To Personalize or Not to Personalize Online Purchase Interactions: Implications of Self-Selection by Retailers

Personalization technologies today enable retailers to tailor online purchase interactions to the individual preferences and needs of customers. With personalization being increasingly perceived as a source of competitive advantage, there is a growing trend toward pursuing technology-enabled personalization strategies in online retailing. However, the choice of a retailer whether or not to select into technology-enabled personalization and its implications for customer loyalty are at best ambiguous. This paper is an attempt to resolve this apparent ambiguity. Specifically, the paper conceptualizes retailer selection into technology-enabled personalization strategies relevant to two steps of an online purchase, namely, transaction personalization strategy and decision personalization strategy, based on the operating characteristics of a retailer. The implications of the retailers' self-selection into technology-enabled personalization strategies for customer loyalty are then empirically investigated with data collected from 422 retailers. Further, based on a counterfactual analysis, the paper reveals the implications of making a normatively incorrect decision with respect to personalization strategy. Contrary to popular belief, the results of this study indicate that personalization may not be uniformly beneficial in terms of customer loyalty to all retailers. Although a majority of retailers pursue transaction personalization and realize benefits by way of improved customer loyalty, we find that the choice of a retailer to pursue decision personalization is self-selected and dependent on idiosyncratic characteristics related to its operating context. Retailers that have relatively large-scale operations, provide greater variety and realize higher customer satisfaction with product selection, and that do not necessarily compete on price (i.e., realize lower customer satisfaction with prices relative to competing retailers) are more likely to pursue the decision personalization strategy. Although some retailers pursue decision personalization because they clearly stand to benefit from doing so, other retailers are better off not following suit. Theoretical contributions of the study, managerial implications of the study findings, limitations, and directions for future research are identified.