Competitive Targeted Pricing: Perspectives from Theoretical Research

With an unprecedented capability to store and process consumer information, fi rms today can tailor their pricing to individual consumers based on consumer preferences and past buying behaviors. In this chapter, we discuss this nascent practice of targeted pricing from a theoretical perspective. We focus on three main questions that are relevant to assessing the future of this practice. First, is targeted pricing benefi cial to practicing fi rms? Second, if a fi rm decides to embrace targeted pricing, what should be its targeting strategy in terms of whom to target and with what incentives? Third, is targeted pricing benefi cial to the society as a whole? We draw on the existing literature on targeted pricing to offer some preliminary answers to these questions.

[1]  Preyas S. Desai,et al.  Let Me Talk to My Manager: Haggling in a Competitive Environment , 2004 .

[2]  Ganesh Iyer,et al.  Research Note Consumer Addressability and Customized Pricing , 2002 .

[3]  Qihong Liu,et al.  Imperfect Price Discrimination, Market Structure, and Efficiency , 2005 .

[4]  Preyas S. Desai.  Quality Segmentation in Spatial Markets: When Does Cannibalization Affect Product Line Design? , 2001 .

[5]  Z. John Zhang,et al.  Research Note---The Benefits of Personalized Pricing in a Channel , 2006 .

[6]  Larry Samuelson,et al.  Strategic Information Manipulation in Duopolies , 1994 .

[7]  Z. John Zhang,et al.  Competitive Coupon Targeting , 1995 .

[8]  Peter E. Rossi,et al.  A Bayesian Approach to Estimating Household Parameters , 1993 .

[9]  J. Miguel Villas-Boas,et al.  Price Cycles in Markets with Customer Recognition , 2004 .

[10]  A. Ghose,et al.  Personalized Pricing and Quality Customization , 2008 .

[11]  H. Varian,et al.  Conditioning Prices on Purchase History , 2005 .

[12]  Qihong Liu,et al.  Quality of Information and Oligopolistic Price Discrimination , 2004 .

[13]  J. Miguel Villas-Boas,et al.  Dynamic Competition with Customer Recognition , 1999 .

[14]  K. Corts,et al.  Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment , 1998 .

[15]  M. Wedel,et al.  The Effectiveness of Customized Promotions in Online and Offline Stores , 2009 .

[16]  H. Hotelling.  Stability in Competition , 1929 .

[17]  Z. John Zhang,et al.  Dynamic targeted pricing with strategic consumers , 2009 .

[18]  Helmut Bester,et al.  Coupons and Oligopolistic Price Discrimination , 1994 .

[19]  D. Fudenberg,et al.  Customer Poaching and Brand Switching , 2000 .

[20]  Phillip J. Lederer,et al.  Competition of Firms: Discriminatory Pricing and Location , 1986 .

[21]  Gila E. Fruchter,et al.  Dynamic Targeted Promotions , 2004 .

[22]  Curtis R. Taylor,et al.  Supplier Surfing: Competition and Consumer Behavior in Subscription Markets , 1999 .

[23]  Jacques-François Thisse,et al.  On hotelling's "Stability in competition" , 1979 .

[24]  X. Vives,et al.  On the Strategic Choice of Spatial Price Policy , 1998 .

[25]  Z. John Zhang,et al.  Price-Matching Policy and the Principle of Minimum Differentiation , 1995 .

[26]  William E. Simon,et al.  Pay to Switch or Pay to Stay : Preference-Based Price Discrimination in Markets with Switching Costs , 2002 .

[27]  Z. John Zhang,et al.  Individual Marketing with Imperfect Targetability , 2000 .

[28]  Mark Armstrong,et al.  Competitive price discrimination , 2001 .

[29]  Peter E. Rossi,et al.  The Value of Purchase History Data in Target Marketing , 1996 .

[30]  Z. John Zhang,et al.  Competitive One-toOne Promotions , 2002 .

[31]  Anindya Ghose,et al.  Personalized Pricing and Quality Differentiation , 2005, Manag. Sci..

[32]  Fred M. Feinberg,et al.  Should Price Increases Be Targeted? -- Pricing Power and Selective vs. Across-the-Board Price Increases , 2007, Manag. Sci..

[33]  Fred M. Feinberg,et al.  Do we care what others Get? A Behaviorist Approach to Targeted Promotions , 2002 .