Product and service innovation with customer recognition

Abstract Product and service innovation is important for brands to succeed in a competitive marketplace. As information technology advances, customer recognition becomes a growing industry trend; that is, brands track customers' purchase history, recognize and price discriminate between repeat and new customers.The trend of customer recognition has changed the nature and intensity of competition between brands. In this article, we examine how customer recognition and the associated changes in competition affect brands' incentives to invest in product and service innovation. We find that when brands have similar equity, customer recognition increases brands' incentives to invest in product and service innovation. However, when brands have sufficiently different equity, customer recognition leads the stronger brand to invest more and the weaker brand to invest less in product and service innovation. In addition, extant literature suggests that customer recognition reduces brand profits. In contrast, we find that customer recognition can increase the weaker brand's profit but decreases it more for the stronger brand. Thus, collecting customers' purchase history data for customer recognition can be beneficial for weaker brands but detrimental for stronger brands.