Product personalization and firm performance: An empirical analysis of the pharmaceutical industry

Abstract

Recent advances in manufacturing and communication technology have made it possible for firms to offer products that are personalized to individual customers’ specifications. While personalizing products leads to benefits for firms, it also requires significant resources, calling into question the financial efficacy of this practice. This situation is especially salient in the pharmaceutical industry, where drugs are personalized to individuals. This type of medicine is expected to account for approximately 50% of drug spending in the U.S. market by 2022; however, the rising costs of producing and delivering such medications make their viability uncertain. In this study, we present a framework that conceptualizes a nonlinear inverted U‐shaped relationship between product personalization and financial performance. We further investigate the role of supply‐chain disintermediation in enhancing the benefits of personalization. Analysis of data from the pharmaceutical industry confirms that product personalization improves financial performance only up to a point, beyond which firms experience negative performance effects. Furthermore, supply‐chain disintermediation moderates this relationship such that the inverted U‐shape is steeper with increasing disintermediation levels. Together, these findings provide important guidelines for managers formulating their firms’ product personalization strategies.

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