Do personalized product recommendations influence consumer purchasing decisions more effectively than price discounts in e-commerce?

Abstract

In this study, the authors examine the feasibility of discounts and product recommendations as marketing strategies that can be applicable in the context of consumer behavior within the e-commerce setting. The analysis was done based on a dataset and that was used to approximate the real-life purchasing behavior focusing on the comparison of the results of the conversion, the value of the order, and the heterogeneous effects within the treatment groups. The results show that the volume of discounts has a tremendous impact in increasing the conversion rates that confirm that it is an effective driving force behind making the purchase. The implication that they have on the order value is not important with the implication of a trade off in revenue in case they are overutilized on discounts. Product recommendations, on the contrary, possess lower conversion influences but higher order value among the customers thus portray their effectiveness in cross-selling and upselling. Customer attribute, previous history of purchase and price sensitivity is also highlighted in the research regarding the effectiveness of treatment. On managerial analysis, the report shows that it is preferable to use discounts to accomplish the short-term targets of the business in terms of traffic and sales volume and the long-term goals of recommendations in terms of value creation in the long run in terms of increased revenue per transaction. The best option, which can provide the highest possibility of maximizing the sales and profitability, is a balanced approach combining both strategies using discounts selectively and through personalized recommendations. The study highlights the importance of using data to make decisions in the development of promotional plans that are aligned to the business objectives and customer characteristics.