Refladdin

1. Motivation & goal: 

A major concern over the feasibility of Reflad was identified in the assumption that customers at a food retailer will always or almost always purchase one-day-old food items that have been discounted by 1%, instead of the newest undiscounted items that have just been placed on the shelf. This assumption was required to derive a sizable increase (28% ) in profit in a simple set of simulations for a hypothetical supermarket implementing Reflad. In order to increase the certainty that more revenue will indeed be retained by a supermarket that implements Reflad, it is crucial that customers do choose to buy products that are slightly older than the newest ones. The goal of Refladdin is to therefore provide a greater incentive for consumers to purchase items that have been on the store shelves for longer. Specifically, we describe means to achieve 5% discounts on products that have been on the shelf for one day.

2. Players: 

Refladdin is ultimately expected to involve about seven different players: the donor, the retailer/supermarket, the consumer/customer, the "Program Development and Curation Agency" (see Section 3.3 for details), the software/web developer, the hardware supplier, the solution provider, and possibly more. The below presentation of Refladdin is organized in terms of distinct "paradigms" through which the goal of offering 5% discounts could be achieved. Each paradigm has a subset of players that are considered to be key to the paradigm. These key players are defined at the beginning of the description of each paradigm. 

3. How to achieve the 5% discounts:

3.1. the donor-centric paradigm

This paradigm involves the supermarket, the donor, the consumer, the hardware supplier, and the solution provider. However, to better illustrate the uniqueness of this paradigm, we focus on two players: the donor and the supermarket. The schematic below shows the flow of money between these key players.

The donor is envisioned as someone who is passionate about reducing wasted food. They donate a certain amount of money (e.g., 580 yen) on a monthly or yearly basis, expecting no monetary return by default. That said, the donor could potentially be offered an amount of money by the supermarket depending on how much extra revenue it succeeds in retaining as a result of implementing this solution.

The supermarket will offer a 1% discount, as per Reflad, on each product that exists on the shelf one day after it was placed there.  For a 100-yen product (e.g., custard pudding), that is 1 yen. To offer buyers a 5% discount instead of the 1% discount, the store taps into the pool of money contributed to by the donor in order to discount each custard pudding by another 4 yen. Because the store sells five puddings per day (as per the experimental design described in Simulations), the amount of donation money needed by the store for a 30-day period is as follows: 

5*29*4 = 580 yen

A set of simulations under the two scenarios described in Simulations were carried out for a 30-day period. The profit for the supermarket was greater under the second scenario (with Reflad) than under the first scenario (without Reflad) by 1,255 yen for selling 150 puddings. 

If the supermarket decides to keep 20% of the gain to cover expenses etc. and returns the remaining 80% to the donor, the donor receives a return of the following percentage on their donation: 

(1255*0.8)/580 * 100 = 173% 

If the supermarket decides to keep 60% of the gain to cover expenses etc. and returns the remaining 40% to the donor, the donor receives a return of the following percentage on their donation: 

(1255*0.4)/580 * 100 = 87%

3.2. the tech-/loyalty program-based paradigm

Players involved: 

This paradigm involves the supermarket, the web developer, the consumer, the hardware supplier, and the solution provider. However, to better illustrate the uniqueness of this paradigm, we focus on three players: the supermarket, the consumer/customer, and the web developer. 

Gist: 

This paradigm harnesses the capabilities of supermarket loyalty programs and associated mobile apps to keep track of the number of one-day-old items a given customer purchases within a certain time-frame (e.g., a week, 10 days, a month) in order to achieve the 5% discounts on one-day-old food items. Once the customer reaches a predefined number of one-day-old items purchased within that time-frame, they are rewarded with a predefined amount of cashback or number of loyalty points (where one loyalty point is worth one yen and can be used toward future purchases) that will be credited to their loyalty-program account balance. While the customer will only receive a 1% discount on the one-day-old items at the time of purchase, by the time they receive the cashback or points, they will have received the equivalent of about a 5% discount on each item purchased. 

Example: 

For simplicity, let’s assume and imagine that there is just one customer—a lover of custard puddings. They are responsible for all of the 150 puddings (see Simulations to learn where this number, 150, comes from) that are purchased during the following 30-day period: June 1 to June 30. Every day, this customer comes to the supermarket and purchases 5 of the 10 custard puddings that have been made available on the designated shelf in the supermarket before it opens. The 5 puddings the customer chooses are consistently those that have been on the shelf for one day longer than the other 5 and have therefore been discounted by 1% off the full price.

When the customer has cumulatively purchased 35 puddings by the end of the first week of the month, they look at their loyalty-program app on their smartphone and see a new message from the supermarket telling them that 35x4 = 140 points have been added to their loyalty-program account. That’s because the supermarket had announced earlier at the beginning of the month that "the first customer to purchase 35 one-day-old custard puddings between June 1 and June 10 will be rewarded with 140 loyalty points."

   This explains why this customer is coming into the store every morning eager to be the first one to get to the store shelf selling these custard puddings and consistently chooses the 5 that have been on that shelf since the previous day.

Discussion:

In reality, there will be more than one customer purchasing the custard puddings, and some of these puddings purchased will be the newest zero-day-old ones, and not the one-day-old ones. To address this, it will be necessary for the supermarket to determine at the end of the 10-day period ending on June 10 how many zero-day-old puddings and how many one-day-old puddings were sold and calculate the gross profit, accounting for the discounts etc. The supermarket, with the assistance of AI and the web developer, will then for the next 10-day-period determine the optimal numbers that X and Y should be replaced by in "The first customer to buy X one-day-old custard puddings between June 11 and June 20 will be rewarded with Y loyalty points."

In short, this loyalty-program-based initiative is designed to provide an incentive for the buyers of this custard pudding to purchase as many one-day-old items as soon as possible, so as to achieve the desired situation in which, on any given day, the ratio of the number of zero-day-old custard puddings sold to the number of one-day-old custard puddings sold is as close to zero as possible (until all custard puddings other than the zero-day-old ones have been sold out).

3.3. the non-financial satisfaction paradigm

Preface (to this third element): 

For this third element, we want to define another paradigm in which we can achieve the equivalent of a 5% discount but not in the form of money going directly into the consumer’s pocket. So in a way, it’s not a 5% discount per se. But we’re going to try to define a means to incentivize customers to buy one day old items by offering value that is equal to or exceeds the value of a 5% monetary discount.

Players involved: 

This paradigm involves the donor, the supermarket, the web developer, the consumer, the hardware supplier, and the solution provider, and the Program Development and Curation Agency. However, to better illustrate the uniqueness of this paradigm, we focus on five players: the donor, the supermarket, the consumer, the web developer, and the Program Development and Curation Agency. 

Gist, with examples: 

The development of this element was driven on the basis of a hypothesis that, depending on the consumer, the satisfaction afforded by the economic benefit of a monetary discount (that ranges from somewhere between a few cents and a few tens of cents for most grocery items) might be outweighed by the satisfaction offered by the prospect that the same amount of money will be used as a contribution to a social, environmental, economic, medical, recreational, or other cause that the consumer cares about. We hypothesized that an initiative that promises to use "discount-money" (money that would otherwise be used to benefit the consumer financially in a direct way) in that way will serve as a better incentive for that customer to pick up and purchase slightly older food items than the newest ones. This kind of satisfaction may be characterized as one of an intellectual, emotional, psychological, or spiritual nature. 

For example, for a certain person, a return of four cents to their wallet on a $1 custard pudding might not be as worthwhile as if that same amount of money (four cents)  were to be allocated toward a larger project. Whether the project is related to the environment, social justice, or recreation, the thought that their act of buying a one-day-old item will contribute to advancing that project -- albeit in a small way -- is expected to strike the consumer as attractive enough to have an effect on their purchasing behavior.

The slideshow below shows just a few of the infinite possibilities of non-financial causes that could be made available as destinations for the four-cent donations. Each cause will appear as an icon on the Cause Selection Platform which a consumer who purchases a one-day-old item can click on to select the destination to which they want a four-cent donation to be directed as a “reward” for purchasing that one-day-old item. 

How will it be funded?

There are two possible avenues for funding.

 First, we believe certain organizational investors and philanthropic organizations will be interested in providing support. These organizations will be interested in advancing both food-waste reduction and other social or environmental causes. Their donations will be received in a designated pool of money. For each $1 custard pudding, four cents will be withdrawn from this pool of money and directed to a cause that is selected by the consumer who buys the discounted one-day-old custard pudding via the “Cause Selection Platform” feature that is developed by the Program Development and Curation Agency and linked to the mobile app for the supermarket’s loyalty program. 

The second avenue is to set up a project on a crowdfunding platform for each cause available for selection on the "Cause Selection Platform." In this case, individuals interested in, for example, the cause of improving post-harvest management of coffee can donate any amount of money to the crowdfunding project for this cause. They will know that the money they donate will be directed towards the FAO program (mentioned in Example #1 in the above slideshow) via a small discount applied to a food item in a local supermarket to prevent the item from being unsold until the expiration and wasted. Because a crowdfunding project will be launched for each cause, an individual can donate an amount of money of their choice just for the cause that they are interested in. For example, someone who is interested in improving post-harvest coffee management but not interested in advancing lifelong learning opportunities can simply choose to donate to the former but not the latter.

4. Synthesis:

Sections 3.1 to 3.3 describe three means to achieve 5% discounts (or the equivalent thereof) independently, assuming implementations that are purely "donor-centric," purely "tech-/loyalty-program-based," and purely based on "non-financial satisfaction." In reality, however, an implementation could employ multiple means. The exact composition of the means to achieve the 5% discounts will depend on the circumstances involved. 

Example 1. Using all means except the "non-financial satisfaction" element

One could suppose a case in which 1% comes from corporate spending, 2% comes from donations, and the remaining 2% relies on loyalty points. In this case, a customer who purchases a one-day-old custard pudding will save 3% worth of money instantly on purchase and will potentially receive a further 2% worth of money at a later date if they consistently purchase one-day-old items over a relatively short period and qualify to receive cashback or points through the loyalty-program incentive.

Example 2. Using all means

In addition to the 1% from corporate spending, 0.5% could rely on donations, 1% on loyalty points, and the remaining 2.5% will be a donation to one of the causes in the suite of options developed by the Program Development and Curation Agency.