Friday, October 29, 2021

The holiday shopping season is traditionally a time when shopping malls pull out all the promotional stops with visits from Santa, holiday concerts, and other special events designed to bring in more shoppers.

But a new study from a researcher at the University of Iowa’s Tippie College of Business says too many holiday events might not be the wisest use of a mall’s promotional budget. The study finds that mall managers are overinvesting during the holiday season, spending money at a time when shoppers are coming out on their own anyway. The study suggests they could get a better return on their investment by spending more money on promotions to increase foot traffic during off-peak times of the year.

Tong Wang, assistant professor of business analytics at the Tippie College of Business and study co-author, says foot traffic is important to mall owners because the cost of rent that tenants pay is partly tied to how many people pass through the doors. To generate more traffic, mall managers plan different types of promotions throughout the year, and Wang said mall they have to be careful how they spend their promotion budgets so they make the biggest impact for their tenants.

While holiday promotions are important—after all, what’s Christmas without a shopping mall Santa Claus—she says spending a lot of extra money doesn’t make sense because shoppers are already going to be there. Spending more money during slower, off-peak times might lead to a bigger return on investment, as the research team discovered using a machine learning algorithm they developed.

Wang says the study also finds that promotions based on unique experiences increase foot traffic more than promotions offering mall-wide price discounts, especially during off-peak periods. Wang says this speaks to one of the few advantages malls have in their competition with online retailers.

“Customers are becoming more and more comfortable shopping online for convenience, so malls have to give shoppers something that online can’t—a reason to go someplace physically instead of placing the order in front of a computer,” she says. Malls they studied scheduled such experiences as concerts, appearances by local celebrities, and special activities for children.

“People could more likely go to malls to see a beautiful Christmas tree and take pictures with Santa than getting a 20% discount, which they can get online as well,” Wang says.

The study looked at foot traffic numbers for 25 malls in China in 2017 and 2018, which they chose because they are equipped with technology that accurately measures foot count, a technology most American malls lack. Their algorithm was able to predict how spending affected foot traffic across different types of campaigns, and then calculated the optimal budget allocation strategy based on the results.

They found shopping malls have over-invested in peak-period campaigns, while often overlooking the great potentials in off-peak campaigns, especially those that provide experience incentives for customers to come to malls.

Wang’s paper, “Evaluating the Effectiveness of Marketing Campaigns for Malls Using a Novel Interpretable Machine Learning Model,” was co-authored with Cheng He of the University of Wisconsin, Fujie Jin of the University of Indiana, and Jeffrey Hu of Georgia Tech. It will be published in a forthcoming issue of the journal Information Systems Research.

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