How to achieve targeted advertising with the e-commerce platform’s membership system?

Abstract

Targeted advertising has been extensively researched and utilized, yet it remains a challenge for the majority of small and medium-sized enterprises (SMEs) to effectively implement. To tackle this issue, e-commerce platforms have established member-oriented marketing windows that attract high-quality merchants and consumers, creating new opportunities for SMEs. Unlike traditional mass advertising (MA) in public windows, SMEs can achieve targeted advertising (TA) marketing to member and non-member groups separately by joining the membership marketing system. Two typical advertising cost-bearing structures are included for the platform’s membership marketing system: the Platform-Bearing-Cost (PBC) and the Merchant-Bearing-Cost (MBC) mechanisms. The results show that, regardless of the cost-bearing mechanism, the narrow fee gap between the two marketing windows leads to a higher advertising level and advertising investment for members under TA. Moreover, we identify the criteria under which the merchant adopts TA: a limited cross-purchase for the members in public windows. Furthermore, a sufficiently low members’ cross-purchase coefficient in public windows contributes to a TA win–win outcome for the platform and the merchant. Nevertheless, the platform does not always benefit from the merchant’s adoption of TA, which has inspired us to refine the platform’s membership marketing system further. Two viable options are proposed for consideration: discount adjustment and product screening. The former, which is a strategic adjustment of member-only discounts, is designed to induce merchants to adopt the ad format that aligns with the platform’s expectations. The latter, which is a set of rigorous entry criteria, is intended to permit only those products that are in high demand to participate.