Missed opportunities in location-based marketing

Location-based marketing. At this point, nearly every marketer worth his or her salt knows the term. But not all have gotten their feet wet, and many still harbor misconceptions about this emerging opportunity.

For one, location-based marketing isn't the experimental testing ground many might perceive. In fact, it's being done at scale, says Alistair Goodman, CEO of Placecast. "Carriers like AT&T and O2 in the U.K. are deploying it for their subscribers, and marquis brands like Starbucks, L'Oreal, and The North Face are all now in the mix," he says.

Goodman, who will be discussing the state of location-based services at ad:tech San Francisco next month, notes that a brand can now execute a location marketing program without a lot of new work. And it can be done on any phone without an app -- reaching up to 268 million users in the U.S. today. In advance of his presentation, Goodman sat down with iMedia Connection to tell us more.

Alistair Goodman is CEO of Placecast.

iMedia Connection: Location-based marketing has been an opportunity of growing interest to marketers over the past couple of years. At present, where on the adoption curve is the marketing industry? Who has jumped on the opportunity, and who has yet to follow?

Alistair Goodman: I believe that 2010 was the year of apps -- brands and users alike were fascinated with them, and they led to solid experimentation and insights. 2011 is the year of reach and scale in mobile, with location-based marketing being a primary vehicle.

Large retail brands like Best Buy and American Eagle have been early adopters, and now most mainstream brands will tell you that they are now increasing their spending on mobile. Facebook, Google, Groupon, and others are all changing the way consumers think about deals --and mobile is now a key component.

From my own experience at Placecast, 20 percent of the brands we talk to are on their second or third wave of mobile marketing initiatives and are all embracing location-based marketing -- the rest are just starting.

iMedia: Which brands are currently making the most of location-based opportunities? And how?

Goodman: Brands that make the most of location-based marketing are those that understand how to create an obvious relationship between offers, location, and value to the customer. Consumers need to understand why a brand is choosing a particular time and place to communicate with them. Starbucks in the U.K. is a great example of ShopAlerts at work; they have been running a program promoting the launch of their new Via coffee product. Hundreds of geo-fences were set around Starbucks locations, and consumers received discounts to try the product. This program has delivered a 34 percent response rate.

At the other end of the spectrum, brands like The North Face here in the U.S. are delivering experiential content -- not discounts -- to their best customers when they are near an event they sponsor like the X Games. White House Black Market is sending FashionAlerts -- personalized discounts and promotions for their most loyal customers when they are near a store. Kmart, JetBlue, and HP are all beginning to test customer acquisition using geo-fence marketing via the ShopAlerts by AT&T program. In the U.S., brands we are working with have seen increases in purchase behavior similar to the U.K. -- from 11 percent to 34 percent depending on the brand and the type of product or service.

iMedia: What brands have you seen struggle with location-based marketing, and where did they stumble?

Goodman: If they struggle, it's usually in two areas. First, the quality of the offers: The more relevant they are, the better the response and the more positively consumers feel about the program. Second is the area of recruitment. We usually suggest that a brand offer an incentive to recruit consumers into a program. While this can add extra cost up front, we are seeing that shopping frequency, basket size, and the lifetime customer value of participants in these programs is increasing substantially.

iMedia: There's still a good deal of experimentation going on when it comes to the types of location-based deals that really connect with customers. Which approaches have you seen prove to be most successful to date?

Goodman: We are seeing three basic types of programs: acquisition, retention, and merchandising.

On the acquisition side, the deal companies like Groupon and Living Social are transforming the way consumers shop, and are doing a great job of generating new sales. Our ShopAlerts carrier program used by O2 in the U.K. and now AT&T in the States is another example -- subscribers opt in and indicate their preferences, then brands put geo-fences around their stores to trigger messages, gaining access to a carrier's users in a similar way to advertising through a portal model.

On the retention side, we're seeing brands use mobile as an extension of their loyalty programs and CRM systems, creating their own programs where they own the user and the data. Brand-specific apps like Daily Candy's, which is powered by Xtify, are one example, and The North Face and White House Black Market are two retailers using ShopAlerts this way.

Companies like ShopKick are focusing on merchandising -- essentially enabling the promotion when a consumer is in the store. All of these approaches are delivering results for retailers in both offline and online transactions -- though each essentially focuses on different client budgets.

iMedia: The check-in location services field is becoming increasingly cluttered, and the biggest online players are now getting in on the action. What does this mean for smaller independent services like Foursquare? Is there a future for them in the market, and if so, how will they differentiate themselves?

Goodman: Companies large and small are all trying to capitalize on the small-medium business (SMB) market, as well as localized retail. According to Kelsey, $133 billion was spent in 2010 on all forms of localized media -- so that's a big prize. Google putting Marissa Mayer into a new role focused on local and location is the biggest of many indicators of the importance of location, and Facebook is also now focusing on it, not to mention the yellow pages companies. When companies of this size come into a space, they bring with them a large customer base and deep pockets.

Making a consumer check in 20 times a day may be a challenging user experience for mainstream consumers in the long run, regardless of the value delivered. It may be a feature of services in the future, but many in our industry are not convinced it is a business model. Placecast has always believed that mobile programs should enable consumers to opt in and set their preferences, then their phone should just alert consumers automatically with an intelligent offer when they are near something interesting. Increasingly, we can expect Google, Facebook, Apple, Microsoft, and app developers to focus on adding functionality in this area.

iMedia: How did the introduction of Facebook Places change the way marketers think about location-based targeting (if at all)?

Goodman: With more than 500 million active users, half of whom log in every day, and millions of businesses building a presence in Facebook, they certainly have the real reach that any advertiser would want. Facebook in the location game confirms that the industry is now focused on real reach and scale for businesses vs. experiments. What we have seen so far with Facebook Places is basic functionality -- and we can expect to see a lot more. They launched Deals last year, and they just turned on mobile "push" notifications a couple weeks ago. They are probably best positioned to become the major distributor of third-party deals for SMBs.

It was also a warning shot to all the little companies out there that are structured as more of a "feature" vs. a fundamentally new business opportunity. When Facebook (or Google) turns on a new feature, it has the power to sideline smaller players in a new market just by virtue of its size.

iMedia: With so many services out there now, how can a brand that hasn't yet dipped its toe in the location-based waters decide where to start?

Goodman: We often hear from marketers that mobile programs are a lot of work. Different platforms require discrete efforts, and marketing people are already overwhelmed with lots of other media channels. One of the key design principles we adopted for our mobile service is to make it easy for a consumer and a brand to activate a program. That means it has to work on any phone (not just a smartphone), with no app to build, no testing across devices, and very little investment in building creative ad units.

The first thing we tell brands is to extend what they are already doing in marketing into mobile, rather than starting by creating something completely new from scratch. If you are a retail chain or CPG company, you already have stores to put geo-fences around and deliver offers. If you are sponsoring or running events, then you have already claimed a place -- put a geo-fence around the event and engage with your best customers. If you already have an app, push location-based alerts to the experience. To recruit consumers, leverage all your existing touch points to bring people into a program -- website, social network, email, SMS, in-store signage -- all are viable and make it easy for consumers to connect with a brand via mobile marketing.

iMedia: Looking to the future, are there any upcoming industry developments (be it legislation, general market trends, or specific company announcements) that you expect will dramatically transform location-based marketing as we currently know it?

Goodman: With the increased focus on privacy across digital media, brands will increasingly see opt-in become the standard for the mobile marketing user experience. I also expect to see the patent space heat up. Not long ago, Google was granted a patent for bidding on users in a location; Apple and others have all been filing in earnest, and we are seeing seminal patents being granted in this space.

iMedia: Beyond what we've discussed above, what is the single most important insight into location-based marketing that you wish all digital marketers were aware of?

Goodman: There is a prevailing view that location-based marketing involves shooting an offer to a consumer walking by a store, and they walk in and immediately make a purchase -- direct response in the physical world. While we are seeing substantial increases in purchase rates, only about 20 percent of consumers who buy do so immediately. The remainder makes purchases from a few hours up to several days later, and may even visit the website to shop. In the end, we see that location often acts as a very powerful reminder: After receiving a ShopAlerts message, for example, consumers make a mental note of the message and where an offer can be fulfilled. With the offer saved on their phone in a text message, they can return later when they have time to make the purchase.

Lori Luechtefeld is editor of iMedia Connection.

On Twitter? Follow Luechtefeld at @loriluechtefeld. Follow iMedia Connection at @iMediaTweet.