Personalized Pricing and Distribution Strategies

Bruno Jullien (), Markus Reisinger () and Patrick Rey
Additional contact information
Bruno Jullien: Toulouse School of Economics, Centre national de la recherche scientifque (CNRS), 31000 Toulouse, France
Markus Reisinger: Frankfurt School of Finance & Management, 60322 Frankfurt am Main, Germany

Management Science, 2023, vol. 69, issue 3, 1687-1702

Abstract: The availability of consumer data is inducing a growing number of firms to adopt more personalized pricing policies. This affects both the performance of, and the competition between, alternative distribution channels, which in turn has implications for firms’ distribution strategies. We develop a formal model to examine a brand manufacturer’s choice between mono distribution (selling only through its own direct channel) or dual distribution (selling through an independent retailer as well). We consider different demand patterns, covering both horizontal and vertical differentiation and different pricing regimes, with the manufacturer and retailer each charging personalized prices or a uniform price. We show that dual distribution is optimal for a large number of cases. In particular, this is always the case when the channels are horizontally differentiated, regardless of the pricing regime; moreover, if both firms charge personalized prices, a well-designed wholesale tariff allows them to extract the entire consumer surplus. These insights obtained here for the case of intrabrand competition between vertically related firms are thus in stark contrast to those obtained for interbrand competition, where personalized pricing dissipates industry profit. With vertical differentiation, dual distribution remains optimal if the manufacturer charges a uniform price. By contrast, under personalized pricing, mono distribution can be optimal when the retailer does not expand demand sufficiently. Interestingly, the industry profit may be largest in a hybrid pricing regime, in which the manufacturer forgoes the use of personalized pricing and only the retailer charges personalized prices.

Keywords: personalized pricing; distribution strategies; vertical contracting; downstream competition (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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http://dx.doi.org/10.1287/mnsc.2022.4437 (application/pdf)

Related works:
Working Paper: Personalized Pricing and Distribution Strategies (2023)
Working Paper: Personalized Pricing and Distribution Strategies (2022)
Working Paper: Personalized Pricing and Distribution Strategies (2022)
Working Paper: Personalized Pricing and Distribution Strategies (2022)
Working Paper: Personalized Pricing and Distribution Strategies (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:3:p:1687-1702

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