Smarter Deals

Smartphone coupons might put the squeeze on direct mail

When two rival firms—think Dunkin’ Donuts and Starbucks—flood customers with direct mail coupons, economic models suggest that, with prices lowered in tandem, neither one gains a competitive edge.

Monic Sun (GRS’06,’08), an assistant professor of marketing, says geotargeting—pricing that tracks consumers not by their home addresses, but by the smartphones in their pockets—may be a better bet, benefiting both shoppers and the firms they patronize. Smartphone offers can change every time a consumer’s location does. Customers might get one coupon offer if they’re close to the seller’s store, a better offer if they’re near a competitor’s store, and a third if they’re by neither.

“From a competitive standpoint, geotargeting has fewer bad implications than traditional coupons,” says Sun, who coauthored a paper on the subject with researchers at New York University and the University of Connecticut. “If you use it in the right way, mobile targeting can outperform both nontargeted uniform pricing and traditional coupon targeting.”

But smartphone deals, unlike direct mail, also allow buyers to change their location—within reason—to snare a better deal. For that reason, says Sun, firms must exercise caution in the value of the coupons they provide. “The increased flexibility for these consumers to arbitrage by changing locations puts a restriction on how aggressively the firms can compete with other firms at each location,” she says. Companies must also rein in their aggressiveness so they don’t cannibalize their own sales if they have multiple locations.