Distance and Local Competition in Mobile Geofencing

Abstract

The growing ubiquity of GPS-enabled smartphones has ushered in a new era of location-based services and online-to-offline commerce. Geofencing is one instance of this broader phenomenon, and it is being widely adopted in the context of retail, restaurant, entertainment, and other local services. By targeting users on mobile apps while they are in the vicinity of physical establishments, there is potential for higher levels of engagement and consumption of the products or services on offer. However, the level of consumer interest is likely to depend on distance from the establishment and local competition in the surrounding areas. This study examines the impact of these two factors on consumer response to geofence advertising at different points in the purchase funnel, namely the click stage and conversion phase. Analyzing a rich data set from one of the leading location-based marketing agencies and using a sophisticated Bayesian empirical methodology, we find that having one more competitor in the consumer’s vicinity reduces click-through rate by about 1%, and a 1-mile increase in distance is associated with a 17.6% reduction in conversion rate. These and other results suggest that accounting for distance and local competition in data-analytic mobile targeting would increase both the return on advertising spend and consumer welfare.