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Customized Pricing Programs May Backfire

May 23, 2017

You’re walking down the peanut butter aisle at your local grocery store. As you reach for your favorite peanut butter, your phone buzzes. You check it and see that you’ve received a personalized discount coupon for the store brand of peanut butter.

This is called customized pricing. It’s tailored for the individual consumer, and more and more companies are including customization in their marketing mix. Customized pricing takes pricing strategies a step further than traditional dynamic strategies by basing prices on individual consumers’ unique purchase patterns, rather than more typical bases for changing prices, including known customer group, time and retailer differences.

It seems like a win-win. Everyone likes a discount, right? And a discount tailored to your specific purchase patterns sounds even better. But is this approach effective?

A new Baylor University Hankamer School of Business study published in the Journal of Consumer Behavior shows that many consumers have a positive view of these tactics, but “positive assumptions regarding the benefits of customized programs could be costly to firms.” Among the findings, the researchers discovered that the mere presence of a customized pricing program may serve to lower consumers’ satisfaction with the shelf price, said lead author Meredith David, Ph.D., assistant professor of marketing at Baylor.

David and her team conducted three studies and surveyed more than 700 adults, looking specifically at how consumers’ “interpersonal attachment styles” impact their responses to customized pricing.

Securely attached individuals, according to the study, are people who expect others will be available and supportive when needed. Anxiously attached individuals have less positive expectations about interpersonal-related situations and constantly worry about relationships. David explains that demographic correlates of attachment style can be used to segment markets, as securely attached individuals tend to be older and have higher incomes as compared to anxiously attached individuals.

“Among securely attached individuals, customized pricing programs may well create an expectation of receiving advantaged, discounted prices. Thus, these programs may result in a large portion of consumers being dissatisfied paying the shelf price,” David said. “They like it, but they expect it every time they go to the store. If they visit and don’t receive a specialized discount, it becomes an unmet expectation and they’re disappointed.”

Anxiously attached individuals, David said, “get excited about the attention” because they don’t expect it.

Additionally, the study reveals that, in the presence of a customized pricing program, anxiously attached consumers, unlike their securely attached counterparts, are generally OK with paying the shelf price or receiving the same discounts as other shoppers.

David said the study yields some practical implications for marketers. The research provides a deeper understanding of which market segments may be more or less receptive to customized offerings, and it offers some guidance to help marketers develop communication strategies to promote those offerings.

“Given the global shift toward a more ‘social’ and interconnected world, we believe that attachment theory will continue to emerge as a useful theory underlying many consumer behavior phenomena,” researchers wrote.

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