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

Abstract

Firms can now use location-based advertising (LBA) to provide real-time information about offers in geographical proximity to user’s smartphones. LBA can either be pushed to users, or users can actively search for offers (i.e., pull) on specific mobile applications. Two key aspects of location-based advertising that influence its effectiveness are the provision of distance information and the presence of ranking-related search costs. The aim of this study is to test the effectiveness of location-based advertising for mobile coupons by taking these key aspects into account. Using data from a randomized field experiment, we quantify the impact of geographical distance between a user and a store as well as ranking-related search costs specific to location-based advertising. Our dataset consists of 354,662 observations including 3,218 different coupon promotions. We find that increasing the distance to a store by 1 kilometer decreases mobile coupon response rates by between 2.0 and 4.7 percent. Similarly, the effort of scrolling down one rank on the screen leads to a reduction in coupon response rates by approximately 4.4 to 5.2 percent. We conclude that in location-based pull advertising, the presence of distance information increases the relative importance of distance by signaling the underlying transportation costs.