Consumers love a deal, and even more so if it’s customized just for them, right? Not so fast, says Itamar Simonson, a marketing professor at Stanford Graduate School of Business. Simonson has found that rather than being enticed by them, consumers are skeptical of those personalized offers that flood their inboxes. His research, “Beating the Market: The Allure of Unintended Value,” was published in December 2013 in the Journal of Marketing Research.
Marketers have long assumed that touting a promotion as “customized,” “based on your past purchases” or “especially for you” will persuade customers that the product will fit better, fulfill more needs or otherwise prove more satisfying than others. But “telling consumers that an offer is tailored for them can backfire” and lower the chance that they’ll bite, writes Simonson, who co-authored the study with Aner Sela of the University of Florida and Ran Kivetz of Columbia Business School.
“Maybe that’s not such a good idea,” says Simonson, referring to offers that are promoted as being personalized. Rather, consumers are more likely to respond to what the researchers call "incidental" offers, or ones that consumers think just happen to fit their preferences by chance.
Price is the main reason consumers ignore personalized offers. An electronics aficionado, for instance, might be skeptical of an offer promoted as “just for you” because he assumes the seller has factored in his love of electronics and so thinks he’d be willing to pay a little extra for the latest gizmo. “The assumption is that if you the seller made an offer just for me, you probably already upped the price because you know I’d like it,” says Simonson. In the eyes of the customer, he says, the offer is "not a great deal but a fair deal.”
But if the customer thinks an offer is intended not just for her but rather for a much larger audience, she believes she has stumbled across a great deal and is likely to pursue it. The customer thinks that that “incidental” offer doesn’t build in the consumer’s willingness to pay a premium and therefore makes for a great bargain, says Simonson.
Why are customers so skeptical? Consumers assume that a customized offer intends to maximize the seller’s profit, so if they see an incidental offer that just happens to be a great fit, they feel they can dodge the premium they assume they’d pay in a customized offer and so have found a great deal worth pursuing. Consumers “like to feel that they outsmarted the seller,” says Simonson.
The researchers did a series of experiments, including one in which participants who had stated a strong interest in “financial and world news” were asked to choose between a $5 cash reward and a discounted subscription to The Economist. Half the group, receiving the customized offer, was told that the promotion was “designed especially for the classic reader of The Economist.” The rest of the participants, given the “incidental” offer, were told that it was “designed especially to get the average person excited about The Economist.” More than 32% of participants pursued the incidental offer “designed for the average person,” compared with just 12.9% of participants given the offer “designed for the classic reader.”
The results suggest that consumers are likelier to act when “certain cues lead them to believe that the offer is more valuable for them than the marketer presumably intended,” the researchers write. “Framing an offer as designed to attract the average person increased purchase likelihood … compared with when the offer was explicitly designed to be valuable for people like them.”
What’s a marketer to do? Sellers needn’t pull the plug on customized offers altogether, Simonson says. Offers promoted as personalized may still be effective with products that require a strong fit with the customer’s personal preferences, such as books, music or clothes. But offers that aren’t overtly customized may be more effective to promote products in which value trumps personal preferences, such as cars, large appliances or insurance policies, the researchers say.
Deliberately portraying a customized offer as otherwise raises ethical concerns. “Marketers certainly don’t want to deceive customers” and need to allow them to evaluate an offer’s true value, says Simonson. One possible strategy is for a seller to extend offers that it believes customers will like but not emphasize that the offers are customized, he says. “Maybe there can be cues to get your attention,” he says. “You want get the attention of the target consumers without hitting them over the head with, ‘We know it’s the kind of product you like.’ Perhaps it’s better to just make the offer and let the customer on his or her own decide that it’s a good fit.”
Itamar Simonson is the Sebastian S. Kresge Professor of Marketing at Stanford Graduate School of Business.