One to One Marketing Services: Optimal Customer and Product Strategy

One to one (1:1) marketing services (e.g., customized advertisements, promotions and direct mail) are a growth industry. Extant research in this area tends to have an engineering emphasis; they focus on developing techniques to use individual-level data to optimize 1:1 services. In contrast, this paper focuses on marketing strategy issues faced by a 1:1 service firm given the availability of the 1:1 technology. Specifically, we develop an empirical framework to evaluate the optimal customer (exclusive/non-exclusive) and product (quality or accuracy of 1:1 customization) strategy for a 1:1 service firm. We illustrate the framework for a 1:1 coupon service firm catering to grocery manufacturers using household purchase history data for the ketchup market. We find that selling on a non-exclusive basis using the maximum available purchase history data is the most profitable strategy in the ketchup category for the 1:1 service firm. We also evaluate the potential impact of the retailer entering the 1:1 coupon service business. Since 1:1 marketing can increase retailer’s profits from goods sold, it is optimal for the retailer to undercut the prices of a pure play 1:1 services vendor.