The Perils of Behavior-Based Personalization
“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 con...
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| Format: | Article |
| Language: | en_US |
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Institute for Operations Research and the Management Sciences
2011
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| Online Access: | http://hdl.handle.net/1721.1/67710 https://orcid.org/0000-0002-1635-3797 |
| _version_ | 1826192191129649152 |
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| author | Zhang, Juanjuan |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Zhang, Juanjuan |
| author_sort | Zhang, Juanjuan |
| collection | MIT |
| description | “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. |
| first_indexed | 2024-09-23T09:07:39Z |
| format | Article |
| id | mit-1721.1/67710 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T09:07:39Z |
| publishDate | 2011 |
| publisher | Institute for Operations Research and the Management Sciences |
| record_format | dspace |
| spelling | mit-1721.1/677102022-09-26T10:39:11Z The Perils of Behavior-Based Personalization Zhang, Juanjuan Sloan School of Management Zhang, Juanjuan Zhang, Juanjuan “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. 2011-12-16T19:50:18Z 2011-12-16T19:50:18Z 2010-12 2008-05 Article http://purl.org/eprint/type/JournalArticle 0732-2399 1526-548X http://hdl.handle.net/1721.1/67710 Zhang, J. “The Perils of Behavior-Based Personalization.” Marketing Science 30 (2010): 170-186. Web. 16 Dec. 2011. https://orcid.org/0000-0002-1635-3797 en_US http://dx.doi.org/10.1287/mksc.1100.0607 Marketing Science Creative Commons Attribution-Noncommercial-Share Alike 3.0 http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf Institute for Operations Research and the Management Sciences Zhang via Alex Caracuzzo |
| spellingShingle | Zhang, Juanjuan The Perils of Behavior-Based Personalization |
| title | The Perils of Behavior-Based Personalization |
| title_full | The Perils of Behavior-Based Personalization |
| title_fullStr | The Perils of Behavior-Based Personalization |
| title_full_unstemmed | The Perils of Behavior-Based Personalization |
| title_short | The Perils of Behavior-Based Personalization |
| title_sort | perils of behavior based personalization |
| url | http://hdl.handle.net/1721.1/67710 https://orcid.org/0000-0002-1635-3797 |
| work_keys_str_mv | AT zhangjuanjuan theperilsofbehaviorbasedpersonalization AT zhangjuanjuan perilsofbehaviorbasedpersonalization |