Nathan M. Fong

Geo-Conquesting: Competitive Locational Targeting of Mobile Promotions

As consumers spend more time on their mobile devices, a focal retailers natural approach is to target potential customers in close proximity to its own location. Yet focal (own) location targeting may cannibalize profits on inframarginal sales. This study demonstrates the effectiveness of competitive locational targeting, the practice of promoting to consumers near a competitors location. The analysis is based on a randomized field experiment in which mobile promotions were sent to customers at three similar shopping areas (competitive, focal, and benchmark locations). The results show that competitive locational targeting can take advantage of heightened demand that a focal retailer would not otherwise capture. Competitive locational targeting produced increasing returns to promotional discount depth, whereas targeting the focal location produced decreasing returns to deep discounts, indicating saturation effects and profit cannibalization. These findings are important for marketers, who can use competitive locational targeting to generate incremental sales without cannibalizing profits. Although the experiment focuses on the effects of unilateral promotions, it represents an initial step in understanding the competitive implications of mobile marketing technologies.

How Sales Taxes Affect Customer and Firm Behavior: The Role of Search on the Internet

When a multichannel retailer opens its first retail store in a state, the firm is obligated to collect sales taxes on all Internet and catalog orders shipped to that state. This article assesses how opening a store affects Internet and catalog demand. The authors analyze purchase behavior among customers who live far from the retail store but must now pay sales taxes on catalog and Internet purchases. A comparable group of customers in a neighboring state serves as a control. The results show that Internet sales decrease significantly, but catalog sales are unaffected. Further investigation indicates that the difference in these outcomes is partly attributable to the ease with which customers can search for lower prices at competing retailers. The authors extend the analysis to a panel of multichannel firms and show that retailers that earn a large proportion of their revenue from direct channels avoid opening a first store in high-tax states. They conclude that current U.S. sales taxes laws have significant effects on both customer and firm behavior.

Real-Time Mobile Geo-Conquesting Promotions

As consumers spend more time on their mobile devices at various locations, a focal retailer’s natural approach is to target potential customers in close proximity to its own location. Yet focal location targeting may cannibalize profits on infra-marginal sales. This study demonstrates the effectiveness of competitive locational targeting, the practice of promoting to consumers near a competitor’s location. The analysis is based on a randomized field experiment in which mobile promotions were sent to customers at three similar locations (competitive, focal, and neutral) in shopping malls. The results show that competitive locational targeting has the potential to take advantage of heightened demand that a focal retailer would not otherwise capture. Competitive locational targeting produced increasing returns to promotional discount depth, indicating the presence of threshold effects. In comparison, targeting a retailer’s own location produced decreasing returns to deep discounts, indicating saturation effects and profit cannibalization. These findings are important for marketers, who can use competitive locational targeting to profit from incremental sales while preserving margins on sales to consumers near their own locations. Locational targeting has enormous potential as a competitive weapon that allows a retailer to maintain a presence anywhere – including on a competitor’s doorstep.

Targeted Promotions and Cross-Category Spillover Effects

Targeted promotions based on individual purchase histories are known to increase promotional response while reducing search effort, yet the opportunity costs of such targeted promotions remain poorly understood. We use field experiments on a mobile e-book reading app and an online ticket exchange to test how targeted promotions can decrease cross-category search and purchasing. Findings from three randomized field experiments consistently showed that targeted promotions reduce cross-category purchase activity. These negative spillovers can be large; while direct response was higher for targeted promotions, total sales for one of the experiments was significantly higher for untargeted promotions. We find evidence that the negative category spillover effects are due to a decrease in search activity. Precisely targeted offers lead consumers to take a less active role in information search, limiting cross-category exploration. Firms using highly targeted promotions should monitor for reductions in search, as an indicator of missed cross-selling opportunities and lower sales diversity at the customer level.