Interesting Results

Unintended Consequences of Targeted Promotions

Information technology has enabled firms to capture an increasing volume of information about individual consumers and to use this to target promotions. For example, companies in a variety of industries set different prices for different types of customers. When Amazon.com did this with DVDs, there was a negative reaction from customers who had purchased from them before. This led researchers to conduct an experiment¹ to see if this type of backlash can negate the benefits of targeted price promotions. They found that consumers’ preference for their favorite firm declined if they knew that:

Their favorite firm offered a special price to new customers (even if they themselves could not get a better deal anywhere else).
Their favorite firm didn’t offer special prices to loyal customers, but other firms did (even if their favorite firm’s prices were still less than the other firms’ for loyal customers).

¹ Feinberg, Fred, Aradhna Krishna, and Z. John Zhang (2002), “Do We Care What Others Get? A Behaviorist Approach to Targeted Promotions”, Journal of Marketing Research, August 2002, 277-291.