Do We Care What Others Get? A Behaviorist Approach to Targeted Promotions

Journal of Marketing Research, Vol. XXXlX (August 2002) 277-241

16 Pages Posted: 21 Jan 2015

See all articles by Fred M. Feinberg

Fred M. Feinberg

University of Michigan at Ann Arbor - Marketing; University of Michigan, Stephen M. Ross School of Business

Aradhna Krishna

University of Michigan, Stephen M. Ross School of Business

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing

Date Written: 2002

Abstract

Increased access to individual customers and their purchase histories has led to a growth in targeted promotions, including the practice of offering different pricing policies to prospective, as opposed to current, customers. Prior research on targeted promotions has adopted a tenet of the standard economic theory of choice, whereby what a consumer chooses depends exclusively on the prices available to that consumer. In this article, the authors propose that consumer preference for firms is affected not just by prices the consumers themselves are offered but also by prices available to others. This departure from the conventional strong rationality approach to targeted promotion results in a decidedly different optimal policy. Through a laboratory experiment, calibration of a stochastic model, and game-theoretic analysis, the authors demonstrate that ignoring behaviorist effects exaggerates the importance of targeting switchers as opposed to loyals. This occurs, though with intriguing differences, even when only part of the market is aware of firms' differing promotional policies. The authors show that both the deal percentage and the proportion of aware consumers affect the optimal strategy of the firm. Furthermore, the authors find that offering lower prices to switchers may not be a sustainable practice in the long run, as information spreads and the proportion of aware consumers grows. The model cautions practitioners against overpromoting and/or promoting to the wrong segment and suggests avenues for improving the effectiveness of targeted promotional policies.

Suggested Citation

Feinberg, Fred M. and Krishna, Aradhna and Zhang, Z. John, Do We Care What Others Get? A Behaviorist Approach to Targeted Promotions (2002). Journal of Marketing Research, Vol. XXXlX (August 2002) 277-241. Available at SSRN: https://ssrn.com/abstract=2552237

Fred M. Feinberg

University of Michigan at Ann Arbor - Marketing ( email )

Ann Arbor, MI 48109
United States

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Aradhna Krishna (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing ( email )

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