Informative Narrowcasting with Consumer Search

Improved consumer addressability in electronic markets allows vendors to send focused promotional messages to specific customers, facilitating a targeted advertising approach that we call “narrowcasting”. We characterize a rational consumer’s market participation decision and identify a narrowcasting firm’s optimal targeting decision when buyers face nontrivial search costs. In the special case where consumer reservation utility is relatively low and search cost is relatively high, consumers will neither search nor purchase blindly without search, and the market breaks down. Our main contribution here is to show that narrowcasting can help a seller revitalize this market by replacing learning by consumers with learning and targeting by the seller.