The authors ask two seemingly simple but critical
questions: (1) When should firms reward or punish their
own current customers? And (2) when can such targeted
pricing be profitable in a competitive setting? We find
that targeted pricing using customers’ purchase history
can improve profits even under competition when either
heterogeneity in customer quantities or customer
mobility exists; however, both heterogeneity in customer
quantities and customer mobility are necessary for the
“reward one’s own best customer” strategy. pdf 2007
