Competing for Customers at the Cinema

New study finds that successful mobile marketing campaigns have to do more than just slash prices.

As the 2017 Academy Awards ceremony approaches, moviegoers are flocking to theaters to see the season’s most critically acclaimed films. While customers are constantly in search of discounted tickets for what has become an expensive night at the theater, cinemas are also in stiff competition with one another for business.

In response to this ongoing battle for business, theaters have begun using cell phone technologies to learn where potential customers are located at any given time. This process, called geolocating, allows theaters to target customers in areas with competing theaters and lure them with discounts and other special promotional offers. Targeted theaters can also respond by offering “defensive” deals, in which they offer modest price cuts to prevent customers from chasing a competitor’s drastic deals.

Jean-Pierre DubéIn an in-depth exploration of these processes, Chicago Booth School of Business Professor of Marketing Jean-Pierre Dubé conducted research with Zheng Fang, Nathan Fong and Xueming Luo to determine how effective these mobile marketing strategies really are for businesses.

Competitive Price Targeting with Smartphone Coupons,” to be published in an upcoming issue of Marketing Science, details the team’s large mobile field experiment that was conducted in a major Asian city. With the support of a mobile service provider and two competing, nearby movie theaters, the researchers simultaneously randomized the prices of each theater’s movie tickets using cell phone coupons. A large group was sent messages with special offers for one of the two theaters during an “off-peak,” early Saturday time slot.

Of 16,000 subjects who received at least one text message offer, 535 purchased a voucher at one of the two theaters that day, which is a promotional response of 3.3%. This was a significant boost in sales, proving that the discounts were effective in in-creasing business.

“Both firms could create incremental profits by targeting their competitor’s location,” said Dubé.

“However, the returns to such ‘geo-conquesting’ are reduced when the competi-tor also launches its own targeting campaign,” Dubé continued. In other words, while certain mobile geolocation campaigns are effective and profitable, companies often enter into a “war of attrition” that leads both to lose money.

“While competitive targeting does not result in lower profits per se, we do find that firms may misestimate the profitability of targeted pricing by disregarding competi-tive response,” said Dubé.

The researchers believe that in many cases, pilot tests for theater discount programs do not factor in competitor response. Therefore, companies may be surprised and disappointed when a competitor also adjusts their prices. In these situations, both companies are slashing prices, and perhaps both are losing out on profits.

While other factors such as matinee discounts, proximity to shopping malls, and moviegoer passion surely influence when and where people choose to see films, this research could be valuable for theaters as they try to not only gain customers, but increase profits.

“These findings demonstrate the importance of considering competitor response when piloting novel price-targeting mechanisms,” said Dubé.