Competitive Price Targeting with Smartphone Coupons

Jean-Pierre Dubé (), Zheng Fang (), Nathan Fong () and Xueming Luo ()
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Jean-Pierre Dubé: Booth School of Business, University of Chicago, Chicago, Illinois 60637; National Bureau of Economic Research, Cambridge, Massachusetts 02138
Zheng Fang: Business School, Sichuan University, 610000 Chengdu, China
Nathan Fong: Fox School of Business, Temple University, Philadelphia, Pennsylvania 19122
Xueming Luo: Fox School of Business, Temple University, Philadelphia, Pennsylvania 19122

Marketing Science, 2017, vol. 36, issue 6, 944-975

Abstract: With the cooperation of a large mobile service provider, we conduct a novel field experiment that simultaneously randomizes the prices of two competing movie theaters using mobile coupons. Unlike studies that vary only one firm’s prices, our experiment allows us to account for competitor response. We test mobile targeting based on consumers’ real-time and historic locations, allowing us to evaluate popular mobile coupon strategies in a competitive market. The experiment reveals substantial profit gains from mobile discounts during an off-peak period. Both firms could create incremental profits by targeting their competitor’s location. However, the returns to such “geoconquesting” are reduced when the competitor also launches its own targeting campaign. We combine our experimentally generated data with a demand model to analyze optimal pricing in a static Bertrand–Nash equilibrium. Interestingly, competitive responses raise the profitability of behavioral targeting where symmetric pricing incentives soften price competition. By contrast, competitive responses lower the profitability of geographic targeting, where asymmetric pricing incentives toughen price competition. If we endogenize targeting choice, both firms would choose behavioral targeting in equilibrium, even though more granular geobehavioral targeting combining both real-time and historic locations is possible. These findings demonstrate the importance of considering competitor response when piloting novel price-targeting mechanisms.

Keywords: mobile marketing; price discrimination; targeting; field experiment; geoconquesting; geofence (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (59)

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