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

66 Pages Posted: 17 Aug 2015 Last revised: 9 Jan 2019

See all articles by Dominik Molitor

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: January 3, 2019

Abstract

Offline retailers increasingly use location-based advertising applications such as coupons to target consumers in their vicinity in real time. The rationale for the use of location-based coupons is that geographic proximity increases the relevance for consumers and thus the effectiveness of these campaigns. Two key interface-specific aspects of location-based coupon applications that influence its effectiveness are i) the provision of distance information and ii) the distance-based ranking of coupons. Therefore, the interface design is often referred to as the choice architecture. The aim of this paper is to study and quantify the impact of the choice architecture—via these two interface-specific aspects—on the effectiveness of location-based coupons. We conduct a randomized field experiment with 633,729 observations, including 3,644 different coupon promotions offered by 3,152 different stores located in 2,589 cities in a large Western European country. Overall, we can show that the most effective interface design for coupons is based on a distance-based ranking. Moreover, we observe negative distance and ranking effects in all treatment groups: coupons from stores that are i) geographically closer and ii) appear higher on the devices’ displays are preferred. However, we find significant heterogeneity in the impact of distance and display rank based on the interface design, the actual geographic location of users, as well as the product category. Specifically, users are more sensitive to increased distances if coupons are not sorted by distance as well as if coupons are for goods instead of services.

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 (January 3, 2019). 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

HOME PAGE: http://www.dominikmolitor.com

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
Suite 9-160
New York, NY NY 10012
United States

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