Even a slight discount offer from a nearby business can prevent customers from switching to a rival further away trying to poach them with a substantial discount, according to new research from professors at Temple University’s Fox School of Business.
Dr. Xueming Luo and Dr. Nathan Fong examined the effectiveness of geoconquesting – the marketing strategy of a business that targets and sends coupons to customers who are in proximity of competing businesses. This usually triggers a competitive response, causing another business to send coupons to prevent losing the same customers.
Marketing Science journal accepted their most-recent digital-marketing research – “Competitive Price Targeting with Smartphone Coupons” – in January 2017. The paper is co-authored by University of Chicago’s Dr. Jean-Pierre Dubé and Sichaun University’s Dr. Zheng Fang.
While marketers and scholars may suspect that competitive responses reduce the returns on coupons that are intended to poach competitors’ customers, no prior research has directly quantified such effects.
The research team analyzed field experiment data provided by a telecom company that distributed movie-voucher coupons via text message in an Asian city to 18,000 smartphone users. Two competing movie theaters separated by two miles employed both offensive geoconquesting promotions (deeply discounted ticket coupons sent to consumers near a rival theater) and the counter defensive promotions (coupons with marginal discounts sent to the same consumers nearest the theater).
“We found that at a deep discount of 60% savings, 3% of the consumers were willing to switch to the rival movie theater that was farthest away,” said Fong, Assistant Professor of Marketing at the Fox School of Business. “But with even a shallow discount of 20% savings from the nearby theater, that number of people willing to travel farther dropped to 1%. This demonstrates that the geoconquesting offensive promotion is still capable of generating revenue for the distant theater, but its effectiveness is substantially reduced by competitor responses.”
“Obviously, it’s more profitable to have a monopoly on the market when your business is the only one practicing geoconquesting with mobile technology,” added Luo, the Charles Gilliland Distinguished Chair Professor of Marketing at the Fox School of Business. “Competitive responses often happen and can decrease the profitability of geoconquesting. But, interestingly, competitive responses can also increase the profitability of behavioral targeting, which is based on customer loyalty behavior.”
Luo and Fong stressed that mobile technology with geoconquesting capacity is a cutting-edge tool to reach customers everywhere, but businesses must understand their customers’ needs and preferences. This way, they can better capitalize on mobile marketing and analytics to generate abnormal returns or win the market competition.