Abstract
The pervasive adoption of mobile devices and proximity technologies enables firms to trace consumers’ trajectories and locations. This connects firms’ marketing and operations strategies more tightly with consumer mobility. In this paper, we propose a novel analytical model to examine the economic effects of consumer mobility on pricing and advertising strategies by incorporating consumers’ Lévy-walking behavior into advertising economics models. We ascertain the convergent effect of consumer mobility, i.e., consumers’ convergence to a firm leads to higher product price and advertising level. Meanwhile, it improves social welfare by increasing firm profit and consumer surplus. More interestingly, we find that consumers’ average movement distance (AMD) has opposing influences in pricing and advertising strategies. Specifically, longer AMD strengthens the convergent effect on advertising strategy but weakens that on pricing strategy. Finally, we also conduct a numerical analysis to uncover the impacts of the presence of proximity technologies on advertising outcomes. The results of this paper provide advisable guidance to firms on how to craft and adjust pricing and advertising strategies in accordance to consumer mobility. Moreover, the results present insights on welfare implications of informative advertising from the perspective of consumer mobility.
Highlights
Global smart phone usage has exceeded six billion users in 2021 [1]
We propose an analytical method to examine the economic effects of consumer mobility and offer implications on a firm’s pricing and advertising strategies with Lévy-walking consumers
We assume that each consumer in the Hotelling city makes a random movement, i.e., a Lévy walk. Such a modification to the conventional model incorporates the wisdom of human mobility research into advertising economics research, proposes a novel framework to study the economic effects of consumer mobility, and highlights the role of consumer distribution in advertising strategies and welfare outcomes
Summary
Global smart phone usage has exceeded six billion users in 2021 [1]. proximity technologies such as beacons, GPS, geofencing, Wi-Fi services, and NFC (near field communication) are gaining widespread adoption among firms. Movement patterns motivates a firm to craft and adjust its pricing and advertising strategies according to consumer mobility. A firm should take consumer mobility into account and anticipate consumers’ locations when it makes pricing and advertising strategies. What are the effects of the consumers’ OMT on the firm’s pricing and advertising strategies, as well as social welfare (sum of firm profit and consumer surplus)?. This paper assumes that each consumer makes a random movement, i.e., a Lévy walk Such a modification to the conventional modelling offers a new lens for studying the economic effects of consumer mobility and presents new insights on welfare implications of informative advertising.
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