Ask or Infer? Strategic Implications of Alternative Learning Approaches in Customization
48 Pages Posted: 18 Dec 2008
Date Written: November 1, 2008
Learning about a customer's preferences is a critical first step in the customization process. Broadly, firms adopt two alternative learning approaches: (1) ask, i.e., solicit preference information directly from the customer (S-Learning) or (2) infer, i.e., deduce preference information based on past observations of the customer and other customers (O-Learning). Most prior research on customization strategy focuses on a firm's marketing mix decisions, implicitly assuming away how it learns about customers. We contribute to this literature by examining how a firm's use of a specific learning approach impacts competition, particularly its rival's choice of learning approach. We find that O-Learning provides a credible signal for relaxing price competition, while S-Learning does not. Further, S-Learning by a firm creates a disincentive for rivals to also invest in S-Learning. We survey business customers and find significant evidence supporting our theory. We conclude with several managerial implications of our theory including how a firm can optimally select its learning strategy in order to impact its competitive environment.
Keywords: customization, personalization, learning, competitive strategy, customer relationship management
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