Multichannel discount spillover in B2B markets

Abstract

Business-to-business (B2B) sellers grant customer-specific discounts to select buyers. According to resource-based and competitive response theories, customer-specific discounts can give buyers a cost advantage over other buyers that compete for the same end-customer demand. If other buyers become aware of this advantage, discount spillover ensues as those buyers seek counterbalancing discounts, compressing the seller’s profitability. In accordance with today’s multichannel B2B environment, the authors theorize differential effects on the seller’s profitability via spillover to offline-competing and online-competing buyers. The authors test their framework across large-scale field studies with two different collaborating sellers and find broad support for their hypotheses. If managers fail to consider competitive implications of customer-specific discounts, their effects can spill over to competing buyers, resulting in approximately three times the lost profitability. However, spillover-conscious deployment, such as by targeting buyers that limit e-commerce price transparency, allows sellers to virtually eliminate adverse effects of discount spillover.