Loacation Based Ad - Interface

Journal of Management Information Systems
ISSN: (Print) (Online) Journal homepage: https://www.tandfonline.com/loi/mmis20
Effectiveness of Location-Based Advertising and

the Impact of Interface Design
Dominik Molitor , Martin Spann , Anindya Ghose & Philipp Reichhart
To cite this article: Dominik Molitor , Martin Spann , Anindya Ghose & Philipp Reichhart (2020)
Effectiveness of Location-Based Advertising and the Impact of Interface Design, Journal of
Management Information Systems, 37:2, 431-456, DOI: 10.1080/07421222.2020.1759922
To link to this article: https://doi.org/10.1080/07421222.2020.1759922
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JOURNAL OF MANAGEMENT INFORMATION SYSTEMS
2020, VOL. 37, NO. 2, 431–456
https://doi.org/10.1080/07421222.2020.1759922
Effectiveness of Location-Based Advertising and the Impact of

Interface Design
Dominik Molitora, Martin Spann b
, Anindya Ghosec, and Philipp Reichhartb
a
Gabelli School of Business, Fordham University, New York, NY, USA; bInstitute of Electronic Commerce and
Digital Markets, Ludwig-Maximilians-Universität München, Munich, Germany; cLeonard N. Stern School of
Business, New York University, New York, NY, USA
ABSTRACT KEYWORDS
Offline retailers increasingly use location-based coupons to target Randomized field
consumers in their vicinity in real-time. The rationale for the use of experiment; mobile pull;
location-based coupons is that geographic proximity increases the mobile push; mobile
analytics; behavioral effects;
relevance for consumers and, thus, the effectiveness of these cam-
interface design;
paigns. Two key interface-specific aspects of location-based coupon m-commerce; location-
applications that influence their effectiveness are 1) the provision of based advertising; mobile
distance information and 2) the distance-based ranking of coupons. advertising
The aim of this paper is to study and quantify the impact of these
two key aspects of interface design on the effectiveness of location-
based coupons. We conduct a randomized field experiment with
399,913 observations, including 3,499 different coupon promotions
offered by 3,930 different stores located in 2,392 ZIP code areas in
a large Western European country. Our results show that the most
effective interface design for location-based coupons is based on
a distance-based ranking. Furthermore, we find significant differences
in the impact of distance and display rank based on the interface
design and the actual geographic location of users. Our results thus
contribute to the understanding of consumers’ behavioral responses
to location-based advertising and provide important implications for
the interface-design of location-based advertising applications.
Introduction
Mobile advertising is the most important digital advertising channel based on ad spend-
ing, accounting for more than 75 percent of digital ad spending in the United States [32].
One of its key applications is location-based coupons. Functionally, location-based cou-
pons can be either sent as a push notification to users without explicit request (i.e., mobile
push) or provided based on explicit request (i.e., mobile pull) within specific applications
in which users can intentionally browse through available coupons [47].
Previous research has almost exclusively focused on investigating the users’ responses
to mobile push coupons. For example, existing studies have analyzed the users’ intention
to redeem coupons [15], the users’ probability of usage [33], and the effectiveness of
mobile short message service (SMS) based [5, 16, 18] and app-based [24] push targeting
strategies.1 Unlike the existing studies analyzing coupons that are pushed on mobile
devices, our study analyzes a location-based pull coupon application.
CONTACT Martin Spann spann@spann.de Institute of Electronic Commerce and Digital Markets, Ludwig-
Maximilians-Universität München, Geschwister-Scholl-Platz 1, D-80539 Munich, Germany
Supplemental data for this article can be accessed at here
© 2020 Taylor & Francis Group, LLC
432 MOLITOR ET AL.
Specifically, in addition to differences in the delivery mechanism, mobile pull differs

from mobile push in three distinct categories: 1) the user’s perception, 2) the interaction
with coupons/ads, and 3) the interface design. First, the difference in the users’ general
perception is that mobile pull tends to be less often considered as spam [44] and less
privacy intrusive [47]. For example, in European countries such as the United Kingdom,
France, and Germany, as well as Canada, push notifications require an additional opt-in,
while the US requires an opt-out.2 Second, from a behavioral perspective, mobile pull
gives users more control over their interactions with the provider [47] and is based on
different motivations in their actions, allowing users to actively search for a product or
service. The third key differentiator of mobile pull revolves around the interplay between
the interface design, the organization of information, and the product discovery process.
In the case of location-based coupons, users are typically presented with a variety of
different coupons, as well as the question of how to best organize these coupons.
From a theoretical perspective, the choice between different coupon options in loca-
tion-based pull advertising depends on the options’ presentation via the interface design,
which is sometimes referred to as choice architecture [41]. Providers of location-based
coupon applications are therefore able to make conscious decisions about how to display
their coupons to users. Two key variables that may affect the relevance of displayed
coupons are the ranking mechanism (i.e., distance-based vs. random) and the provision
of distance information. In particular, the relevance of the ranking mechanism is guided
by the distance to the offline points-of-sale and the availability of distance information.
The users’ choices are thereby influenced by distance-specific transportation costs [21] and
ranking-related search costs [22]. The salience of actual distances to stores provides users
with transparency about the required transportation costs. The ranking-related search
costs are based on cognitive search efforts that depend on the position of the coupon on
the screen, which is driven by the need to fit multiple coupons on the smartphones’
smaller screen sizes (compared with that of PCs or laptop computers) [6, 8, 19].
From a functional perspective, and similar to search engine advertising, location-based
pull coupon providers can use distance-based rankings to present users with an ordered
list of coupons that are sorted by relevance [9], allowing users to actively search for the
preferred options. In this case, users are explicitly searching and asking for these coupons;
hence, this scenario is referred to as pull.
Conversely, the concept of mobile push is more closely related to display advertising
through which users are being targeted either depending on their browsing behavior
(behavioral targeting) or through the context of the website (contextual targeting) [27];
the user’s proximity to a location is a key targeting factor in mobile push approaches [36].
In this case, users are not explicitly asking for these coupons, which are automatically
pushed out to them (based on a variety of targeting criteria). In addition, most mobile
push notifications do not require a sophisticated interface design because they are
standardized via the operating system (i.e., iOS or Android). Mobile push notifications
also rarely include more than one specific coupon and, thus, do not require a ranking
mechanism. Therefore, compared with location-based pull couponing, sending push
notifications to users is a very different phenomenon. Thus, although previous research
has focused on mobile push, a gap remains in the literature about the unique aspects of
mobile (location-based) pull coupons with regard to the interplay between the users’
responses to coupons and the interface design that makes use of distance information
JOURNAL OF MANAGEMENT INFORMATION SYSTEMS 433
and distance-based rankings. For firms, it is also important to learn about the behavioral
aspects necessary to optimize the effectiveness of location-based coupon campaigns via the
device’s interface.
The aim of this paper is to study and quantify the impact of an app’s interface-specific
choice architecture — via distance-based ranking and the provision of distance informa-
tion — on the effectiveness of location-based coupons, by answering the following
research questions:
Research Question 1 (RQ1): What is the most effective interface design for location-based
pull coupons and how do users’ responses depend on their geographic location?
Research Question 2 (RQ2): How does the magnitude of distance and ranking effects differ
depending on the interface design?
To address these research questions, we conduct a large-scale randomized field experi-

ment followed by a series of descriptive and model-based analyses. We employ model-free
significance tests for the analyses of the first research question on the interface-design
specific differences and location-specific heterogeneity in users’ responses. The analysis of
the second research question is based on a hierarchical Bayes model that is used to
estimate the effects of distance and display rank, as well as their differences between
interface designs (i.e., experimental treatment groups).
The setting of the paper is a popular location-based pull coupon smartphone applica-
tion. The application provides a newsfeed-like list of coupons sorted in real time by their
distance between the store and user. The distance is calculated by using data on the
smartphones’ GPS locations. We employed a field experiment to manipulate the applica-
tion’s interface design. The field experiment was conducted over 14 weeks (between
November 2012 and February 2013). Our dataset consists of 399,913 observations from
4,364 unique users. The dataset also includes 3,499 different coupons offered by 3,930
different stores in 2,392 ZIP code areas in Germany. The available coupons can be
classified as (1) discount coupons with a monetary discount and (2) promotion coupons
without monetary discounts. The latter can be considered as advertising by informing
users of a store’s existence [17]. In our model, for both types of coupons, we analyze the
users’ responses as a function of interface design, distance, display rank, and discount
depth as well as that of a broad array of additional covariates, such as time, product
category, and previous usage behavior.
Literature Review
Mobile couponing, as a subset of mobile advertising, is still a fairly new topic covered only
by a few studies in previous literature. Table 1 shows a summary of the relevant prior
studies.
The early studies on mobile coupons focused on survey-based approaches to analyze the
consumers’ intention to redeem coupons (e.g., [15]), their usage probability (e.g., [33]), and
the perceived effectiveness of different targeting methods [44]. More recent literature has
almost exclusively focused on mobile push approaches, often with a location component. For
example, Andrews et al. [5] investigated how commuters in subways responded to push-based
434 MOLITOR ET AL.
Table 1. Comparison of this study to relevant prior research.

Coupon Field Distance Location-dependent Product
Study Model Exp. Info Ranking Treatment Categories Spatial Scope
This Study Pull ✓ ✓ ✓ ✓ 13 3,930 Stores; 2,392
ZIP code areas
Andrews et al. [5] Push 2 1 City
Li et al. [34] Push ✓ 1 344 Cities
Danaher et al. [13] Push 4 38 Stores in 1 Mall,
1 City
Dubé et al. [16] Push ✓ 1 2 Theaters, 1 City
Fang et al. [18] Push ✓ ✓ 1 1 Theater in 1 Mall,
1 City
Fong et al. [20] Push ✓ ✓ 1 1 Theater in 1 Mall,
1 City
Ghose et al. [24] Push 1 1 City
Luo et al. [36] Push ✓ ✓ 1 4 Theaters, 1 City
Notes: We did not include survey-based studies such as [15], [33], as well as [44] in this review.
mobile ads. In a similar study, Ghose et al. [24] analyzed the differences between commuters
and non-commuters in responses to mobile coupons. Luo et al. [36] used a field experiment to
estimate the impact of temporal and geographical distance — induced by mobile push
notifications — on the response to discounted movie tickets. In a related study, Fong et al.
[20] investigated the response to mobile promotions for movie tickets targeted at consumers
in the vicinity of a competing cinema, a strategy referred to as geo-conquesting. Dubé et al.
[16] replicated this study and found that the returns to geo-conquesting were reduced when
a competitor also implements a mobile targeting campaign. Fang et al. [18] analyzed whether
mobile promotions that are triggered by geo-fences — promotions sent when a consumer
enters a predefined area around the promoting store — were more effective than those
received without triggering by geo-fences. Danaher et al. [13] used observational data to
analyze how mobile coupons — sent out to visitors of a mall — influence the purchase
behavior of these visitors and found temporal and in-mall location effects on coupon
response. Li et al. [34] investigated the impact of weather and found that sunny weather
increased the consumers’ response likelihood to push notifications, while rainy weather
decreased consumers’ response.
In contrast to previous studies, we measure the effectiveness of a different coupon
delivery mechanism — location-based mobile pull — by using a large and novel rando-
mized field experiment that includes a great variety of product categories (13) and a great
variety of stores and geographies (3,930 stores in 2,392 ZIP code areas). Unlike the
previous literature, this approach allows us to investigate and vary the mechanism’s
interface design. More specifically, the interface design reflects the presence of multiple
coupons, enabling us to implement rankings that are informed by distance. This approach
contrasts with mobile push coupons that are usually standardized by the operating
system’s message design and that rarely include more than one coupon.
Theoretical Background
The implementation of mobile pull-based choice interfaces requires the consideration of
specific design mechanisms that govern the presentation of coupons on smartphones.
Specifically, a key aspect of mobile pull coupons is that users can proactively search and
choose between a variety of available campaigns that are presented by mobile coupon
providers [22]. As a result, the users’ choices strongly depend on the manner in which
coupon-specific information is being presented [31]. Thus, the app’s choice architecture
can influence the users’ decisions. This observation is why knowledge about the actual
design of the interface-specific choice architecture is also crucial for location-based pull
coupon applications. The two main factors that inform the underlying choice architecture
via the interface design are the availability of a ranking mechanism in combination with
distance (location) information. We therefore discuss the theoretical background of both
aspects based on previous studies on ranking and distance effects.
Ranking Effects
Previous studies in e-commerce have shown that consumers discover products mainly
through the use of search engines (e.g., [23]). Most search engines use rankings to present
their results to users [45]. Relevance-based rankings aim to reduce the search costs for
consumers by allowing them to find a product more quickly. Previous studies on the
consumers’ search and choice behavior in the context of search engines have revealed
strong ranking effects (e.g., [23]), which are manifested by a preference towards easily
accessible (i.e., highly ranked) choice options. In particular, the literature on sponsored
search advertising indicates that highly sorted options provide an economic benefit
evidenced by the interplay between top-positioned search results and an increasing
numbers of clicks and conversions [2, 25]. Higher-sorted coupons receive more attention
by consumers because these coupons are often assumed to be more relevant [45],
a phenomenon that is also denoted as the primacy effect [37].
It has been shown that the ranking effect is stronger for mobile users than for PC users,
ostensibly due to the device-specific display size [22]; to view information on smaller
screens requires the user to exert comparably higher cognitive efforts [6], sometimes also
referred to as search costs. However, the effect of rankings on choice can be endogenous if,
consistent with a standard practice of the search engines’ ranking algorithms, the con-
sumers’ prior behavior is used to inform the ranking [25]. Therefore, it is important to use
a randomized experiment to test the ranking effects.
In a location-based context, we contribute to these studies by using various ranking
mechanisms to analyze the ranking effects. We treat the ranking mechanisms (in combi-
nation with distance) as a design option that informs our experimental design. We test the
effectiveness of all ranking mechanisms by comparing the mean responses between
different treatment groups in a large-scale randomized field experiment. The ranking
effects, as an empirical outcome of our estimation model, are applicable to all treatment
groups.
Distance Effects
The distance between the user and the coupon-related point of sale is a natural candidate
to inform rankings for location-based applications. When combining distance and rank-
ings, coupons offered from nearby stores should be perceived as more relevant and,
accordingly, should be ranked higher. The impact of distance, for example, spatial
proximity based on the consumers’ home location, on consumer behavior has been
436 MOLITOR ET AL.
highlighted in existing studies involving the consumers’ choices related to offline retail
stores [7]. The results are unambiguous: increasing distances between consumers and
offline stores generally decrease the likelihood of a purchase. For example, Bell et al. [7]
showed that the distance between households and stores negatively influences the con-
sumers’ shopping decisions.
Recent literature has studied the role of location and distance in mobile Internet usage.
Ghose et al. [22] found that distance matters more for mobile Internet usage than it
matters for Internet usage via PCs. Molitor et al. [38] investigated the impact of contextual
factors (e.g., distance, geographical surroundings, weather) related to mobile device usage
and found that distance has a negative impact on the consumers’ choice behavior. These
results indicate that location matters for mobile shoppers [26]. The reason that distance
might matter more for mobile device usage (compared with PC usage) is that mobile
coupon applications are used as a ubiquitous information medium with the intention to
bring consumers to physical stores.
The availability of distance information itself may also have different implications.
Information concerning distance to stores can be assumed to be a signal of the underlying
transportation costs related to different coupons or store options [21]. Increasing distance
thus indicates higher transportation costs that decrease a store’s attractiveness (all else
being equal). However, distance information can also help consumers reduce uncertainties
about where to find stores or products. When considering the relationship between
saliency and transparency, the same coupon without distance information (low salience
and transparency) might be preferred to the one with distance information (high salience
and transparency), assuming that consumers have some knowledge of the location of the
coupon-related store. This expectation can be explained by the fact that in the absence of
distance information, consumers tend to miscalculate the actual distance to stores. The
underlying theoretical explanation can be found in overconfidence [14].
Overconfident consumers tend to overestimate their performance on particular tasks
that require abilities, such as knowledge about store distances in their local environment,
and, thus, underestimate how long it takes to reach the store (i.e., they are more optimistic
about the required time). This underestimation is even valid for tasks that they were
confronted with in the past. Similarly, individuals tend to underestimate the probability of
negative events, such as the required time to finish a project or to travel to a store [10].
Therefore, the same coupon for the same store at the same location might be perceived as
relatively less attractive if exact distance information is provided because the saliency of
actual distances and thus the transparency of transportation costs reduce the risk of
overconfidence. However, this phenomenon is only assumed to be valid in cases where
consumers have some knowledge about the location of stores.
Moderating the Role of Geography

Previous studies in psychology and economics have shown that the choice context matters
to consumers (e.g., [40]). Similarly, the perceived value of a location-based coupon may
depend on the actual geographic location where users open and access their mobile
coupon application. On average, there are nearer choice options available for users located
in urban areas than for users located in suburbs or even in more rural areas. This finding
also implies that transportation costs should be higher for users in suburban or rural areas
because the average distance to the next store offering coupons is relatively high. However,
the average store travel distance can be perceived as a reference point. In case this
reference point is already relatively high (e.g., larger distances due to a more rural home
location), a marginal increase in distance is perceived to be less negative than is a similar
marginal increase based on a relatively low reference point (e.g., smaller distances due to
a home location close to urban areas). More remotely located — and geographically
isolated — consumers can thus be assumed to be less sensitive to distances. This argument
is supported by the results from prior research. Choi and Bell [12] found that consumers
with high offline shopping costs — due to geographical isolation in more rural areas — are
less price sensitive. Hence, the geographic location presents a contextual reference point
that has to be taken into account as it can lead to heterogeneous responses.
Randomized Field Experiment

In this section, we describe the location-based coupon application and the experimental
design, report the summary statistics and provide comparisons between the experimen-
tal groups that allow us to measure the effectiveness of location-based mobile pull
coupons.
Location-Based Coupon Service

Our dataset stems from a location-based service provider that is part of one of the largest
telecommunications companies in Europe (and the world). The provider runs a mobile
application (available for iOS and Android devices) that presents context-sensitive infor-
mation using the mobile devices’ GPS location. The core feature of the service is a list of
store-specific coupons sorted by their distances from the users’ geographic locations. After
installing the application (which includes giving permission — on an opt-in basis — to
track the smartphone’s location), users can start a session by actively opening the
application, browsing, and obtaining information regarding coupons.3 The underlying
search for coupons is conducted by scrolling up and down through the newsfeed-like list
of coupons. At the time of the study, it was not possible to conduct a keyword or category
search within the application.
The distance-based ranking of coupons contains short coupon profiles indicating the
value of the coupon (the discount depth, if available), the distance to the store (presented
in kilometers for distances greater than one kilometer; presented in meters for distances
less than one kilometer), and brief information on the coupon. For example, a discount
coupon might be described as “50 % Off Coffee,” while a promotion coupon might instead
be described as “Lunch for 10 € at Midtown Bar.” By clicking on the coupon profile, users
can respond to coupons. We use these clicks as a measure of the users’ revealed prefer-
ences toward the coupon, which can only be redeemed in participating offline stores (or
restaurants). The coupons are offered by a broad array of different firms, such as retail
stores, barbershops or restaurants, in various product categories.
This mobile application exhibits the key aspects of location-based pull advertising:
coupons displayed with real-time distance information as an ordered list of coupons
which are sorted by distance.4 In general, distance-based rankings are an important design
438 MOLITOR ET AL.
option for displaying content and ads with an explicit offline component (e.g., Yelp,
Foursquare, TripAdvisor, or Groupon).
Experimental Design
In the field experiment, we experimentally manipulated the two key aspects of location-
based pull coupons: the provision of distance information and the ranking mechanism.
For a period of 14 weeks, the collaborating coupon provider agreed to randomly assign
new users (who downloaded the focal application for the first time) to four experimental
groups. This approach ensured that only new users without prior experience with the
design and mechanism of the application were included in the experiment.5 These users
were exclusively assigned to one treatment group (between-subjects experimental design).6
The users also had no information about the existence of other treatment groups.
The ability to disentangle and test the impact of distance-based rankings and the
provision of distance information was provided by a full factorial 2 x 2 design that yielded
four experimental groups: “coupons sorted by distance, with distance information”
(Group 1; this is the provider’s usual design); “randomly sorted coupons, with distance
information” (Group 2); “coupons sorted by distance, without distance information”
(Group 3); and “randomly sorted coupons, without distance information” (Group 4).
Randomly sorted coupons hereby indicate that coupons in Groups 2 and 4 were randomly
sorted within an interval of 50 km of a user’s location. In contrast, coupons in Groups 1
and 3 were sorted by distance in ascending order with the closest store displayed first.
Omitting distance information (Groups 3 and 4) induces uncertainty about actual dis-
tances but also makes transportation costs less salient; randomly sorted coupons instead of
coupons sorted by distance decreases the relevancy of the ranking mechanism. Users may
have basic knowledge about the approximate location of local stores. Therefore, random
sorting (Group 4) can exhibit less relevance than can distance-based sorting (Group 3)
even without distance information in both groups. Figure 1 depicts screenshots of all four
treatment groups.
In total, 4,364 users participated in the field experiment. Each participant was randomly
assigned to one of the four treatment groups: 1,317 to Group 1, 1,011 to Group 2, 1,036 to
Group 3, and 1,000 to Group 4.7 The underlying randomization process was solved by
a server-side allocation mechanism (i.e., participants did not have the ability to select into
a particular treatment group for themselves). Furthermore, the server-side manipulation
ensured that users remained in the same experimental group throughout the entire
experiment.
Data Description
Our dataset consists of 399,913 impressions (observations) based on the visits of 4,364
unique users in 30,779 sessions. Similar to impressions in online advertising, mobile
impressions are based on the number of coupons displayed on the participants’ smart-
phones. Table 2 reports the summary statistics of all variables based on first 25 coupons
(ranks). Our focal variables are the distance to the offline redemption point (measured in
kilometers), the display rank, and the discount depth (measured as a relative discount).
The variable coupon type denotes the coupons’ classification: the coupons are either
Figure 1. Screenshots of experimental design.
Table 2. Summary statistics.

Variable Mean SD Min Max
Distance (in kilometers) 8.523 10.944 0 50
Display_Rank 10.465 6.876 1 25
Discount (relative) 0.054 0.207 0 1
Group1a 0.287 0.452 0 1
Group2a 0.241 0.428 0 1
Group3a 0.233 0.423 0 1
Group4a 0.239 0.426 0 1
Coupon_Typea,b 0.116 0.320 0 1
Impression_Session 14.180 6.844 1 25
Previous_Clicks 1.679 3.703 0 48
Expiration (in days) 148.012 160.329 0 624
Night (12am-5:59am)a 0.062 0.242 0 1
Morning (6am-11:59am)a 0.241 0.428 0 1
Afternoon (12pm-5:59pm)a 0.359 0.480 0 1
Evening (6pm-11:59pm)a 0.338 0.473 0 1
Weekdaya 0.746 0.435 0 1
Barbera 0.024 0.154 0 1
Beauty & Wellnessa 0.063 0.244 0 1
Cafesa 0.039 0.193 0 1
Cara 0.005 0.068 0 1
Clubs & Barsa 0.017 0.129 0 1
Education & Culturea 0.126 0.332 0 1
Grocerya 0.101 0.301 0 1
Fashion & Accessoriesa 0.066 0.249 0 1
Leisure & Sporta 0.143 0.350 0 1
Living & Homea 0.064 0.245 0 1
Multimediaa 0.151 0.358 0 1
Othersa 0.033 0.178 0 1
Restauranta 0.168 0.374 0 1
Notes: N = 399,913 impressions. aDummy variable. bBaseline: Discount coupon
(vs. promotion coupon).
classified as discount coupons with a monetary discount or promotion coupons without

a monetary discount. The time-specific effects are covered by the time of the day (morn-
ing, afternoon, evening, night), weekday (vs. weekend), and week. The coupon-specific
control variables include the product category (such as clubs, bars, and restaurants) and
the expiration date (the number of days until a coupon expires).8 We also consider the
number of impressions per session as a proxy for the users’ search depth/intensity as well
440 MOLITOR ET AL.
21.8
Impressions Clicks
20.1
20
N = 399,913 N = 5,399
16.8 17.1
Frequency in percent
15 15.1
14.3
12.7
10.1
10
9
8.1
6.6 6.4 6.3
5.3 5.7
5
3.8 3.9 3.6

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Figure 2. Coupon categories. Notes: Ordered by number of coupon impressions. Impressions: N =

399,913, Clicks: N = 5,399.
as the number of previous clicks (before the current session) as an approximation of the
users’ previous experience.
The dataset includes 3,499 different coupon promotions. The coupon promotions were
offered by 3,930 different stores shops located in 2,392 ZIP code areas. Figure 2 depicts all
coupon-related product categories that were available and clicked; this pattern indicates
some differences in preferences revealed by the users clicking on particular product
categories.9 However, as the relative distribution of categories is similar to that in other
studies that make use of Groupon data from the United States [46], it permits us to make
similar arguments about the categories’ generalizability.
Effects of Interface Design

Figure 3 depicts the four experimental treatment groups’ average coupon click rates,
which we use to address our first research question. Altogether, 5,339 coupons were
chosen, leading to an overall click rate of 1.35 percent on the impression-level.10 The
means of the aggregated click rates are significantly different between treatment groups (χ2
= 56.79, p < 0.01). The mean click rates in Groups 3 (1.53 percent) and 1 (1.42 percent)
are higher than those in Groups 2 (1.27 percent) and 4 (1.16 percent). The difference
between Groups 3 and 1 is significant (χ2 = 4.10, p < 0.05), as is the difference Groups 1
and 3 (χ2 = 8.77, p < 0.01), between Groups 2 and 3 (χ2 = 22.71, p < 0.01), between Groups
2 and 4 (χ2 = 4.89, p < 0.05), and between Groups 3 and 4 (χ2 = 48.10, p < 0.01). This
indicates that the most effective interface design for location-based coupons is based on
a distance-based ranking. Comparing the click rates of our location-based coupons to
those for mobile banner ads, with an average click rate of 0.33 percent [42], our pull-based
setting yields a much higher percentage of choices and can thus be considered as rather
high.11
The results are surprising in two aspects. First, even without distance information
(Groups 3 and 4), randomly sorted coupons (Group 4) have lower click rates than
1.53
1.42
1.27
1.16
Group 1
Group 2
Group 3
Group 4
Group 1 Group 2 Group 3 Group 4
sorted by distance & randomly sorted deals & sorted by distance & randomly sorted deals &
With distance information with distance information without distance information without distance information
Figure 3. Comparison of click rates between treatment groups. Notes: N = 399,913. Margin of error:
Group 1: 0.0014, Group 2: 0.0014, Group 3: 0.0016, Group 4: 0.0014.
coupons displayed in a distance-based ranking (Group 3). We interpret this result to

indicate that users have at least a general sense of the stores’ location within a city.
More than 77 percent of all participants in the experiment use the application within
a range of up to 15 km, suggesting that most of the users’ activities can be attributed to
one particular area or city. Put differently, when coupons are randomly sorted, this
decreased relevancy is presumably detectable to users.12 Second, the differences between
Groups 1 and 3 indicate that the click rate is lower in cases in which distance
information (sorted by distance) is shown than it is when distance information (sorted
by distance) is not shown. This result may be cautiously interpreted to indicate that the
less salient transportation costs led to an underestimation of the actual distance to
stores in Group 3. The users hence seem to be contextually overconfident, as predicted
in the theory section. In addition, the average number of sessions per user is 7.05: 6.84
in Group 1, 7.29 in Group 2, 7.44 in Group 3, and 6.70 in Group 4 (F = 1.35, p > 0.1).
This result shows that the attrition frequency (fewer repeat visits of the app) is not
significantly higher in groups with a less relevant ranking mechanism, such as Group 4,
which included random sorting and no distance information.
Figure 4 shows more detailed between-group differences based on the click rate at the
display rank level. These results shed further light on the stark contrast between distance-
based rankings (Groups 1 and 3) and random rankings (Groups 2 and 4). If coupons are
sorted by distance, there is a stronger difference between the click rates per display rank
(resembling a discrete exponential distribution), indicating a stronger importance of the
distance-based ranking. In contrast, if coupons are randomly sorted, the click rates per
display rank are almost uniformly distributed. For Group 2, this finding can be explained
by the availability of distance information as a key factor for coupon choice, which is then
largely independent of the display rank. Even without distance information (Group 4),
unlike the dominant negative role of display ranks in other studies, in our study, the rank
442 MOLITOR ET AL.
3.9 Group 1 Group 2 Group 3 Group 4
4
3.5
3
Click Rate in percent 2.8
2.3
2.1
2
1.9 1.9 1.9 1.9
2
1.8 1.8
1.7 1.7
1.6 1.6 1.6
1.5 1.5
1.4 1.4 1.4
1.3 1.3 1.3 1.3 1.3 1.3
1.2 1.2 1.2 1.2 1.2
1 1 1
.9
1
.8
.7
0
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Display Rank Display Rank Display Rank Display Rank
Figure 4. Click rate by display rank and group. Notes: The x-axis indicates the first ten display ranks for
Groups 1-4.
2.5
Group 1 Group 2
2.3
2.2 Group 3 Group 4
Click Rate in percent
2
1.8 1.8 1.8 1.8 1.8

1.7
1.6 1.6
1.5 1.5
1.5
1.4 1.4 1.4

1.3 1.3 1.3 1.3
1.2 1.2 1.2 1.2
1 1 1
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Figure 5. Click rates by group and product category. Notes: A star on the respective product category
indicates significant differences between groups within categories at 0.05 (p < 0.05). Specifically, the
differences in click rates between groups are significant for the following product categories: grocery,
multimedia, cafes, beauty & wellness, leisure & sport, and living & home, as well as education & culture.
The click rates rounded to one decimal place.
order itself does not seem to be the users’ dominating choice heuristic [45]. This result
indicates that the importance of distance and display rank depends on the choice context.
We also analyze the differences in click rates across groups and product categories,
shown in Figure 5. The observed click pattern, indicating a higher click rate for Groups 1
and 3, also holds for many product categories. The differences between treatment groups
are significant for the following categories: grocery, multimedia, cafes, beauty and well-
ness, leisure and sport, living and home as well as education and culture.
Effects of Interface Design and Location-Specific Heterogeneity

In this section, we analyze how the geographic context affects the users’ coupon choices.
Thus, we analyze our findings by geographic locations and distinguish between the
agglomeration of stores and users. This approach is a form of geographical segmentation,
based on the users’ average real-time location relative to that of the stores [4, 29]. At the
basic level, this approach assumes that geographic locations can be segmented by distance-
based transportation costs [35], which are further presumed to be comparably similar
within specific geographic locations, such as city centers, as stores are mainly located in
urban areas with higher store densities. Users in a trade area — as part of a specific retail
market agglomeration — are also assumed to shop at centrally located stores within that
area. To this end, we divide the ordered distribution of mean distances to stores within the
top 25 display ranks per session into three tertiles (with approximately 1/3 of all observa-
tions each) to approximate users in urban, suburban and rural areas, similar to the
classification used in previous literature [39].
Figure 6 shows the click rates for each tertile and treatment group. The differences between
groups are significant (Urban: χ2 = 14.06, p < 0.01; Suburban: χ2 = 31.18, p < 0.01; Rural: χ2 =
50.76, p < 0.01). Tertile 1 includes all mean store distances between 0.01 and 2.71 km, and we
refer to the users’ respective locations in this interval as “Urban” because proximate stores can
mostly be found in densely populated areas (as is the case in most European cities). Tertile 2
includes all mean store distances between 2.72 and 8.68 km, and we refer to the users’
locations as “Suburban.” Tertile 3 includes all mean store distances between 8.69 and
50 km, and we refer to the users’ locations as “Rural.” We find that treatment-specific click
rates differ depending on the users’ geographical locations as indicated by the tertiles. Group 1,
the default group, performs particularly ineffectively in urban areas (Tertile 1, see Figure 6).
Distance information in combination with distance-based rankings seems to be less informa-
tive if the differences between distances are rather small. This may be explained by better
informed users as well as by more competition based on higher store densities in Tertile 1
(“Urban”). In contrast, close distances seem to be more informative if the coupons are sorted
randomly (both in Groups 2 and 4) and/or if distance information is omitted (Groups 3
and 4). Figure 6 also shows that coupons in suburban (Tertile 2) and rural (Tertile 3) areas are
more effective in treatment groups, such as Groups 1 and 3, which make use of distance-based
rankings. The users’ sensitivity to distance thus seems to be context dependent. The results are
consistent with the assumption that due to their higher average store travel distances, users in
with distance information

2
without distance information

1.76
1.7
1.52
1.5
1.45
1.39
Click Rate in percent
1.32 1.31
1.19 1.22 1.21
1.09 1.07
1
G1 G3 G2 G4 G1 G3 G2 G4 G1 G3 G2 G4
.5
0
Tertile 1 Tertile 2 Tertile 3

Group 1 Group 2 Group 3 Group 4
sorted by distance & randomly sorted deals & sorted by distance & randomly sorted deals &
With distance information with distance information without distance information without distance information
Figure 6. Click rates by tertile (Top 25 ranks). Notes: N = 399,913. The order of the depicted groups is
based on the experimental design – the adjacent Groups 1 and 3 are sorted by distance; conversely,
Groups 2 and 4 are randomly sorted.
444 MOLITOR ET AL.
more remote locations tend to be more accepting of higher transportation costs. Users in more
remote locations (rural vs. urban areas) thus appear to be comparably more inclined to
respond to location-based coupons.
Econometric Analysis
This section outlines our econometric model and describes the underlying estimation process.
Model
We use a logit model to analyze the users’ coupon choices. Specifically, the use of
a hierarchical Bayesian logit model with mixed effects including Markov chain Monte
Carlo (MCMC) methods enables us to control for the users’ individual-level heterogeneity
[3]. The logit model in the hierarchical Bayes framework is based on the panel data
approach introduced by Chib and Carlin [11]. In our model, a user is assumed to choose
the utility-maximizing coupon option. Users reveal their coupon-specific preferences by
clicking on coupons. We model user i’s utility U as follows [43]:
Uijt ¼ vijt þ εijt (1)
yijt ¼ 1 if Uijt > 0 (2)
yijt ¼ 0 if Uijt 0 (3)
The deterministic part of equation (1) is represented by vijt, whereas the stochastic
component is represented by εijt. The stochastic part contains nonsystematic or random
factors that affect the utility U. If users are browsing within the application, they choose
a coupon only if the underlying utility U is greater than 0. Specifically, the users’ direct
responses are represented by the latent response variable yijt = 1 if user i decides to choose
coupon j at time t; otherwise, yijt = 0.
We model the users’ coupon choice probability as a function of user-specific, coupon-
specific, location-specific, and time-specific variables. We thereby aim to measure the
impact of distance, display rank, and their treatment-specific differences, based on the
interactions between distance, rank and treatment groups on the users’ responses to
coupons. We also account for the treatment groups, discount, coupon type (discount vs.
promotion coupon), number of previous clicks, search depth (the number of impressions
per session), product category, time of day, weekday or weekend, week, and coupon
expiration. The number of previous clicks and the search depth are included in the
model to control for the users’ experience as well as the usage intensity of the application.
Controlling for the available product categories also helps us to account for category-
specific coupon preferences. Furthermore, the time of day, weekday, and week dummy
variables allow us to control for time-specific effects.13 In our model, the probability of
user i choosing coupon j at time t is given by the following mean function:

exp vijt
Prijt ¼ (4)
1 þ exp vijt
with the underlying utility of user i based on a Bernoulli distributed logit link function [11]
Uijt ¼ Xijt β þ Wijt bi þ εijt with vijt ¼ Xijt β þ Wijt bi (5)
bi , Nq ð0; DÞ (6)
where Xijt is a matrix of right-hand side covariates, and β is a vector of fixed effects.
Similarly, Wijt is another matrix of right-hand side covariates, and bi is a vector of
individual-specific random-effects: bi ~ Nq(0,D) and εijt are error vectors that are inde-
pendent and identically distributed based on a type I extreme value distribution.14 The
hierarchical specification of the mixed model in Equation (5) is completely denoted by the
following prior distributions D−1 ~ W(v0−1R0,v0), σ−2 ~ G(v0/2,δ0/2) and β ~ Np(β0,B0),
where W denotes the Wishart distribution of the random effects-specific precision matrix,
G denotes the Gamma distribution of the conditional error vector, and N denotes the
normal distribution of the fixed-effects parameters. The mean of the Wishart prior is R0,
whereas the Gamma prior mean is v0/δ0 [11].
Based on the general formulation of our model in Equation (5), we can specify the
random and fixed-effects matrices by adding the full set of explanatory right-hand side
covariates for Xijt and Wijt. We apply fixed and random effects for distance, display
rank, and discount depth, as we assume individual-level heterogeneity based on the
users’ idiosyncratic preferences related to their responses to the experimental variation
as well as discount depth. All the other variables are only estimated as fixed effects.
Estimation
We estimate our mixed-effects hierarchical Bayesian model by using Markov chain Monte
Carlo methods with a Gibbs sampling algorithm from the posterior distribution. We run
the Markov Chain for 25,000 iterations and use the last 20,000 iterations to calculate the
posterior means and standard deviations and report the 95 percent posterior interval. To
increase the estimation efficiency, we use a thinning parameter of 20 (i.e., keeping every
20th draw for the posterior distribution).
Results
In this section, we present our estimation results and predict the click rates based on
alternative coupon specifications.
Estimation Results
Table 3 presents the posterior means of our estimation results (based on top 25 display ranks).15
Geographical distance has a significant negative impact on the probability of choosing
coupons (β = −0.183; p < 0.05). Increasing distances between stores and the users’ real-
time location are assumed to increase the underlying transportation costs, which has
a negative impact on the users’ preferences toward these stores [7], as they have to travel
to a store to make use of a chosen coupon.
446 MOLITOR ET AL.
Table 3. Model results (Top 25 ranks).

Full Model
Variables Posterior Mean S.D. 95 % Posterior Interval
Intercept -2.479* 0.212 -2.915 -2.082
Distance -0.183* 0.057 -0.286 -0.069
Display_Rank -0.354* 0.047 -0.451 -0.268
Discount 0.351* 0.119 0.103 0.561
Group2a 0.138 0.150 -0.154 0.432
Group3a -0.049 0.147 -0.312 0.242
Group4a -0.001 0.166 -0.331 0.308
Distance×Group2b -0.330* 0.071 -0.464 -0.192
Distance×Group3b -0.073 0.077 -0.220 0.082
Distance×Group4b -0.276* 0.074 -0.415 -0.130
Rank×Group2b 0.239* 0.061 0.116 0.351
Rank×Group3b 0.098 0.061 -0.015 0.220
Rank×Group4b 0.225* 0.057 0.119 0.335
Coupon_Typec -0.598* 0.085 -0.760 -0.424
Impression_Session -0.657* 0.038 -0.732 -0.584
Previous_Clicks -0.468* 0.033 -0.529 -0.398
Morningd -0.146 0.093 -0.319 0.037
Afternoond -0.272* 0.097 -0.448 -0.087
Eveningd -0.133 0.090 -0.304 0.046
Expiration (in days) -0.115* 0.012 -0.138 -0.093
Weekday -0.173* 0.045 -0.262 -0.085
Beauty & Wellnesse 0.300* 0.118 0.061 0.501
Cafese 0.550* 0.150 0.288 0.852
Care 0.466 0.239 -0.001 0.932
Clubs & Barse 0.442* 0.166 0.126 0.761
Education & Culturee -0.289* 0.138 -0.555 -0.031
Grocerye 0.781* 0.128 0.545 1.028
Fashion & Accessoriese 0.517* 0.137 0.273 0.789
Leisure & Sporte -0.029 0.130 -0.283 0.219
Living & Homee -0.242 0.150 -0.495 0.078
Multimediae 0.705* 0.123 0.481 0.938
Restaurante 0.746* 0.129 0.513 0.997
Otherse 0.281* 0.146 0.021 0.563
N 399,913
Deviance 41,900
* Significant at 0.05 (zero does not lie in the 95 % posterior interval); dependent variable: coupon choice.
Notes: The variables Distance, Display_Rank, Impression_Session, Previous Clicks and Expiration are log-
transformed. This also includes the interaction terms based on Distance and Display_Rank. Time (weekly)
dummies are included in the estimation. The term “Baseline” refers to the baseline variable of a specific
coefficient category. The estimated coefficients of each specific category have to be interpreted in
comparison to their baseline variable, indicating the comparative impact on coupon choice. aBaseline:
Group1. bBaseline: Distance/Rank×Group1. cBaseline: Discount coupon (vs. promotion coupon). dBaseline:
Night, (e) Baseline: Barbershops. The difference between the coefficients Distance × Group2 and Distance ×
Group4 are significantly different from each other (t = 16.73, p < 0.01). As the coefficients are based on
posterior distributions (described by the posterior mean and standard deviation) that are generated during
the estimation process, this is done by comparing the posterior distributions of both coefficients.
Similarly, we find that display rank has a negative impact on the users’ coupon response
behavior (β = −0.354; p < 0.05). The further down a coupon is displayed (numerically
increased display rank), the lower the probability of users choosing that coupon. Ghose
et al. [22] found a comparable result, which was explained by an increased cognitive
load — sometimes referred to as search costs — related to the screen size and requiring
more scrolling to discover lower-ranked coupons.
The interactions between distance and treatment groups show that users’ sensitivity to
distances becomes more negative when coupons are sorted randomly (i.e., Groups 2
and 4) than when the default distance-based ranking for coupons is employed (i.e.,
Group 1). This result suggests that distances to stores are an important driver of coupon
response: randomly sorted coupons increase the negative impact of geographical distance.
More precisely, for randomly sorted coupons, the distance effect is slightly more negative
if the distance information is provided (Distance×Group2: β = −0.330; p < 0.05) but still
significant without distance information (Distance×Group4: β = −0.276; p < 0.05). These
results reflect the descriptive results from Figure 4; the distance-based click rates in
Groups 1 and 3 indicate substantial differences between ranks, whereas the random
sorting-based click rates in Groups 2 and 4 are almost uniformly distributed, demonstrat-
ing less rank-specific differences in click rates. One cautious explanation for this finding is
that users are not just selecting top-ranked coupons; as reflected in the estimation results,
the users care about the transportation costs based on the (more or less salient) distances
to stores. For Group 2, this effect might be increased by the presence of distance-based
contrast effects [40] between adjacent and randomly sorted coupons (i.e., 100 m vs. 1 km
is a larger contrast than 100 m vs. 200 m).16 Comparably closer store locations seem to be
more attractive in this scenario. For Group 4, we also assume that users respond more
positively to stores they recognize from their local environment once these stores appear
in their coupon feed.
Further, the significant interactions between display rank and groups can be considered
as the flipside of the distance-based interactions. Ranking effects are found to be weaker
not only when coupons are not sorted by distance and distance information is available
(Rank×Group2: β = 0.239; p < 0.05), but also when coupons are not sorted by distance and
distance information is not available (Rank×Group4: β = 0.225, p < 0.05). Hence, users are
willing to choose lower ranked coupons (and incur higher search costs) if they stem from
stores that are geographically close.
The group-specific effects are not significant, given they are time invariant for indivi-
dual users (i.e., each user remains in the same treatment group). However, the differences
in variation between groups in terms of distance and display rank effects are captured by
the interaction terms based on distance, display rank and treatment groups, as previously
described.
Additionally, the discount depth has a positive and significant impact on the choice of
discount coupons. However, promotion coupons without direct monetary impact seem to
be generally preferred to discount coupons, as indicated by the negative effect of the
coupon type variable. This finding may be explained by the presence of the coupons’
advertising effect [17], which informs users about the availability of (potentially) attractive
products and stores.
We also control for the search depth via the number of impressions per session,
number of previous clicks, time of day, weekday, and number of days before a coupon
expires. The number of impressions per session has a significantly negative impact on the
probability of choosing coupons. Similarly, the number of previous clicks — a proxy for
usage experience — has a significantly negative impact on the users’ coupon choice
probability.
Location-based coupons seem to be slightly more effective during the nighttime than
during the morning, afternoon and evening. There are also significantly fewer coupon
choices on weekdays versus weekends. Additionally, the fewer the number of days until
a coupon expires is, the higher the probability that users will decide to choose that
448 MOLITOR ET AL.
coupon.17 This effect is consistent with the results of the previous studies on traditional
coupon promotions [30] and can be explained by the fear of missing out.
Finally, the category-specific differences in Table 3 indicate that users prefer coupons
for the categories comprising beauty and wellness, cafes, clubs and bars, grocery, fashion
and accessories, multimedia, restaurant and others than for the baseline category barber-
shops. Compared to the barbershop coupons, the education and culture category coupons
significantly decrease the observed choice probability.
Please refer to the Online Supplemental Appendix for additional analyses as well as for
robustness checks. The additional analyses focus on users’ heterogeneity regarding their
usage intensity and differentiate between the coefficients of the top 15 percent of users and
the rest of the user base. The robustness checks include analyses based on each user’s very
first login, treatment group-specific results and controls for the appearance of offers on the
first screen/page of the app. Overall, our main variables — distance and display rank —
remain qualitatively similar based on the sign and the statistical significance.
Click Rate Predictions of Alternative Coupon Specifications

Our model also allows us to predict the click rates based on alternative coupon
specifications.18 This prediction is particularly valuable for coupon providers that have
an interest in evaluating potential future coupon specifications, including the discount
depth, expiration date and product category. Overall, the predicted baseline click rate is
1.23 percent (for all groups). We find that an increase of the discount depth to 50 percent
(and holding everything else constant) increases the predicted click rate to 1.42 percent.
Regarding product categories, we find that for groceries, the predicted click rate increases
to 1.70 percent, which is in stark contrast to categories, such as education and culture,
yielding a predicted click rate of 0.61 percent.
Table 4 summarizes the main results of our analyses and research questions.
Table 4. Summary of main results.

Research Question 1: Interface design, coupon effectiveness and location-specific heterogeneity
● The most effective interface design includes coupons that are sorted by distance.
● The provision of distance information is less important when coupons are sorted by distance.
● Users are more likely to respond to location-based coupons in rural or suburban than urban areas.
Research Question 2: Magnitude of main and interface design effects
● Main effects: Increased distances between users and stores and numerically increased display ranks on the mobile
screen decrease the users’ coupon choice probabilities.
● Interface design effects: When coupons are randomly sorted, the distance sensitivity is increased, while the display
rank sensitivity is decreased.
Concluding Discussion and Managerial Interpretation of the Results

In this paper, we quantify the impact of the interface-specific choice architecture of
a mobile application on the effectiveness of location-based pull coupons. We accomplish
this goal by manipulating the core elements of the application’s interface design — the
provision of distance information and distance-based ranking mechanisms — based on
a randomized field experiment.
Our experimental choice architecture is informed by previous information systems and

marketing studies related to the context of ranking [23, 45] and distance effects [7, 38]. We
extend prior studies on ranking and distance effects to the context of location-based pull
coupons. Our main results are largely consistent with our theoretical expectations.
However, we find group-specific differences based on the experimental interface design
and location-specific heterogeneities that deviate from previous studies.
The result of our first research question shows coupons that are sorted by distance are
the most effective interface design for location-based coupons, compared to randomly
sorted coupons (Groups 1 and 3 vs. Groups 2 and 4). This finding is consistent with
studies on relevance-based rankings [45]. However, the actual provision of distance
information (Groups 1 and 3) tends to be less important, as users seem to be over-
confident [14] in the context of less salient transportation costs; and users’ overconfidence
manifests itself in overestimating their knowledge about store distances when confronted
with distance-based rankings without explicit distance information (Group 3). Our experi-
ment thus shows that behavioral insights on overconfidence help explain how the interface
design of an app can influence individuals’ decisions, which can differ from those based on
existing utility-maximizing store-choice behavior [7].
Further, users in more remote locations (rural vs. urban areas) respond more favorably
to location-based coupons. This phenomenon may be explained by the availability of more
shopping alternatives in urban areas with higher store densities and a comparably higher
tolerance to transportation costs in more remote locations.
In addition to the main results of negative distance and ranking effects, which are
consistent with previous literature [22], the results of our second research question reveal
deviations from the assumption of strictly negative distance and ranking effects [38, 22],
indicating that the underlying search (via ranking) and transportation costs (via distance)
are context dependent. More specifically, ranking effects were found to be less negative if
distance is not the main sorting mechanism (Groups 2 and 4). Similarly, the estimated
distance effect is more negative when presented in the context of random rankings,
a finding that is additionally related to the trade-off contrast effect [40] that accounts
for sorting-specific discrepancies in distances that become more visible in this case
(100 m vs. 1 km appears more striking than 100 m vs. 200 m). Distance hence seems to
be more important for coupon choices compared to the display rank, indicating that
distance-based transportation costs dominate ranking-based search costs when combined
with random rankings.
To summarize, we extend the literature on ranking and distance effects by applying
behavioral theories on overconfidence [14], trade-off contrast heuristics, and context-
dependent choices [40]. These findings not only help to explain why user heterogeneity
leads to deviations from previous literature but also enables firms to make more informed
decisions as they manage location-based coupon campaigns.
Managerial Implications
This study provides several implications for firms. First, our results indicate that loca-
tion-based pull coupon providers can think about careful modifications to a strict
distance-based ranking. For example, providers could think about grouping coupons
in distance buckets, such as 0–1 km and 1–2 km. Within a specific bucket, providers can
450 MOLITOR ET AL.
auction off the specific ranking slot, as done in search engine advertising campaigns, and
achieve a higher click-through or impression-based price. Please note that such ranking
mechanisms are very different from the ranking currently applied by most coupon
providers. Within distance buckets, a ranking that is not strictly based on distance
should not substantially increase the disparity in the distances of the adjacent coupons.
Thus, coupon providers might implement an auction mechanism to optimize the
allocation of top-ranked promotions within distance buckets. Additionally, prices
could differ by the particular geographic area (e.g., urban areas vs. suburbs). In this
case, real-time location information about actual usage frequencies can increase the
value of area-specific and ranking slots. The bidding competition would then not be
based on particular coupons but instead would be based on specific (highly frequented)
areas.
Second, dynamic coupon pricing could be applied in combination with geo-targeting
and weighted by insights into the users’ heterogeneous sensitivities to distances, rank-
ings and discounts. Our results help stores that engage in location-based couponing to
quantify the impact of distance, display rank, and discount depth on coupon choice.
Based on predicted click rates, stores who partner with coupon providers have multiple
tools to leverage: the real-time distance between the user and the store, the rank of the
coupon on the screen, and the actual discount. For example, if a store is 1 km away
from a user relative to another competing store that is 0.5 km away, then the former
can still incentivize the user to come to the store by increasing the discount relative to
the latter store. Similarly, if stores displayed in positions 4 and 6 on a mobile screen are
close competitors, then the store with the lower (worse, numerically lower) position can
increase its attractiveness by increasing the discount relative to the store that is closer to
the user (if these activities are relatively close to urban areas). Thus, there is room to
implement dynamic pricing strategies based on the real-time distance between a user
and the store and the rank of the coupon on the screen by additionally considering
users’ sensitivities to those variables.
Third, our results on ranking effects for distance-based rankings are closely related
to the smartphones’ limited screen sizes. Smartphone displays are several inches smaller
than a laptop or PC display. This small size significantly reduces the number of
coupons viewable on the screen. Thus, customizing or targeting advertisements
becomes more critical on a smartphone. The advertisement’s position on the mobile
screen and the distance between a user and the nearest store advertised produces an
interesting set of three-way interactions for marketers to exploit. Thus, although many
firms compete for attention via coupons, a mobile screen has only limited space.
Therefore, the topmost slots of a mobile screen have greater value to firms and can
be priced at a premium. The value of the topmost slots might also inform firms about
potential modifications of the application’s interface design, which could include the
implementation of filter buttons that enable users to sort coupons by certain criteria,
such as product categories, discount depth, or expiration dates, in addition to the
default distance-based ranking criteria.
Finally, our results also deliver more general insights for firms. As mobile marketing
becomes mainstream, firms struggle with the question of how to effectively measure the
impact of their campaigns. Presumably, location information can help stores achieve
higher response rates for their campaigns [1]. Most importantly, managers using location
to localize promotions cannot only increase their campaigns’ return on investment (ROI)
but also make those campaigns better tailored and easier to measure to enable a better
customer experience.
Limitations and Future Research

Our study provides multiple avenues for future research. For example, we have no
information about offline purchases that would enable us to validate the users’ actual
coupon redemptions, which we approximate by individual-level coupon choices. Offline
purchase data would also allow us to estimate the precise value of each user (e.g., by
calculating the customer lifetime value) or to combine sales data with GPS data to gain
further insights into the users’ conversion funnel. Additionally, our analyses are based on
smartphone users who are interested in coupons. It might be interesting to compare our
findings with findings related to PC users (e.g., based on IP tracking), who must find deals
on a website. It is possible that user behavior differs based on the channel accessing the
service. In our field experiment, we could not manipulate discount depth. However, we
observe a wide variation of different coupon categories/discounts and control for product
category in our empirical analyses. Moreover, the field experiment was conducted over 14
weeks. Here, it might be interesting to investigate long-term effects, such as user learning
over time. Finally, our dataset does not allow us to experimentally differentiate, via
randomized assignment, between the impact of retargeting based on repeated exposure
of the same campaign and the impact of expiration dates. This area might be another
interesting avenue for future research.
Conclusions
Offline retailers increasingly use location-based coupons to target consumers in their
vicinity in real-time. The rationale for the use of location-based coupons is that geographic
proximity increases the relevance for consumers and, thus, the effectiveness of these
campaigns. We focus on quantifying the most effective interface design for the presenta-
tion of location-based coupons. Our results show that the most effective interface design
for location-based coupons is based on a distance-based ranking. We also find significant
differences in the impact of distance and display rank based on the interface design and
the actual geographic location of users. In turn, we extend the literature on ranking and
distance effects by applying behavioral theories on overconfidence, trade-off contrast
heuristics, and context-dependent choices.
To conclude, this paper paves the way for future research on pull coupons in the
growing and important area of location-based advertising and mobile analytics. Although
the specific findings of our randomized field experiment may not generalize to every
possible location-based advertising context, the results provide a critical baseline to inform
firms and managers about the effects of location-based pull coupons. Our results thus
contribute to the understanding of consumers’ behavioral responses to location-based
advertising and provide important implications for the interface design of location-based
advertising applications.
452 MOLITOR ET AL.
Notes
1. Note that mobile push notifications can be transmitted via SMS or app-based notifications.
2. See, for example, http://www.lsoft.com/resources/optinlaws.asp.
3. The devices’ locations are only tracked when the login is initiated. Movements while using
the app are not tracked.
4. The app does not apply any sort of coupon-specific customization/personalization. Previous
usage behavior neither informs the future selection nor the order of coupons. The default
sorting logic is distance-based.
5. Please note that the descriptions in both app stores (Apple and Google Play) only promised
coupons from stores nearby and did not provide any specifics about the precise information
provided (e.g., exact distance) or the type of sorting.
6. It is worth noting that experiments based on individual-level randomization are less prone to
unobserved heterogeneity and endogeneity [28].
7. Non-systematic (server-side) technical issues caused the disparity in group sizes. We tested
the integrity of our randomization procedure by using a logit model reflecting the first login
of each user. The non-experimental control variables were used to explain the users’ alloca-
tion to each of the two treatment variables (i.e., ranking by distance versus a randomly
generated ranking and location information provided versus location information not pro-
vided). We found that none of the non-experimental variables explains this allocation, thus
suggesting a clean randomization procedure.
8. The expiration date of each coupon is shown after clicking on the coupon profile in the
coupon feed.
9. The location-based coupon provider uses its sales force to recruit stores. To this end, the sales
force does not prioritize specific store categories, as the provider is aiming for a highly diverse
selection of coupons.
10. The raw number of clicks and impressions for each group is as follows: in Group 1, there
were 1,632 clicks and 114,668 impressions; in Group 2, there were 1,230 clicks and 96,571
impressions; in Group 3, there were 1,427 clicks and 93,224 impressions; and in Group 4,
there were 1,110 clicks and 95,450 impressions. Of all the clicks, 46.32 percent can be
attributed to the first five coupons (i.e., the first screen).
11. In comparison, the session-level click rate is even higher, based on a mean of 16.38 percent.
12. In Group 3, all available coupons were sorted based on the actual distance between the user
and all participating stores (e.g., if the user lives next to a participating retail store, this store
would be ranked first/very high in Group 3). However, if the same user were assigned to
Group 4 instead, there would have been a high likelihood that this participating store (and
other coupons from proximate stores) would not have shown up in the top results.
13. We log-transformed all non-categorical and non-percentage scaled variables (i.e., distance,
display rank, impressions per session, previous clicks and coupon expiration), given their
variance in scale (see Table 2).
14. The type I extreme value distribution, also known as the Gumbel distribution, closely
resembles a normal distribution, which is often the preferred distribution to characterize
random errors.
15. Note that the correlation between display rank and distance is 0.135. Our experimental design
also allows us to disentangle the impact of display rank from that of distance. More
specifically, the rank and distance correlation varies between 0.054 (Group 4) and 0.220
(Group 3). But even in Groups 1 and 3, which are “sorted by distance,” this correlation is not
straightforward due to the heterogeneous nature of user locations. We additionally estimated
a random-effect logit model based on the same sample to estimate VIFs for distance (6.53)
and display rank (7.21). Both approaches indicate that collinearity does not seem to be
a critical issue in our models.
16. The distance-specific differences between adjacently displayed coupons in the app (based on
the session-level mean and median distances) are significantly higher in both groups with
randomly sorted coupons: the median difference in distance is 3.55 times higher in Groups 2
and 4 than it is in Group 1 and 3.3 times higher in Groups 2 and 4 than it is in Group 3.
17. In order to differentiate between the impact of expiration dates and the impact of retargeting, the
possibility that a user was exposed to a specific coupon more than once, we investigate the
correlation between expiration date and retargeting and also estimate a model that jointly accounts
for both variables. We find the correlation coefficient to be small and close to zero (r = −0.010, p >
0.05) and the estimated expiration date coefficient robust to the inclusion of retargeting
(βExpiration Date = −0.112, p < 0.05). The most desired approach to differentiate between the impacts
of both variables would be a randomized field experiment (as future research). The design of this
experiment could then consist of a treatment group that only includes expirable coupons that are
displayed only once, another treatment group that allows for retargeting but only includes
campaigns without expiration dates, and a third treatment group that combines both expirable,
and retargeted campaigns; the latter situation would be similar to our current scenario.
18. The predicted click estimated log odds ^yijkt followed by a non-linear
rates are based on the
transformation, exp ^yijkt =1 þ exp ^yijkt , which yields the predicted click rates.
Acknowledgments
The authors gratefully acknowledge may helpful suggestions from Thomas Otter, the participants of
the Statistical Challenges in eCommerce Research Symposium (SCECR) in Lisbon, the Marketing
Science Conference in Istanbul, and the INFORMS Annual Meeting in Minneapolis. We are
especially thankful to Boris Lücke for his support.
ORCID
Martin Spann http://orcid.org/0000-0003-4645-3913
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About the Authors

Dominik Molitor (dmolitor@fordham.edu) is an assistant professor of Information, Technology,
and Operations at Fordham University’s Gabelli School of Business. His research interests include
mobile and electronic commerce, digital marketing and search platforms. He has published in
Decision Support Systems, PLOS ONE, the Journal of Business Economics, and proceedings, including
those of the International Conference on Information Systems.
Martin Spann (spann@spann.de; corresponding author) is a professor of electronic commerce and
digital markets at the Ludwig-Maximilians-Universität München, Germany. His research interests
include e-commerce, mobile commerce, interactive pricing mechanisms, and social networks. He
has published in Information Systems Research, MIS Quarterly, Management Science, Marketing
Science, Journal of Marketing, and other journals.
Anindya Ghose (aghose@stern.nyu.edu) is the Heinz Riehl Chair Professor of Business at New York
University’s Leonard N. Stern School of Business where he holds a joint appointment in the TOPS
and Marketing departments. He is the Director of the Master of Science in Business Analytics
program. His research seeks to measure and quantify three related issues: (1) the welfare impact of
456 MOLITOR ET AL.
the Internet and mobile technologies on industries and markets transformed by its shared infra-
structure, (2) the trade-offs between data privacy concerns and the economic value accruing to
consumers, and (3) the business impact of digital advertising and mobile marketing. He has
published papers in Information Systems Research, MIS Quarterly, Management Science,
Marketing Science, Statistical Science, and other journals.
Philipp Reichhart (lmu@philippreichhart.de) is an associated researcher at the Institute of
Electronic Commerce and Digital Markets at the Ludwig-Maximilians-Universität München,
Germany. His research interests include mobile commerce, consumer behavior, word of mouth
and viral marketing. He has published in Journal of Interactive Marketing, Electronic Markets,
International Journal of Electronic Business, and other journals.

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Effectiveness of Location-Based Advertising and

Dominik Molitor , Martin Spann , Anindya Ghose & Philipp Reichhart

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Eﬀectiveness of Location-Based Advertising and the Impact of

Specifically, in addition to differences in the delivery mechanism, mobile pull differs

To address these research questions, we conduct a large-scale randomized ﬁeld experi-

Table 1. Comparison of this study to relevant prior research.

Moderating the Role of Geography

Randomized Field Experiment

Location-Based Coupon Service

Figure 1. Screenshots of experimental design.

Table 2. Summary statistics.

classiﬁed as discount coupons with a monetary discount or promotion coupons without

3.8 3.9 3.6

Figure 2. Coupon categories. Notes: Ordered by number of coupon impressions. Impressions: N =

Eﬀects of Interface Design

coupons displayed in a distance-based ranking (Group 3). We interpret this result to

3.9 Group 1 Group 2 Group 3 Group 4

Display Rank Display Rank Display Rank Display Rank

1.8 1.8 1.8 1.8 1.8

1.4 1.4 1.4

Eﬀects of Interface Design and Location-Speciﬁc Heterogeneity

with distance information

without distance information

Tertile 1 Tertile 2 Tertile 3

yijt ¼ 1 if Uijt > 0 (2)

yijt ¼ 0 if Uijt 0 (3)

Table 3. Model results (Top 25 ranks).

Click Rate Predictions of Alternative Coupon Speciﬁcations

Table 4. Summary of main results.

Concluding Discussion and Managerial Interpretation of the Results

Our experimental choice architecture is informed by previous information systems and

Limitations and Future Research

About the Authors

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