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Measuring the Effectiveness of Location-Based Advertising: A Randomized Field Experiment

52 Pages Posted: 17 Aug 2015 Last revised: 5 Jun 2017

Dominik Molitor

Fordham University, Gabelli School of Business

Philipp Reichhart

Ludwig Maximilians University of Munich - Faculty of Business Administration (Munich School of Management)

Martin Spann

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

Anindya Ghose

New York University (NYU) - Leonard N. Stern School of Business

Date Written: June 5, 2017

Abstract

Offline retailers increasingly use location-based advertising (LBA) to target consumers in their vicinity with offers in real-time. The rationale for LBA is that geographic proximity increases the relevance for consumers and thus the effectiveness of such advertising campaigns. Two key interface-specific aspects of location-based advertising applications that influence its effectiveness are i) the provision of distance information and ii) the distance-based ranking of mobile coupons. The interface design is therefore often referred to as the choice architecture. The aim of this study is to test and quantify how the choice architecture – via the two interface-specific aspects – influence the effectiveness of location-based advertising for mobile coupons. We conduct a randomized field experiment with 633,729 observations including 3,644 different coupon promotions offered by 3,152 different stores & shops located in 2,589 cities in a large Western European country. Overall, we find negative distance and ranking effects. Our findings also demonstrate that the strength of distance effects depends on the actual geographic location of users. Regarding the setup of the application, we can show that the most effective advertising design is based on offers that are ranked by distance. However, users are more sensitive to increased distances if offers are not ranked by distance.

Keywords: Location-Based Services, Field Experiment, Mobile Analytics, Behavioral Effects, Interface Design, Choice Architecture

Suggested Citation

Molitor, Dominik and Reichhart, Philipp and Spann, Martin and Ghose, Anindya, Measuring the Effectiveness of Location-Based Advertising: A Randomized Field Experiment (June 5, 2017). Available at SSRN: https://ssrn.com/abstract=2645281 or http://dx.doi.org/10.2139/ssrn.2645281

Dominik Molitor

Fordham University, Gabelli School of Business

113 West 60th Street
Bronx, NY 10458
United States

Philipp Reichhart

Ludwig Maximilians University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Ludwigstr. 28
Munich, 80539
Germany

Martin Spann (Contact Author)

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Ludwigstr. 28
Munich, 80539
Germany

Anindya Ghose

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

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