Pricing and promotion strategies of an online shop based on customer segmentation and multiple objective decision making

The advent of the Internet and web technologies has enabled the prosperity of virtual stores, which greatly reduce customers’ search costs and retailers’ overhead. However, the furious competition between online shops makes it difficult for them to generate profits. This study attempts to establish pricing and promotion strategies for online shops to enhance their profitability. The pricing decision is based on the concept of customer relationship management, where a greater margin of price concession is given to customers who are more valuable to the shop. The process of our approach is: clustering customers into different classes based on their RFM data, computing and presenting the list prices of products to customers according to their classes, allowing customers to bargain over the price and offering conceded prices which are computed based on customer classes and a multi-objective decision making model, and finally providing promotion options to customers to reinforce their purchase inclination. The proposed approach is implemented at an online shop of a computer peripherals retailer. Transaction data before and after the implementation are collected and compared to assess the performance of the proposed approach. 2011 Elsevier Ltd. All rights reserved.