Targeted Promotions and Cross-Category Spillover Effects

41 Pages Posted: 5 Oct 2016 Last revised: 15 Nov 2016

See all articles by Nathan M. Fong

Nathan M. Fong

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

Yuchi Zhang

University of Maryland - Robert H. Smith School of Business

Xueming Luo

Temple University

Xiaoyi Wang

Zhejiang University

Date Written: August 1, 2016

Abstract

Targeted promotions based on individual purchase histories are known to increase promotional response while reducing search effort, yet the opportunity costs of such targeted promotions remain poorly understood. We use field experiments on a mobile e-book reading app and an online ticket exchange to test how targeted promotions can decrease cross-category search and purchasing. Findings from three randomized field experiments consistently showed that targeted promotions reduce cross-category purchase activity. These negative spillovers can be large; while direct response was higher for targeted promotions, total sales for one of the experiments was significantly higher for untargeted promotions. We find evidence that the negative category spillover effects are due to a decrease in search activity. Precisely targeted offers lead consumers to take a less active role in information search, limiting cross-category exploration. Firms using highly targeted promotions should monitor for reductions in search, as an indicator of missed cross-selling opportunities and lower sales diversity at the customer level.

Keywords: targeting, search, spillover, field experiments, promotions

Suggested Citation

Fong, Nathan M. and Zhang, Yuchi and Luo, Xueming and Wang, Xiaoyi, Targeted Promotions and Cross-Category Spillover Effects (August 1, 2016). Fox School of Business Research Paper No. 16-035. Available at SSRN: https://ssrn.com/abstract=2847635 or http://dx.doi.org/10.2139/ssrn.2847635

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

Yuchi Zhang

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Xueming Luo (Contact Author)

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/

Xiaoyi Wang

Zhejiang University ( email )

38 Zheda Road
Hangzhou, Zhejiang 310058
China

Register to save articles to
your library

Register

Paper statistics

Downloads
208
Abstract Views
1,071
rank
146,358
PlumX Metrics