The Design and Targeting of Compliance Promotions

Øystein Daljord, Carl F. Mela (), Jason M. T. Roos (), Jim Sprigg () and Song Yao ()
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Øystein Daljord: Graduate School of Business, The University of Chicago Booth School of Business, Chicago, Illinois 60637
Carl F. Mela: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Jason M. T. Roos: Rotterdam School of Management, Erasmus University, 3062 PA Rotterdam, Netherlands
Jim Sprigg: InterContinental Hotel Group, Atlanta, Georgia 30346
Song Yao: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130

Marketing Science, 2023, vol. 42, issue 5, 866-891

Abstract: This paper considers an experiment-based approach to the optimal design and targeting of compliance promotions. Compliance promotions involve optional participation on the behalf of customers. For example, physicians must consent to see detailers, and consumers must redeem coupons to obtain discounts. Individual compliance decisions affect the mix of customers participating in the promotion and, therefore, how the promotion affects sales. Optional compliance is an especially acute problem in the context of field experiments as policy optimization often necessitates extrapolation beyond the observed cells of the experiment to a different mix of complying customers. Our approach to optimizing the design and targeting of compliance promotions involves (i) an experiment to exogenously vary promotion features; (ii) a means to identify which promotion features can be causally extrapolated; (iii) an approach to extrapolate those causal effects; and (iv) an optimization over the promotion features, conditioned on the extrapolation. The approach is easy to estimate, accommodates two-sided noncompliance due to unobserved heterogeneity, and establishes partial identification bounds of causal effects. When applying the approach to a hotel loyalty promotion, wherein customers must visit enough hotels to earn bonus loyalty points, we find profits are improved considerably.

Keywords: compliance promotions; field experiments; two-sided noncompliance; IV estimation; marginal treatment effects (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:42:y:2023:i:5:p:866-891

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