Although the extant literature has much research on location-based targeting, it does not distinguish between inside and outside a location. This paper extends the literature by considering mobile coupons issued outside and inside the location in the setting of a shopping mall with multiple stores, where each store may issue mobile in-app coupons to potential customers. We first empirically examine the effect of coupons on stores’ sales using a proprietary dataset from a large Chinese shopping mall. We show a stronger sales effect of coupon clicks made by consumers outside the mall than inside the mall, implying a trafficconversion effect – bringing additional traffic to the mall – that has been overlooked in prior literature. Our data also suggest that stores may not gain more sales from issuing coupons, but can benefit from free-riding on other stores’ coupons. Motivated by our empirical findings, we build a mathematical model to investigate optimal location-based coupon strategy. Our analytical results identify the conditions regarding whether and where a store selling experiential or functional products should issue coupons, which not only echo our empirical findings, but also show that without distinguishing inside or outside a location, marketers may underestimate these coupon effects and may target the wrong consumers. Lastly, we show the existence of the prisoner’s dilemma where stores would not offer coupons, although they would be better off issuing coupons; moreover, we show that the driver is the coupons’ traffic-conversion effect. This underscores the needs for mall owners to coordinate marketers in making coupon decisions.
|Publication status||Published - Mar 2021|