Customer-centric marketing with Internet coupons

We develop an analytical framework to examine customer-centric marketing with Internet coupons. We show that mass distribution of Internet coupons without a customer-centric information system to identify customers' profile will have adverse consequences that defeat the price discrimination effect of couponing. We analyze alternative strategies including distributing Internet coupons to targeted customers with perfect and imperfect profile information of customers. The targeted coupons with perfect information case amounts to dynamic pricing, but without customers' backlash. In the targeted customers with imperfect information scenario, we consider Internet coupons with fixed face value as well as changing face value cases. We derive the condition under which the firm should opt for the changing face value Internet coupons. As the firm's customer-centric information system improves in terms of enhanced targeting accuracy at a lower cost, the changing face value Internet coupons will become more prevalent.