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 2 for 1 coupon for its Nature Valley granola bars to the iPhone of a consumer standing in the middle of the snack aisle. A $0.50 off a fountain drink deal could be broadcast to the smart phone of anyone walking within a block of a 7-Eleven.
Redemption statistics, along with location data tracked by smart phone 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 7 million users and logging roughly 25k new users per day, with Gowalla following behind. In an impressive flexing of its muscle, Foursquare recently logged two-hundred thousand check-ins to a promotional campaign run during the Superbowl. The lure of free loot is so tempting that hackers are findings ways to trick GPS and other tracking systems to rack up ill-gained gift cards.
And competition from bigger and more established players is coming. Facebook recently released its integrated location offering “Places,” which even in its nascency is almost as popular as Microsoft’s Bing search engine among merchants looking to promote their businesses. 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. Instead of selling 50%-off deals redeemable at any time, merchants could intelligently target deep discounts redeemable only during a certain time window to customers who were nearby. The opportunity is sizable: instead of selling thousands of 50% off Groupons valid at any time, a restaurant manager could target steep discounts redeemable in a specified near term window, during a rainy day when lunch sales were dragging, for instance.
We expect to see significantly greater focus from group buying sites on more sophisticated offers as consumers tire into a state of deal daze and merchants play competing sites off of each other to reduce deal costs.
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 remains remarkably consistent with more 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.