How Amazon Uses Discount Impact Analysis To Improve Sales And Profit

Overview

Amazon, headquartered in Seattle, Washington, and Arlington, Virginia, stands as one of the titans of modern commerce and technology. Founded by Jeff Bezos on July 5, 1994, initially as an online bookstore, Amazon swiftly diversified its offerings, earning the moniker "The Everything Store." Its revenue soared to a staggering US$574.8 billion in 2023, with operating income hitting US$36.85 billion and net income reaching US$30.43 billion. The company's total assets grew to US$527.9 billion, and its total equity to US$201.9 billion in the same year. With approximately 1,525,000 employees worldwide, Amazon operates across various sectors, including e-commerce, cloud computing, digital streaming, and artificial intelligence. Noteworthy subsidiaries such as Amazon Web Services, Ring, Twitch, and Whole Foods Market contribute to its multifaceted presence. As of October 2023, Amazon ranks as the 12th most visited website globally, with 82% of its traffic originating from the United States. It dominates sectors such as online retail, smart speakers, and cloud computing, challenging even the most established players. Amazon's disruptive influence, marked by technological innovation and aggressive reinvestment, has reshaped industries worldwide, though it has also faced criticism for issues such as data privacy, workplace culture, and anti-competitive practices. Nonetheless, its impact on global commerce and technology remains unparalleled.
Now, let's dive into some insights (just for learning purposes!) on how Amazon might analyze their data to better understand their Discount Impact Analysis.

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About Dataset

Let’s Inspect our Superstore dataset. This dataset got all the deeds on sales – order IDs, order and shipping dates, shipping mode, customer names and where they're at, plus product info like category and name. And of course, we've got the numbers – sales amount, quantity, discounts, and profit. 

This data enables analysis of sales performance, profitability, and customer behavior to improve supply chain management decisions. Here are some sample Rows & Columns of the Superstore Dataset.

ORDER DETAILS

PRODUCT DETAILS

SALES DATA

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Each row in the dataset corresponds to an order made by a customer. We have the following features:

ORDER SHIPMENT

PRODUCT

OTHER FEATURES

The SuperStore Dataset contains over 10194 orders and 13 of our Columns have String Data type, 4 of our Columns have Integers Data Type and 2 of the columns have Date Data Type.

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How Amazon uses discount impact analysis to improve sales & profit ?

To start with the Discount impact analysis ,it is necessary to follow the 4 factors of Data Analysis and that are : 

1. Identify the users or stakeholders for the dashboard.

2. Design Empathy Map to define Users' Goals and Challenges or pain points.

3. Identify Metrics or KPIs Matter the Most.

4. Understand the Objectives and Goals.

5. Ask Business Questions

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I know it looks a bit overwhelming, that's why in this article, we'll lay the foundation for a top-notch discount impact analysis‍.

Step 1: Identify the users or stakeholders for the analysis

Define the User or stakeholder  who will use the discount impact analysis data story. In our case, We’ll use a  Business Analyst. Recognizing their diverse needs, challenges, and priorities becomes the cornerstone for tailoring an effective data story. 

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User Persona: Business Analyst

Responsibilities:

1. Analyzing sales data to discern trends, patterns, and opportunities for optimization within various product categories and market segments.
2. Utilizing statistical software and data visualization tools to conduct in-depth analysis of sales performance, pricing strategies, and customer behavior.
3. Evaluating the impact of discounting strategies on sales volume, revenue generation, and profitability across different product lines and regions.
4. Collaborating with marketing, sales, and finance teams to develop and implement effective discounting strategies that align with business goals and objectives.
   
   

Needs:

1. Access to comprehensive sales data covering various products, regions, and time periods to ensure accuracy in analysis and decision-making.
2. Proficiency with statistical analysis software such as R or Python to conduct advanced analytics, including regression analysis, forecasting, and segmentation.
3. Integration capabilities with other systems within the company's sales and marketing infrastructure to maintain a unified view of customer data and sales performance.
   
   

Challenges:

1. Ensuring the accuracy and consistency of sales data to provide reliable insights into the effectiveness of discounting strategies.
2. Addressing the complexities of analyzing sales performance across diverse product categories, distribution channels, and customer segments.
3. Balancing the need for discounting to drive sales with the potential impact on brand perception, customer loyalty, and long-term profitability.

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Since, we have defined the User Persona & have mapped the needs, challenges and responsibilities. Our Next step will be to design an Empathy Map which will map the pain points of the user.

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Step 2: Design Empathy Map

To truly connect with the experiences and expectations of a Business analyst, the creation of an empathy map is invaluable. This visual tool allows for a deeper understanding of the emotions, aspirations, and pain points of users. 

By empathizing with their perspectives, we can design a data story that not only meets functional requirements but also resonates with the human elements of their roles.

Step 3: Identify the Key Performance Indicators (KPI’s)

The heartbeat of any analysis lies in KPI’s and their Metrics. It's crucial to identify the KPIs that matter most to achieving the defined objectives and by focusing on the most relevant metrics, organizations can gain actionable insights into their discount impacts. 

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Step 4: Understand the Goals & Objectives of User

Now, on the basis of Empathy Map and KPI’s, we need to define our goals and objectives of the Users. So, that it will align with the data story functionalities to ensure decision making. Here are the Key Objectives & Goals :

Objective
The objective of the business analyst within a superstore context is to leverage data analysis techniques and tools to optimize operational efficiency, strategic decision-making, and customer satisfaction. By harnessing sales data and market insights, the analyst aims to enhance the store's performance across various aspects of its operations, from inventory management to marketing strategies.

Goals:

1. Operational Efficiency: The primary goal is to improve operational efficiency by analyzing sales data and inventory levels to optimize stocking levels and minimize stockouts. Additionally, the analyst aims to identify bottlenecks in the supply chain and streamline processes to reduce costs and improve overall efficiency.
   
   
2. Strategic Decision-Making: Another goal is to provide insights to support strategic decision-making, such as pricing strategies, product assortment planning, and expansion opportunities. By analyzing market trends and customer preferences, the analyst can help identify growth opportunities and mitigate risks.
   
   
3. Customer Satisfaction: The analyst also aims to enhance customer satisfaction by understanding customer preferences and behavior. By analyzing customer feedback and purchase history, the analyst can identify areas for improvement and develop strategies to enhance the shopping experience.

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Step 5 : Ask Business Questions

Beyond KPI’s, organizations must engage in business-driven inquiry. This involves asking strategic questions that directly align with overarching business objectives. 

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1. What is the average discount rate?

• Metric: discount rate
• Question: some text
  • Show me the average discount rate?
• Observation: The average discount rate is around 16%.

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2. How are total sales and average discount rate across regions ?

• Metric: total sales, average discount rate
• Question: some text
  • Total sales by region?
  • Add average discount rate
• Observation: It shows the Central region has a high discount rate of 24% while its sales and profit lags really behind. This high discount rate needs to be investigated.

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3. How are total sales and discount patterns distributed across categories in different regions?

• Metric: sales, discount rate
• Question: some text
  • Sales by category by region?
  • [Add More] Average discount rate by category by region?
• Observation: In the central region, Furniture and Office supplies have a high discount rate despite generating very less sales and profit. We may need to optimize the pricing here.

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4. What is the average discount rate by sub-categories across regions? How do it relate with total sales and profit? Are there any regions and sub-categories we need to look at?

• Metric: discount rate, sales, profit
• Question: some text
  • Average discount rate by sub-category by region?
  • Add total sales and total profit
  • Add category
  • Where region is Central
• Observation: We can clearly observe that some of the sub-categories in the Central region have high discount rate like Binder (51%), Appliances (45%), Furnishings(40%), Machines(33%) etc, which needs to be optimized as they are generating massive losses. 

Outcomes

The comprehensive analysis of discount rates and their effects on total sales and profit across different regions and product categories has provided valuable insights. The average discount rate across all regions is approximately 16%. However, the Central region exhibits an unusually high average discount rate of 24%, while its sales and profits remain significantly lower than those of other regions. This discrepancy suggests that the elevated discount rates in the Central region are not effectively boosting sales or profitability.

Conclusion

The findings underscore the necessity for a targeted review and optimization of discount strategies, particularly in the Central region. The high discount rates currently applied are not yielding the desired increase in sales or profitability and, in some cases, are resulting in considerable financial losses. To address this, a strategic reevaluation of discount policies is essential. Implementing more effective pricing strategies, refining marketing efforts, and ensuring discounts are used judiciously can enhance overall financial performance. These data-driven insights will enable better-informed decisions, leading to optimized pricing, improved sales, higher profitability, and increased customer satisfaction across all regions.

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