Optimal strategies of mobile targeting promotion under competition

Abstract

This paper aims to investigate the optimal strategies of mobile targeting promotion (MTP) between two competing firms. MTP is a marketing tool that pushes personalized promotion to apps embedded in mobile devices based on consumers' real-time geographic locations. This paper examines competing firms' MTP and pricing decisions in the classic Hotelling's linear city model with a more realistic setting of round shopping trips. It simultaneously incorporates consumers' real-time geographic location and cherry-picking behavior into the analysis. The model also factors in the unit production cost asymmetry in a competitive environment and demonstrates to what extent the low-cost advantage can be realized, as well as under what conditions the high-cost disadvantage can be remedied. Analyzing three subgames of MTP, we obtain the following findings. First, firms' optimal MTP and pricing strategies are influenced by the fraction of strategic consumers and the unit targeting cost of MTP. Second, a firm may not benefit from a lower unit production cost if the MTP cost is too high. Subsequently, the firm with a cost disadvantage may not suffer a profit loss. Finally, we derive the boundary conditions under which the disadvantageous firm can avoid profit loss, and find that a higher fraction of strategic consumers in the market will alleviate the risk of profit loss for the firm if only one firm adopts MTP.