Customers’ cherry picking and mobile accessibility on competing firms’ profitability

Abstract

In this study, we explore the design and profitability of mobile targeting promotion (MTP) strategy, where firms could price discriminate based on customers’ physical real-time locations and offer deeper discounts to attract distant customers by MTP. In our analysis, customers have different mobile accessibilities to two competing firms’ mobile technology, i.e., the fractions of customers accessible to firms’ MTP information by Apps are asymmetric. Furthermore, we also incorporate the possibility that customers could cherry pick by travelling to different locations for more attractive deals. By introducing two MTP mechanisms-tracking down & cherry picking, we investigate two competing firms’ optimal pricing strategies with symmetric as well as asymmetric mobile accessibility. In the symmetric context, MTP with tracing down dominates MTP with cherry picking on firms’ profitability, especially when the unit transportation cost is relatively high. Nevertheless, when the accessibility is asymmetric, both firms could benefit more from MTP with cherry picking when certain conditions of transportation cost hold.

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