JOB MARKET PAPER

Targeted advertisements have emerged as a promising way for retailers to more precisely interact with their customers, decreasing waste relative to mass marketing campaigns.  When assessing the effectiveness of targeted advertisements, the primary metric used is the consumer response to the targeted product, either through the purchase of the product or the click-through rate of the online advertisement. While this metric is important for understanding the ROI of an advertisement, it misses a related metric that may tell a more complete story. For retailers with multiple products, the spillover effect of the targeted advertisement may have a more significant impact on store sales than the purchase of the targeted product; spillover effect refers to the change in spending of related products not directly included targeted advertisements.

With a unique dataset from a single unidentified national retailer, I am able to analyze both the direct and indirect spillover effects of targeted advertisements for two targeting strategies: personalized reward and targeted promotions. Personalized rewards show appreciation to loyal customers by surprising and delighting them with a discount for a broad set of frequently purchased products. Targeted promotions, on the other hand, recommend and offer discounts for a specific set of products relevant to a targeted customer group.

Roughly halfway through the sample period, the retailer began sending personalized reward and targeted promotion coupon campaigns to a subset of its customers. I find that while the redemption rates are higher for personalized rewards, the spillover effects of targeted promotions imply higher overall sales for targeted promotions. Targeted promotions have increasing returns to successive campaigns by increasing probability of coming to the store and spending once in the store while the personalized rewards have decreasing returns. Further, I identify department sales of the promoted products as the primary spillover channel through which targeted promotions increase sales once customers are in the store.

with Simon Anderson (UVa) and Nathan Larson (American)

Games and Economic Behavior 92 (2015) 53-73

We study personalized price competition with costly advertising among n quality-cost differentiated firms. Strategies involve mixing over both prices and whether to advertise. In equilibrium, only the top two firms advertise, earning “Bertrand-like” profits. Welfare losses initially rise then fall with the ad cost, with losses due to excessive advertising and sales by the “wrong ” firm. When firms are symmetric, the symmetric equilibrium yields perverse comparative statics and is unstable. Our key results apply when demand is elastic, when ad costs are heterogeneous, and with noise in consumer tastes.

with Simon Anderson (UVa) and Nathan Larson (American)

Revision requested at The Review of Economic Studies

We enrich differentiated-product price competition by allowing firms to, at a cost, undercut each others’ list prices by sending consumers targeted ads with personalized discount offers. Although firms mix over whether and how much to discount, expected profits on these contested consumers are simple and Bertrand-like. The option to send targeted ads generally leads to higher list prices but lower overall profits. Fickle consumers with good second-best options benefit, but those with a strong favorite product are made worse off. The main results are quite general; we illustrate with applications to Hotelling competition and multinomial choice.

with Rajkumar Venkatesan (UVa Darden) and Paul Farris (UVa Darden)

Shopper Marketing and the Role of In-Store Marketing, Review of Marketing Research. Vol. 11

We review the implications of the mobile technology for different stages of the consumer path to purchase including awareness, search, evaluation, store visit, and product choice. Real-time and location-specific access to information and products are identified as distinguishing characteristics of mobile devices. While the literature on digital marketing is well developed, knowledge of the effects on the consumer path to purchase in the presence of dynamic and location-specific information is still scarce. Path to purchase models need to recognize the central and powerful role of user-generated content. Better management of marketing resources would require models that connect investments in mobile marketing to sales, and also model the synergies among different digital and offline media. We conclude with a framework that connects mobile media impressions to product choice, in the presence of other marketing media, and consumer and firm feedback loops.