Seize the Opportunity of Targeted Marketing Under the Platform Membership Mechanism

Under the pressure of surging advertising costs and fierce market competition, a growing number of online merchants are trying to implement new advertising strategies to improve advertising efficiency and increase sales. In the context of the widespread acceptance of online platform membership, many merchants who lack the ability of Big Data choose to cooperate with platforms to implement targeted advertising strategy (TA strategy). Under this strategy, merchants can separately push different ads to the members and nonmembers, which breaks the past practice of pushing unified ads to the whole market under mass advertising strategy (MA strategy). The platform can obtain the member-only pricing right from the cooperation to enhance the attractiveness of its membership system and charge a higher advertising fee. This article discusses the interaction between the merchant and the platform and obtains the optimal decisions under MA and TA, respectively. Then, we compare the profit performance, advertising efficiency, and product sales between the two strategies. The result shows that the merchant will adopt TA when the gap in charging standards of the two strategies is narrow. Furthermore, when the gap is moderate, the dominance of TA relies on the small proportion of the member group. In addition, we find that the merchant prefers to reduce (increase) the advertising level to members (nonmembers) under TA, in comparison with MA. Through demand analysis under two strategies, a counterintuitive result shows that, in the TA scenario, the demand for products generated by the member group will decrease with the rise of the matching degree.

Automated summary

The article discusses the interaction between merchants and online platforms in implementing different advertising strategies under fierce market competition. The study found that when the difference in charging standards between the two advertising strategies is small, merchants tend to adopt targeted advertising strategy, while in moderate differences in charging standards, the dominance of targeted advertising strategy depends on the proportion of the member group.