Offering targeted ads to customers’ mobile devices based on their physical location — a strategy called geoconquesting — is the latest tool some businesses are using to poach consumers from competitors’ brick-and-mortar stores.
Researchers from the Naveen Jindal School of Management at The University of Texas at Dallas recently developed a model that reveals the potential pros and cons for businesses and ad agencies that employ such location-based advertising tactics.
“Businesses invest in traditional banner and search advertising to convince undecided consumers to pay for a product or service,” said Dr. Amit Mehra, professor of information systems and co-author of a study published in the June 2024 print edition of Information Systems Research. “This part of customer acquisition can be very expensive. The introduction of geoconquesting has created a fundamental shift.
“Although traditional search-driven and display advertising remain vital, mobile devices have allowed for new possibilities relating to detecting and taking advantage of consumers’ locations.”
Study co-author Dr. Vijay Mookerjee, professor of information systems and the Charles and Nancy Davidson Distinguished Chair in Information Systems, said that in business, location is considered a powerful signal of intent to make a purchase.
“Location-based advertising means companies can be much more aggressive with their advertising efforts,” he said. “It has created a more competitive field.”
Geoconquesting takes advantage of a cellphone’s location-tracking function. Through these, an advertising agency can quickly deliver ads with discounts to someone’s email or social media accounts to encourage them to shop with a particular company.
For example, a person shopping for a new pair of running shoes in one location might start noticing offers from a different footwear store nearby.
“Say I, as a retailer, use a map to determine a digital perimeter around a competing store,” Mehra said. “If a customer has enabled location services on their phone, and they breach that perimeter, that’s when I target them with a discount.”
The researchers caution that although geoconquesting appears to be an asset for a business, it also poses challenges.
According to the study, if a well-timed ad offering a discount proves to be what gets more customers in the door, businesses could very quickly lock themselves in competition with each other, resulting in the need to entice consumers with increasingly large discounts that cut into profits.
The researchers found that no matter the scenario, it is the advertising agencies — not the businesses — that benefit the most because competing businesses can remain locked in a war of discounts.
“Often businesses would be better off by not engaging in geoconquesting campaigns,” Mehra said. “But if one stops, it could be even worse off for them, because their competition would have succeeded in stealing away customers.”
While conducting their research, the researchers analyzed whether a major advertising agency could capitalize on this competition by offering protection from geoconquesting.
“Often businesses would be better off by not engaging in geoconquesting campaigns. But if one stops, it could be even worse off for them, because their competition would have succeeded in stealing away customers.”
Dr. Amit Mehra, professor of information systems in the Naveen School of Management
“When an advertising agency that sells targeted ads also offers insurance against geoconquesting, it makes the agency even more money,” Mehra said.
“Geoconquesting isn’t a brand-new advertising strategy, but its use isn’t as widespread as search advertising,” Mehra said. “We thought this was the right time to work on this subject, because we’re looking ahead and trying to imagine how the advertising world is going to operate once this catches on.”
Other contributors to the study included corresponding author Manmohan Aseri PhD’18 of the University of Maryland and senior author Dr. Hong Xu of The Hong Kong University of Science and Technology. The research was funded in part by the Hong Kong Research Grants Council.