How Targeting Affects Customer Search: A Field Experiment

Abstract

It has become common practice for retailers to personalize direct marketing efforts based on customer transaction histories as a tactic to increase sales. Targeted email offers featuring products in the same category as a customer's previous purchases generate higher purchase rates. However, a targeted offer emphasizing familiar products could result in curtailed search for unadvertised products, as a closely matched offer weakens a customer's incentives to search beyond the targeted items. In a field experiment using email offers sent by an online wine retailer, targeted offers resulted in decreased search activity on the retailer's website. This effect is driven by a lower rate of search by customers who visit the site, rather than a lower incidence of search. There are several ways this could potentially hurt retailers and consumers, such as reduced cross-selling and fewer opportunities for customers to explore new products.

Keywords: targeted marketing, customer search, personalization

JEL Classification: D83, M31