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A Dynamic Model of Optimal Retargeting

Author

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  • J. Miguel Villas-Boas

    (Haas School of Business, University of California, Berkeley, California 94720)

  • Yunfei (Jesse) Yao

    (Haas School of Business, University of California, Berkeley, California 94720)

Abstract

A consumer searching for information on a product may be indicative that the consumer has some interest in that product but is still undecided about whether to purchase it. Some of this consumer search for information is not observable to firms, but some may be observable. Once a firm observes a consumer searching for information on its product, the firm may then want to try to provide further information about the product to that consumer, a phenomenon that has been known in electronic commerce as retargeting. Firms may not observe all activities by a consumer in searching for information, may not be able to observe the information gained by consumers, and may not be able to observe whether a consumer stopped searching for information. A consumer could stop searching either because he received information of poor fit with the product, because he bought the product (which may be unobservable to the firm), or because he exogenously lost interest in the product. This paper presents a dynamic model with these features characterizing the optimal advertising retargeting strategy by the firm. We find that a forward-looking firm can advertise more or less than a myopic firm to gain more information about whether the consumer is searching for information, advertising more if the effect of advertising is relatively high. We characterize how the optimal advertising retargeting strategy is affected by the ability of the firm to observe when the consumer purchases the product, when the firm is better able to observe the consumer search behavior, and by the informativeness of the signal received by the consumer. We find that better tracking of consumer search behavior could be beneficial for consumers, because it may reduce the length of time when a consumer receives retargeting, but that it also enlarges the region of firm’s beliefs where retargeting is optimal. Finally, we also find that the value of retargeting is highest for an intermediate value of the likelihood of the consumer receiving an informative signal and that retargeting may allow the firm to charge higher prices if consumers are forward-looking.

Suggested Citation

  • J. Miguel Villas-Boas & Yunfei (Jesse) Yao, 2021. "A Dynamic Model of Optimal Retargeting," Marketing Science, INFORMS, vol. 40(3), pages 428-458, May.
    • Handle: RePEc:inm:ormksc:v:40:y:2021:i:3:p:428-458
    DOI: 10.1287/mksc.2020.1267
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    References listed on IDEAS

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    Cited by:

    1. Matveenko, Andrei & Starkov, Egor, 2023. "Sparking curiosity or tipping the scales? Targeted advertising with consumer learning," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 172-192.

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