I noticed not a lot of stories use this feature. As a writer I love using it because I am a reader as well and it allows me to customize a store to my liking. Why does authors not use it much?
I never use it, neither as a reader nor as an author. For me, the point of fiction, erotic or not, is to imagine being part of some other world, living some other life. Using my own name (real or imagined) would only get in the way of that escapism.
Writing with code snippets in the middle of sentences always kinda broke the spell for me as a writer, and it limits how you can use names in the story. For example, in one of my stories the asshole villain keeps referring to the protagonist by a childish version of his name, which wouldn't work if it could be customized.
I think many authors simply can't be bothered. Some stories have the feature enabled but don't use it properly as the author forgets (or doesn't understand how) to use the name variables.
This is why I personally haven't tried this feature yet—I apparently have some kind of nickname fetish because the time so far that I considered using placeholders I quickly gave up once I realized that it wouldn't be feasible to use my 4 different context-contingent or just impromptu dumb nicknames for the characters. As a reader I don't seem to use the customization feature very much if it's offered, unless it's something like, "main character is named Jake but that keeps reminding me of mean Jake from high school and it's distracting" or something like that. More to just rename somebody whose name I find jarring.
Personally I just don't think the feature gives me anything and it just adds extra work. I know that some people like it and don't mind it existing, but for me it would be an extra hassle to use it whether I was a reader or writer.
I think if you're writing a 2nd POV/self-insert type story I think the variables are good for the reader to customize, much like a Dating Sim game. Or if the characters are less about their name and more about their role (spouse, neighbor, boss, etc.), then having customization can be nice. But sometimes an author just feels like Ben is Ben and Kate is Kate and it's hard to break that, especially, as stated by others, if nicknames are involved. Or if the name has significance. Fake Example: Stella Comet: Sexy Space Pirate. Making her Tiffany Zakowski, even if that's your crush's name, kind of makes the character lose her magic. Though I do understand if Ben, Kate, or Stella are your parents names or the name of an ex who did you wrong so reading the name might trigger a negative or uncomfortable association.
I tend not to use it as it slows down the writing and to many variable names will totally kill a writer. If I do use it the one thing I do is to make this easier to use so instead of typing {first_name} change the variable info so that I can type something like {John} which makes it easier on me so I can write the name out as John and just write normally and not kill the flow of your writing then do a word search for every time you used the name and add the { } after I am done with a chapter.
I've tried it a few times as experiments with pretty much every character as a variable. You're right it does kill the flow, or at least the fun of writing. Feels like I'm writing code.
I'm trying it in a 2nd-person story I'm working on. I've been a little slow on that project, and while I doubt it's because of the awkward code stuff, I also don't think it's really adding much to the story. I think the 2nd-person idea will work equally well whether the reader picks the character's name or I do.