Competitive Price Targeting with Smartphone Coupons

54 Pages Posted: 24 Nov 2015 Last revised: 16 Dec 2016

See all articles by Jean-Pierre Dubé

Jean-Pierre Dubé

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Zheng Fang

Sichuan University - Business School

Nathan M. Fong

Temple University - Department of Marketing and Supply Chain Management; MIT Sloan School of Management

Xueming Luo

Temple University

Multiple version iconThere are 2 versions of this paper

Date Written: July 22, 2016

Abstract

To investigate the potential returns of targeted mobile discounts, we design and implement a large-scale field experiment involving two competing movie theaters. In the experiment, we test different forms of targeting based on real-time consumer location and past consumer behavior. A novel feature of our experiment is that we test a range of relative ticket prices from both firms to assess their targeting incentives and the moderating effects of competitive targeting. The experiment reveals substantial profit gains from mobile discounts during an off-peak period of the day. In particular, both firms could create incremental profits by targeting their competitor's location. However, the returns to such “geo-conquesting” are reduced when the competitor also launches its own targeting campaign.

To study optimal targeting incentives, we combine our experiment with a model of demand that can be used to predict the consumer choices at price levels that were not included on the experimental grid. We find that each firm would anticipate large gains from real-time mobile targeting. However, the realized gains would be much lower than anticipated if the rival simultaneously ran its own campaign. To approximate the likely longer-term outcomes, we conduct an equilibrium analysis of the firms' targeting incentives. Interestingly, competition enhances the returns to behavioral targeting but reduces the returns to geo-targeting. Under geo-targeting, each theater offers a discount in the rival's local market, toughening price competition. In contrast, under behavioral targeting, the strategic complementarity of prices coupled with the symmetric incentives of the two theaters to raise prices charged to high-recency consumers softens price competition. If we endogenize targeting choice, we find that both firms would choose behavioral targeting in equilibrium, even though a more granular geo-behavioral targeting based on both real-time location and past behavior was possible.

Our findings indicate that managers need to consider how competition moderates the profitability of price targeting. Moreover, field experiments in which the competitor's actions remain fixed may generate misleading conclusions if the implementation of tested actions would likely elicit a competitive response.

Keywords: competitive price discrimination, mobile marketing, targeting, field experiment, geo-conquesting, geo-fence

JEL Classification: M30, D43, C93

Suggested Citation

Dube, Jean-Pierre H. and Fang, Zheng and Fong, Nathan M. and Luo, Xueming, Competitive Price Targeting with Smartphone Coupons (July 22, 2016). Fox School of Business Research Paper No. 16-002. Available at SSRN: https://ssrn.com/abstract=2694320 or http://dx.doi.org/10.2139/ssrn.2694320

Jean-Pierre H. Dube (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://gsb.uchicago.edu/fac/jean-pierre.dube

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zheng Fang

Sichuan University - Business School ( email )

China

Nathan M. Fong

Temple University - Department of Marketing and Supply Chain Management ( email )

Philadelphia, PA 19122
United States

HOME PAGE: http://sites.google.com/site/nmfong/

MIT Sloan School of Management ( email )

Cambridge, MA
United States

Xueming Luo

Temple University ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

HOME PAGE: http://www.fox.temple.edu/mcm_people/xueming-luo/

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