Location, Location, Location: A Real Estate Catchphrase Moves to Marketing
Through a special arrangement, presented here for discussion is a summary of a current article from Applied Predictive Technologies’ Retailing With Confidence blog.
Location-based marketing is here. From Chili’s to Target, leading restaurants and retailers are showing an enthusiasm for piloting offerings from a range of hot New York and Silicon Valley start-ups including Foursquare, Shopkick, and Gowalla.
While each location-based service (LBS) is unique, they are all oriented around a core principal: offers and coupons are most effective when restaurants and brands can target consumers at a specific time and place.
For example: General Mills would have the opportunity to target a two-for-one coupon for its Nature Valley granola bars to the iPhone of a consumer standing in the middle of the snack aisle. A 50-cents off a fountain drink deal could be broadcast to the smartphone of anyone walking within a block of a 7-Eleven.
Redemption statistics, along with location data tracked by smartphone applications, could then be used to arrive at the holy grail of marketing: targeting the right offer to the right consumer at the right time to most effectively drive purchases.
Many of Silicon Valley’s most vaunted venture capital firms have invested tens of millions of dollars in LBS companies at astronomical valuations, believing that these services will displace more traditional couponing channels, including newspaper inserts and shared mail.
LBS start-ups have been using this cash to incentivize consumers to download iPhone and Android apps enabling their tracking and couponing technology.
Foursquare recently offered consumers discounted beverages based on the number of times they used Foursquare’s app to “check-in” at Starbucks locations. Similarly, Shopkick offers loyalty points to shoppers for simply walking into a Macy’s or Best Buy location and additional points for scanning products they like. These points can then be redeemed for gift cards.
Such promotions have been popular with consumers, who are downloading LBS apps in record numbers. Foursquare is leading the charge, registering almost seven million users and logging roughly 25,000 new users per day, with Gowalla following behind.
And competition from bigger and more established players is coming. Facebook recently released its integrated location offering, “Places.” Google recently announced a full roll-out of check-in functionality associated with its Latitude service.
Similarly, Groupon and LivingSocial are also looking to expand their offerings into the location-based space, allowing restaurateurs greater refinement in targeting offers to users at a specific time.
Supporters and detractors aside, the market for location-based services is far from mature. Through the rapid iterations the industry will face, the core questions location-based services pose for retailers remain remarkably consistent with those posed by more traditional coupons: namely, are consumers redeeming coupons actually incremental or are they existing customers who are cutting into retailer margins? Only time, and rigorous testing, will tell.
Discussion Questions
Discussion Questions: To what extent do you think location-based services (LBS) will replace traditional couponing channels such as newspaper inserts and direct mail? Is LBS more of a new customer recruiter or margin killer, from your perspective?
There’s an awful lot of VC money flowing to convince us that customers are a thing to train and manipulate via smartphone, all using coupons as the shiny lure. The best location-based way to drive profitable sales is a well trained person. The holy grail of restaurants and retail is not trial.
Why does one need to displace the other? Both have a place in a marketing mix. Traditional couponing channels reach consumers before they shop, introducing new products and trying to secure a place on a shopping list. LBS reach consumers while they are shopping or browsing.
LBS need to be careful about overwhelming consumers. How many messages does a consumer want to receive while walking past a store or down the snack aisle?
LBS is a smart way for Groupon and other online coupon providers to target their offers more accurately. But the targeting needs to go beyond location to demographics and more. I recently received a Groupon offer to save money on paintball, 40 miles away from where I live at the opposite end of the Milwaukee area. (And Groupon already knows my age and zip code…let’s just say I am not the target audience.) Surely Groupon, LivingSocial and the rest can do better.
Well; let’s see, if newspapers go away–which many of them have and more of them will–then LBS will easily outstrip inserts as a vehicle for reaching consumers. And, I think it’s a safe bet more people will pay attention to their phones than their junk mail, so direct mail may also be an endangered species unless it opts to reinvent itself.
Okay, I’m going to say it. Traditional coupons are lame. Every time I walk into my local chain drug store and they print out one of their “special offers” as part of the receipt I struggle to figure out where the heck I’m going to keep it, and how the heck I’m going to redeem it.
I suppose there will always be a place for coupon clippers in the world of supermarkets, but otherwise, as far as I can see, getting out of the generic mass marketing business has been a holy grail forever. So expensive. Pathetic redemption rates. Annoying for the regular consumer.
For me, deliver something relevant to me with minimal effort on my part. That’ll build real loyalty.
A more developed, targeted and mature LBS approach will happen. I don’t see them totally replacing existing traditional couponing markets but targeted towards that growing segment of the consumer market who increasingly utilize smart phone applications when shopping, traveling and celebrating.
Traditional consumers will still need to be reached via traditional methods, albeit they will likely shrink as a percent over time.
In Japan, LBS have been around for years already. Once again, we in the US need to take a trip outside once in a while to see what’s happening, LOL!
LBS have gained acceptance in other countries too, so there is no reason to expect any apprehension in the US. This drives the top line revenue more than anything. Great impulse buy driver.
P.S., Happy 100th Birthday, IBM! 😉
Location-based services (LBS) are indeed a frothy space, with valuations rising this year especially. Foursquare was valued at $120MM June 2010, $250MM in January 2010, and sought a valuation of $500MM in June 2011, according to the WSJ. But I’m going to introduce some pessimism.
LBS are powerful for customer acquisition because, like all digital coupons, they reach the 1/3 or more of shoppers who don’t receive paper coupons. But as Charles suggests, they operate at a tiny scale compared to the 3.3B coupons distributed each year, nearly 90% of which are FSIs. So it’s far from being a credible replacement.
Further, while LBS has gained a strong following among early adopters, challenges exist with mainstream adoption. The Location-Based Marketing Association explains why 83% of people don’t use location-based apps:
– 50% don’t own a smartphone
– 49% had no motivation to use LBS apps
– 48% have privacy concerns
There’s another form of location marketing that’s often left out of the LBS discussion: digital place-based marketing. With studies showing notice rates of around 70%, digital screen networks have scale and engagement that mobile currently lacks. For more on the relevance of digital screen media, please see our recent blog post at www.smartretailmedia.com.
I think the inherent measurability, timelines and relevance of location based services make them a no-brainer compared to traditional coupon drops or inserts.
While LBS is relatively new, it is moving faster than any marketing technology that preceded it to date. What we can expect in the near-term is a move away from check-in based platforms like Foursquare and Gowalla where users are required to consciously check in, in order to receive rewards. It’s an extra step that users have to take and moreover, women tend not to be as comfortable publicizing their physical location for obvious safety concerns.
We’ll see more geo-fencing programs, where once users opt in, they automatically receive messages from brands and retailers when they come in proximity to them or within the fence so-to-speak. No need for a check-in, no need to tell the world where you are.
Look for NFC (near field communication) to play a big part in making the use of LBS at retail much simpler as well.
Location Based Service will have its moment in the sun, its 15 minutes of fame as Andy Warhol referred to it. The timing is in the future. As long as there is a strong, older base of shoppers who do not use smartphones or iPhones and rely on newspapers, inserts and coupons, the manufacturers and retailers including grocery will continue to use the tried and true, older methods of attracting customers. As that generation of shoppers diminishes in numbers, newer methods such as LBS will become more prominent. By that time, who knows? Maybe LBS will be outdated.
LBS offers should have higher utility than paper coupons and are more time-saving for busy consumers than joining and visiting a coupon aggregation site.
There are some human behaviors that have to be coached in order for LBS offers to really take hold. My barometer tells me that the number of people under 20 and over 40 are not tuned in to Foursquare or other location based apps. Prove me wrong, but it’s not just the “older” generation we have to train to look on their Smartphone for offers while on the run doing errands, it’s the very connected younger generation as well. While they live with their phones under their pillow, they aren’t too familiar with location based apps as yet.
There is a need for innovation in how we communicate not just the offers on the phone, but the value of Foursquare and related apps.
For the most part, TNS’ PathTracker(r) is a location based service that is based on continuous measurement of shoppers’ locations and behaviors across entire stores, on a second by second basis. However, “location” means something very different when you are actually measuring physical location, as in xy coordinates of the location of the shopper, vs., “Oh, they are in front of the peanut butter now.” From the beginning 10 years ago, we always linked the products on the shelves and the purchases at the checkout to the path (behavior) of the shopper, and cited “location, location, location” as a touchstone of behavior. But this [LBS] location is about where the shopper is, not what merchandise they are in front of. (The Science of Shopping, Marketing Research, Fall 2003, pp. 30-35.)
This is a tremendously important distinction, because a shopper’s behavior is FAR MORE influenced by their physical location in the store, and non-product environmental factors, (e.g., front, back, beginning/ending of trip, type of shelf) than it is by the specific products they happen to be passing by. (See The Power of Atlas.)
The article being discussed represents the void in knowledge of shopper location – certainly within stores – and this ignorance is compounded by equating “selling” or “promotion” with couponing. Couponing (“No, The Customer is Not Always Right!“) is a brain-dead way to pay customers to buy and is not only ineffective in terms of profits, but is the antithesis of true selling or promotion that simply involves calling the customer’s attention to a SINGLE item that matches the inmost needs or desires of the customer. Are there no true salesmen left in the retail world? It isn’t the staff that is needed, it is the selling mind set, and let’s begin with the fact that selling is NOT about giving away money! Sheesh!
I am definitely of the “not the holy grail” camp on this as well as most retail innovations. You know…”e-commerce will be the death of brick & mortar retail….” Please.
I do also believe that we will enjoy a lot of LBS in our future and that top retailers will have to find their spot in the fray…or will cease to be top retailers.
Everyone worries about invasiveness and this is indeed an issue. But this is precisely the same as any other retailer/consumer exchange–some of them are worth it; most of them are not. So we’re really back to the basic issue of creating a compelling offer for your customer. That doesn’t sound new-fangled at all, does it?
The one wonderful opportunity that LBS delivers is an enormous amount of behavioral context. I continue to believe that the most important bit of information we need to have to effectively message to consumers is what they’re doing at the moment the message is received. I’ll take a SHOPPING profile over a shopper profile any day.