Advertising Strategies Based on Geofencing and Competitive Retargeting


Student thesis: Doctoral Thesis

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Awarding Institution
Award date11 Mar 2020


The rapid development of mobile Internet technology has profound influence in advertising operations. It is easier for firms to obtain giant data about consumers’ behaviors, which can be used to create more complicated profiles of consumers and tailor advertising strategies to them accordingly. Moreover, geofencing advertising and competitive retargeted advertising gain increasing popularity in marketing practice. The former emphasizes firms’ efforts to acquire consumer traffic by converting the consumers in own segments; the latter emphasizes firms’ efforts to acquire consumer traffic by poaching the consumers in rivals’ segments. The new advertising technologies enrich firms’ marketing methods, but also bring challenges to firms.

Firms generally have difficulties in understanding the operational mechanisms of the new advertising technologies, which further raises many questions in decision-making. Unveiling the operational mechanisms of geofencing and competitive retargeting advertising, and developing the optimal geofencing and competitive retargeted advertising strategies are crucial to reduce firms’ hesitation in adopting the advertising technologies, and to help them take better use of the technologies to enhance profitability. Extant literature has paid limited attention to the questions, lacking a clear and general viewpoint. Therefore, a study of the advertising strategies is needed to support firms’ decision-making and enrich the theory in advertising.

This thesis builds several game theoretical models to investigate manufacturers’, retailers’, and media distributors’ geofencing advertising and competitive retargeted advertising strategies. It ascertains the effects of consumer traffic, spatial competition, and advertising bidding etc on geofencing advertising strategy. Besides, it unveils the interaction between behavior-based pricing (BBP) strategy and competitive retargeting strategy. Specifically, it has the following fourfold findings and contributions.

First, this thesis proposes the optimal geofencing advertising strategy in a duopoly market, and ascertains how competitive environments (i.e., consumer traffic and competition intensity) affect retailers’ fence locations (indicated by prices) and advertising levels (advertising conversion rate). By dividing the traditional Hotelling market into retailers’ turfs and a common turf, this thesis obtains a counter-intuitive finding that higher consumer traffic can lead to lower prices, advertising levels, and profits under certain conditions. This result generalizes the wisdom of extant literature by demonstrating the inverse relationship between the number of consumers and firms’ profit in a more general setting, not limited to the increase/decrease of distant (or “bad”) consumers. Besides, this thesis demonstrates that the consumer traffic in retailers’ turfs affects the market equilibrium in opposite direction to that in the common turf. This result enriches the knowledge on the role of consumer traffic in marketing strategies and performance, and provides a novel insight that retailers should consider not only the amount of consumer traffic (the traditional viewpoint), but also the relative locations of the traffic sources (our new viewpoint).

Second, this thesis links the decisions in media market and product market, which are typically considered separately in extant literature. Thereby, it presents the optimal geofencing advertising strategy in a media channel composed of two horizontally differentiated retailers and a common media distributor, and unveils the effects of the shift of control rights over advertising decisions on geofencing advertising strategy. It finds that, if media distributor’s advertising service changes from a guaranteed contract to a bidding mode, retailers may tend to increase produce prices such that they can have more money to pay for the bids. As a result, media distributor’s dominating fencing decision under a bidding mode can alleviate the price competition in product market, increase advertising levels, and finally enhance retailers’ profits and channel’s performance under certain conditions. Moreover, such a bidding effect is more significant as spatial competition is stronger and more consumers concentrate in the common turf. It can even offset the intrinsic decentralization effect of the media channel, thus making the channel performance under a bidding mode better than that in the integrated-decision case where retailers control all decisions. The results provide a new theoretical lens to reveal the advantages of decentralized advertising decision-making, and generate implications on how geofencing advertising strategies should be made under different service modes and how a retailer should select the service modes.

Third, this thesis incorporates the behavior-based and time-delay features of retargeted advertising into static targeted advertising models. Thereby, it bridges the literature on BBP and behavior-based advertising (BBA), formulates the competitive retargeting strategy in a duopoly market, and uncovers the interaction between competitive retargeting strategy and retailers’ pricing schemes (i.e., uniform pricing (UP) or BBP). It finds that adopting competitive retargeting is a prisoner’s dilemma in a symmetric equilibrium. Particularly, BBP is necessary to the adoption of competitive retargeting, as it enables retailers to make differentiated price adjustment strategies towards the new and old consumers after adopting competitive retargeting. The higher old-consumer price can compensate the loss in profit margins resulting from the decrease in new-consumer price, thus making competitive retargeting attractive. Moreover, competitive retargeting is more likely to be adopted if consumers are myopic than if they are strategic, or if the retailers’ consumer bases are highly overlapped. The results enrich the theory of behavioral marketing, and provide practical guidance on whether a retailer should adopt competitive retargeting and how it should adjust prices after the adoption.

Fourth, this thesis develops the competitive retargeting strategy in a distribution channel composed of two manufacturers and their exclusive retailers, and sheds light on the interaction between competitive retargeting strategy and channel members’ pricing schemes (i.e., UP or BBP). By extending the research on static targeted advertising and BBP to a distribution channel’s context, this thesis finds that competitive retargeting would be adopted only if retailers use BBP, manufacturers use UP, and consumers are myopic. Specially, competitive retargeting can increase the new-consumer prices. This result is opposite to that in the duopoly setting, highlighting the differences between manufacturers’ and retailers’ strategic behaviors in pricing and advertising. Manufacturers benefit more from the expansion in consumer base than retailers after the adoption of competitive retargeting. This further leads to a result that manufacturers have a more positive attitude towards the adoption of competitive retargeting than retailers. The results unveil the advertising mechanism in a distribution channel from a “downstream to upstream” viewpoint (i.e., how manufacturers should respond to the changes in retailers’ targeted advertising strategies), in addition to the “upstream to downstream” viewpoint (i.e., how manufacturers should incentivize retailers to make optimal advertising efforts) held by extant literature, thereby developing the theory of advertising management in distribution channels.

To summarize, this thesis conducts a study of the advertising strategies based on geofencing and competitive retargeting in a marketing channel, ascertains the advertising’s operational mechanisms, enriches the theory of informative advertising, behavioral marketing and other related fields, and provides theoretical guidance to manufacturers, retailers, and media distributors for their decision-making.

    Research areas

  • Geofencing advertising, Competitive retargeting, Consumer behavior, Marketing channels, Game theory