Location Matters

Power of Haas Ideas

Location Matters

Assoc. Prof. Zsolt Katona shows how GPS data can help mobile marketers prosper

Location-based mobile advertising is a fast-growing industry—and with good reason. New research by Haas Assoc. Prof. Zsolt Katona shows that where customers have been helps predict what they will buy.

Indeed, customers who have inhabited the same physical space are more likely to respond similarly to a mobile coupon. Katona calls this response a “co-location effect” in his study, “Predicting Mobile Advertising Response Using Consumer Co-Location Networks,” co-authored with Peter Pal Zubcsek of Tel Aviv University and Miklos Sarvary of the Columbia Business School.

The study shows that using GPS data to pinpoint the location of customers is a better predictor of consumer behavior—up to 19 percent more accurate—than information about demographics (age, income, education) and psychographics (values, lifestyle, and personality).

“If you have similar tastes, you are more likely to go to the same location, even if you do not actually know each other," says Katona. "That may cause you to respond similarly to the same coupon. We saw the biggest effect with people who are closely located, within a roughly 400-foot radius.”

The researchers used GPS data from a major Southeast Asian cell phone company and modeled how 217 study participants in a metropolitan area responded to a variety of coupon offers for coffee, food, and entertainment sent out at random times and to random locations.

In order to study how well customers respond to coupons while controlling for similar habits of socially connected individuals, Katona and his colleagues constructed two participant networks: co-location and referral. Co-located participants must have been at the same location during at least one of the GPS observations the day before the offer. Participants in the referral network were deemed connected if one of them had invited the other to the program.

When participants recently visited the same location and received the same mobile coupon, they reacted to the offer at a higher rate and with more similar responses than those who were not near each other. For instance, a participant in the proximity of someone with a 20-percent coupon redemption rate in the consumer packaged goods category redeemed the same offers at roughly double the rate of participants who had not visited the same location.

The research team also tested to determine if consumers are more or less likely to redeem offers in a similar fashion if they had met in so-called “hot spots”—popular and populated locations such as those in urban centers—compared to “cooler” or less-visited locations. The study found that it is easier to predict customers’ behavior when they have visited the same cool spots rather than the same hot spots. By definition, hot spots attract everyone irrespective of tastes and preferences. In contrast, when people tend to go to the same cool or non-popular places, they are more likely to be similar in their preferences.

—Pamela Tom

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