality leads.
Non Functional Requirements: Nonfunctional requirements are specified by technical people eg Architect, Technical leads, and software developers followed by microservice Architecture.
- Response time recommendations:- 0.1 second — limit after which system reaction does not seem instantaneous 1 second — when user will notice the delay, without interrupting flow of thought 10 seconds — when user attention is completely lost. Reaching this 10 seconds threshold, about 40 percent of users will abandon a website after 3 seconds
- Concurrent users:- Eg 6 thousand users on an average during an hour and 1 thousand users at night, define which load scenarios to configure the threshold of our systems. We can set up both configurations in our system. In this way, we can manage the high availability system.
- Scalability:- It considers the maximum load that our infrastructure can handle across the services. For example, The landing page supporting 6 thousand users per hour, must provide 6 seconds or less response time in a chrome application device.
- Compatibility:- Application must support different devices running on the operating system versions (Android, iphone, mac, windows).
- Security:- To protect our system from unauthorized access, we would need the login flow and different user roles as system behavior or user actions.
● Two-factor authentication for our customers to verify the user detail and token-based user identification.
● Application to application communication based on their client key and client secret key to identify the authority.
6. Performance testing:- A system’s performance is mainly determined by its throughput and response time. How many operators can use the system at the same time and ensure that the system returns the data as soon as an operator enters a customer’s credentials
