Individual Marketing with Imperfect Targetability
Marketing Science
Consumer Addressability and Customized Pricing
Marketing Science
Sequential Product Positioning Under Differential Costs
Management Science
Product Customization and Price Competition on the Internet
Management Science
On Customized Goods, Standard Goods, and Competition
Marketing Science
Conditioning Prices on Purchase History
Marketing Science
Customized Products: A Competitive Analysis
Marketing Science
News Consumption and Media Bias
Marketing Science
Marketing Science
When to “Fire” Customers: Customer Cost-Based Pricing
Management Science
Competitive Effects of Purchase-Based Targeted Advertising
Journal of Electronic Commerce in Organizations
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“Behavior-based personalization” has gained popularity in recent years, whereby businesses offer personalized products based on consumers' purchase histories. This paper highlights two perils of behavior-based personalization in competitive markets. First, although purchase histories reveal consumer preferences, competitive exploitation of such information damages differentiation, similar to the classic finding that behavior-based price discrimination intensifies price competition. With endogenous product design, there is yet a second peril. It emerges when forward-looking firms try to avoid the first peril by suppressing the information value of purchase histories. Ideally, if a market leader serves all consumers on day 1, purchase histories contain no information about consumer preferences. However, knowing that their rivals are willing to accommodate a market leader, firms are more likely to offer a mainstream design at day 1, which jeopardizes differentiation. Based on this understanding, I investigate how the perils of behavior-based personalization change under alternative market conditions, such as firms' better knowledge about their own customers, consumer loyalty and inertia, consumer self-selection, and the need for classic designs.