Date of Award

Spring 1-1-2025

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Management

First Advisor

Sudhir, K.

Abstract

The rapid expansion of digital and virtual environments has transformed customer management, providing firms with unprecedented opportunities to observe and influence consumer behavior in real-time. These self-contained worlds—ranging from gaming and education to health and the emerging metaverse—allow firms to not only track every consumer action but also dynamically modify the product and design the rules and incentives governing the very environments in which interactions take place. As a result, firms can optimize targeting strategies, personalize interventions, and design products and incentives in ways that were previously unattainable. My dissertation examines how firms can leverage these capabilities to manage customer acquisition, retention, and monetization in digital and virtual spaces. In the first essay, joint work with K. Sudhir and Kosuke Uetake, I develop a dynamic structural model of consumer utility generation in virtual environments, applied to the context of gaming. Unlike traditional models that separately study effort/time response and consumer purchase behaviors, my framework jointly models the decision to spend time (play) and money (purchase tools), recognizing that purchases alter the utility of gameplay both contemporaneously and over time. This approach generalizes models of durable goods purchases (where only purchases are made) and incentive compensation models (which consider only effort/time responses), making it well-suited for novel digital and virtual environments that require both time and money inputs, such as gaming, digital learning, and health habit formation. Using data from a single-player golf game, I examine how purchases interact with the game environment to generate dynamic complementarities and substitutions in future play and purchase decisions. Estimates reveal three latent player segments: premium enthusiasts, who derive intrinsic enjoyment from play and are most willing to purchase tools; win-seekers, who find gameplay costly but primarily value immediate rewards; and progress-seekers, who also find gameplay costly but value level-up rewards. Counterfactual simulations show that interventions—such as free tool-giving, an extreme case of targeted discounts, or difficulty adjustments—can produce opposing effects (i) across different players and (ii) within the same players at different points in time. By incorporating these dynamics, my framework enables firms to design personalized policies that maximize net dynamic complementarities in purchases. In the second essay, joint work with K. Sudhir and Subroto Roy, I investigate how firms can use large-scale consumer data from digital platforms and third-party tracking systems to improve customer acquisition through Lookalike targeting. Despite being widely used, Lookalike targeting remains an understudied strategy in digital marketing. Using randomized field experiments on Facebook, I investigate how different seeding strategies—based on the customer journey stages of others—impact ad effectiveness for brand versus performance marketing. I find that seeding on later journey stages enhances acquisition for performance marketing but has limited impact on brand marketing. Additionally, I explore how expanding match ranks and incorporating explicit targeting messages in ad design can improve ad efficiency. These findings offer practical guidance for audience selection and ad creative strategies in digital marketing environments. As digital and virtual environments continue to grow, advancements in virtual and augmented reality technologies are expected to provide increasingly comprehensive observability of consumer incentives, action, and states. My model generalizes to offer insights into the design of virtual environments beyond gaming, including digital learning, gamified loyalty programs, digital health, and the metaverse -- settings where consumers respond to environment incentives and expend effort and resources to achieve goals. I hope my dissertation serves as a foundational building block for new models of consumer behavior in these environments.

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