Abstract

The extensive data on consumer preferences that has been facilitated by digital technology can also be used to reveal distinctive traits and personalities about a firm’s potential consumers. Understanding more about what different consumers like and value can help a firm target its branding strategy as well its pricing strategy. We investigate how targeted branding affects price competition in a spatial duopoly market. Our findings suggest that when targeted branding is valued by consumers it softens competition and improves profitability, compared to the benchmark case of price discrimination. Firms have an incentive to engage in branding even though it is a costly activity and branding costs are incurred before transactions take place. The more profitable branding strategy is when there are “locational advantages” to the firm in its branding, even if those strategies are costlier. Targeted branding leads to higher average prices being set and greater price dispersion than would be observed in the benchmark case.