Customer targeting and micro-marketing in a retail supply chain

Abstract

As most companies in the consumer products space develop operational capabilities to produce and distribute high-quality low-cost products, leading firms in the industry continuously seek new ways to increase profitability and provide value to their retail partners and end consumers. While firms such as Procter & Gamble (P&G) have developed lean and flexible supply chains, this innovation has not had significant impact on the actual sale of product to the customer in individual stores. Analysis shows that large differences in the level of consumer demand for specific products exist across retail chains. However, current practices typically treat all stores across a chain the same. This thesis presents methods to target store-level marketing levers, including product mix, promotions, pricing, distribution and inventory management levels, based on shopper demographics and past purchasing behavior. Specifically, a framework to divide large retail chains into smaller "virtual chains" and subsequently develop targeted micro-marketing strategies for these virtual chains is presented. Research for this thesis was conducted during a six and a half month internship with P&G's Product Supply group at the Cosmetics division in Hunt Valley Maryland. The internship was affiliated with the Massachusetts Institute of Technology's Leaders for Manufacturing Program.