Do Aggressive Text-Message Coupons Win Over Customers?

In the outdoor activity known as geocaching, fun seekers use precise geographic coordinates to find hidden treasures. Businesses have their own version of this game—“geotargeting,” using the locations of consumers’ mobile devices to try to boost business by offering text-message deals.

Some businesses even go so far as to send coupons to potential customers who are in their competitors’ market areas, an activity known as “geoconquesting.” This can work, though levels of success and profits can fluctuate when multiple businesses compete for the same consumers, according to Chicago Booth’s Jean-Pierre Dubé, Sichuan University’s Zheng Fang, and Temple University’s Nathan Wong and Xueming Luo.

The researchers conducted a large-scale field experiment involving two competing movie theaters within a few miles of each other in an Asian city. They monitored 1,000 people with cellphones who were offered no discounts but were recorded by General Packet Radio Service technology as having been in a theater for more than an hour and thus were assumed to have purchased a ticket. The researchers compared this group to 17,000 cellphone users who received a range of mobile coupon discounts.

“The experiment shows that either firm would profit by offering deep discounts off their regular prices to consumers located near their competitor, which we refer to as ‘offensive’ promotions,” the researchers write. “However, the returns to such geographic targeting are mitigated if the competitor responds with targeted pricing to the same consumers, which we refer to as ‘defensive’ promotions.”

Defensive promotions worked quite well, the researchers find. At a 20 percent discount, incremental ticket sales increased by about 2 percentage points. At a 40 percent discount, conversions—the number of people who received a mobile coupon, clicked on the offer, and bought a ticket—increased by about 5 percentage points.

The theater on the offensive, trying to woo customers away from a competitor that was farther away, got little response to a 40 percent discount, the researchers find. Ticket sales rose less than half a percent relative to the baseline. But raising the discount to 60 percent boosted ticket sales by almost 3 percentage points, the study indicates.

Convenience seems to matter even at a steep discount. The researchers find that boosting a discount offer from 40 to 60 percent can help the theater farther from the consumer increase sales by 2 to 3 percentage points if there is no counteroffer. But if the nearby theater offers even a 20 percent discount, the better offer increases sales less than 1 percentage point.