The Charm Of Behavior-Based Pricing: When Both Firms And Consumers Base Their Decisions On Purchase History

9/14/2017 | 4:15pm | E51-335

Reception to follow.





Wilfred Amaldoss

Thomas A. Finch Jr. Professor
Duke University's Fuqua School of Business 

Abstract: Technology is making it easier for firms to track consumers' purchase history and leverage the information in setting prices. The extant literature on behavior-based pricing (BBP), however, casts doubt on the value of consumers' purchase history. It shows that BBP hurts firms' profits under general conditions. Yet, in practice we see firms widely using BBP. Moreover, prior literature on BBP has neglected the empirical evidence that consumers care about not only the consumption utility derived from a product but also the gain-loss utility in comparison to the reference product. This paper explores the practice of BBP in a horizontally differentiated market where consumer taste is diverse and consumer utility is reference dependent. Our analysis shows that when consumer valuation is low, BBP can improve firms' profits even in the absence of reference dependence. When consumer utility is reference dependent, firms can benefit from BBP even when consumer valuation is high. Moreover, these results are robust to how consumers form the reference price, be it the current period price or the historical price of the reference product. 

Bio: Professor Amaldoss received his Ph.D in Marketing in 1998 from the Wharton School of the University of Pennsylvania. He holds an MBA from the Indian Institute of Management, Ahmedabad. He has taught earlier at the Krannert Graduate School of Management of Purdue University. He is interested in understanding strategic behavior in the context of pricing and advertising. He is an Associate Editor of Management Science (Behavioral Economics department), and an Associate Editor of Journal of Marketing Research. He received Distinguished Service Award from Management Science in 2009, 2010 and 2011 for his service as Associate Editor. He also serves on the editorial boards of Marketing Science and Marketing Letters. In 2001, his research received the Frank M. Bass Award. The INFORMS College of Marketing gave this award in recognition of the best marketing paper derived from a Ph.D. thesis published in an INFORMS-sponsored journal (Marketing Science/ Management Science). In addition, he received the John C. Little Award, for the best marketing paper published in Marketing Science or Management Science. He was also named the Jay Ross Young Faculty Scholar in 2000. In 2011, his work was a finalist for Long-Term Impact Award for a paper published in Marketing Science/Management Science. He has also received several teaching awards at Duke for teaching MBA students: 2008 and 2009 Weekend MBA Excellence in Teaching Awards, 2006 DaimlerChrysler Corporation Award for Excellence in Teaching, 2005 Cross-Continent MBA Excellence in Teaching award. The MBA students of Krannert School of Management voted him the best instructor in the school and he received the Salgo Noren Outstanding Teacher Award in 2000 and 2001.

Event Time: 

2017 - 16:15