LAUSR

Abstract As mobile devices gain increasing popularity in consumers' shopping journeys, geofencing mobile advertising is widely used by retailers to convert front traffic, i.e., consumers walking in front of a store, into sales. In the process, retailers face two critical questions, i.e., how to set the fence locations and how to improve the conversion effectiveness with consideration of the advertising costs. We aim to shed light on the issues by developing an analytical model that considers two competitive retailers' mobile advertising strategies in a linear Hotelling city. We first present the equilibrium prices (or fence locations), advertising levels, and profits. In addition, by conducting a comparative static analysis, we ascertain the separate effects and joint effects of front traffic, showing how the traffic changes caused by consumer entry and consumer switching affect the equilibrium outcomes in different competitive environments. Counter-intuitively, we find that higher front traffic, which is usually regarded as being favorable to a retailer, can lead to lower prices, advertising levels, and profits under certain conditions. The results suggest that retailers should craft and adjust mobile advertising strategies in accordance with both consumers' movement tendency and competition intensity. Besides, by comparing the competitive retailers, we provide guidance to retailers on how to make mobile advertising strategies according to traffic advantages or disadvantages.