What Shopper Marketers Need to Know about Location Based Marketing

Wednesday, August 18, 2010 was a remarkable day in the evolution of Location Based Marketing.  The day started with ShopKick, a well-funded start-up, launching an In-Store, Location-Based Marketing service in 257 Best Buy stores. The day ended with Facebook announcing the immediate deployment of a location-based marketing solution for its 500 Million users.

Shopper marketers will be building the next generation of location based marketing services on the shoulders of these initial offerings.  Soon, Location-Based Marketing may become more influential than broadcast television.  So if you haven’t been following this space closely, it’s time to start paying attention.

Here is a recap to help you catch-up as well as my predictions regarding the future of this game-changing marketing channel.

What is Location-Based Retail Marketing?

Definition: Shopping experiences that change dynamically based on the location of the shopper. 

Back in the early nineties at Blockbuster Video, we knew that a majority of our Friday night customers would also be stopping at a take-out restaurant on their way home.  We often thought, “Wouldn’t it be cool if we could predict which restaurants customers will visit on their way home, and use that information to develop a cross promotion?”  At the time, it seemed impossible.  Today, thanks to the GPS enabled mobile phone, it’s a reality.

There are already some impressive examples that have been deployed.

Retail Branded Applications with Local Promotions.

Adidas outlet stores have a common operational challenge…matching their price promotions to inventory that is in constant flux and varies from location to location.  How can I choose between driving Portland’s congested freeways south 30 miles to shop the Woodburn outlet, or 30 miles north to shop the Columbia Gorge outlet? Woodburn may have great deals on surplus soccer balls, but the Columbia Gorge outlet has excess inventory of fleece hoodies. It’s not cost effective for Adidas to run out-of-home advertising for a single store to feature a product that only has a few days of inventory at most. Offering in-store price promotions may influence a few purchase decisions but can’t drive needed incremental traffic to the store.

Like many cutting edge retailers, Adidas has turned to a technology solution.  They developed an IPhone app that tracks your current location and offers highly-localized price promotions for the store nearest you..  Take your phone south of Portland and you’ll be hearing about soccer balls, but start driving east and the same app will promote hoodies and fleece.  Each store’s manager is able to upload promotions to cost effectively drive traffic to their store.  All this is possible due to the advent of the GPS enabled mobile phone.

Location specific promotions are already becoming common place in smart retailers’ apps and mobile websites.

Check-in Applications

If you aren’t already familiar with the offerings of firms like FourSquare, Gowalla, Loopt, Neer, and Placecast,  then you should spend some quality time on your favorite smartphone App Store.  Basically, these apps let you “Check-In” when you visit your favorite locations.  Not only can your peer network see where you are and interact with you, but they have a gaming aspect – you get points each time you visit a venue.  FourSquare, one of the pioneers of check-in services, declares you “mayor” of a location when you check-in more than anyone else, and you earn “badges” for specific accomplishments (for example, visit three Apple stores to earn the coveted “Jobs badge’).  These Top Check-ins Lists are reminiscent of the old high-scores on arcade games. They play into our psychological need to be recognized.  Even with no tangible reward for becoming a “mayor” or earning badges, they provide a powerful draw that inspires already loyal customers to increase their visits.   The competition to make the top lists means that the apps are sticky with a high switching cost.  What user wants to give up the 250 check-in’s they’ve already made at Starbucks with FourSquare to begin using Gowalla?

These check-in apps are a perfect platform for location based promotions.  For example, Starbucks did a promotion offering their “Mayors” $1 off Frappaccino’s. Independent retailers can purchase a Foursquare promotion that offers a discount to anybody that checks in within a one-mile radius of if their store.   CauseWorld (a check-in app offered by ShopKick) awards you” Karma Points” for each retail visit, which can be redeemed for philanthropic donations made in your name.

Automatic Check-in Applications

ShopKick, a startup headed by the former EVP of mobile at CBS, has reportedly raised over $15M in venture capital from Kleiner Perkins and others.  They made their debut on the Apple App Store Wednesday morning.

Shopkick improves on the basic check-in model in two very important ways.

1. Automatic Check-In.  If the Shopkick app is running, it automatically detects that you have entered the store (or department) and relays the check-in points and promotions.  You don’t have to do anything other than have the app running.

2. Micro-Location Services.  The app doesn’t rely exclusively on GPS. it also detects in-store beacons that emit audio signals outside the range of normal hearing. This allows Shopkick to track you location in the store.  I refer to this “micro-location” capability but I’ve also heard it referred to as “hyper-location.”  This capability is what allows ShopKick to offer , for instance, a Samsung promotion only to shoppers standing in-front a competing brand’s product

500M Facebook Users Can’t be Wrong

Also on Wednesday, Facebook announced “Places”.   This is a Location Marketing feature that allows users to use their iPhones to check-in yourself… and your friends. The API allows Facebook’s partners to write apps that use this location data. FourSquare, GoWalla, and Yelp have all been introduced as initial partners.

With the official Facebook stamp of approval, Location Based Marketing is now mainstream, and because it is a “semi” open platform means that all sorts of creative developers and marketers have access to consumers’ location data. All they need now is an irresistible and compelling value proposition for shoppers.

Oh…In case you’re worried about Google falling behind, rest assured the ads they deliver to your mobile phone have been fully location aware for some time now.

So Where is This All Leading?

As important and cool as these initial offerings are, they still have some room for improvement:

Wrong Micro-Location Technology.  ShopKick’s use of Audio is a pretty clever way to quickly get auto check-in deployed on current smart phone technology.  But in the long run, I don’t think these audio based beacons are practical.  First, this technology depends on the shopper keeping the microphone active, which drains the battery at a high rate. For this reason shoppers will be hard-pressed to keep the ShopKick app active all the time.  And, of course, the native phone app on the device takes over the microphone when you receive or place a call, disrupting Shopkicks ability to find you In my opinion,.  a better solution would be to leverage the Wi-Fi signal that most newer SmartPhones already emit detected and located by beacons in the store.  That technology could perpetually run in the background on SmartPhone and not impact battery life. This would enable “true” Automatic Check-in.  Several companies have already perfected this approach, so it’s only a matter of time before we see it deployed.  It would be even better if SmartPhone manufacturers started including NFC technologies in their handsets. This could be used not only to detect very inexpensive location markers in the store but to facilitate promotion redemption and payment at the cash-wrap.

Platforms — not applications.  In the long run, it doesn’t make much sense for Best Buy to encourage shoppers to use the ShopKick application.  Best Buy already has their own Application with a pretty rich feature set (promotions, product info via QR code scanning, customer affinity, Idea Exchange, store locators, etc…).  Best Buy should be using all its marketing efforts to get its own app on the shopper’s home screen.  What’s to stop ShopKick from offering a promotion only redeemable at Walmart to shoppers that check into a Best Buy?  A retailer’s biggest advantage in mobile marketing is that only they can enable micro-location services in their store, and they should only be doing so for their proprietary apps.  Solution providers like Shopkick need to develop platforms that can easily be integrated into a retailers app, not compete with it.

Promotions Aren’t the Killer Feature.  So far, most of these offerings have focused on the ability to deliver coupons and promotions to shoppers based on their location.  But these simple promotions don’t increase the size of the financial pie for the retailer, and it’s the retailer that needs to install the beacons to enable the experience.   To generate real revenue for the retailer, shopping experiences need to improve the conversion ratio of browsers to buyers, increase the size of the shopping basket, upsell to higher margin choices, or drive more frequently visits.   The good news is that well executed location-based-marketing customer experiences on mobile handsets can do all of that… it will just require more marketing strategy than basic coupon dispensing. 

Shoppers do more pre-research than ever before entering a store, , When they are tempted to make an unplanned purchase, how can a retailer provide the final “push” of rich product information to tip the scales in the direction of purchase? Using micro-location data to determine the product the shopper is contemplating  and instantly delivering the features, benefits and promotional information via the handset is a great way to drive incremental purchases.  When you add the ability to integrate with customer affinity programs, determine the path a shopper took to arrive at a particular shelf, plus the ability to deliver peer reviews from the shoppers own social network… you have the in-store shopping experience of the future!

Combining a shopper’s Smart Phone with in-store micro-location beacons is the brick-and-mortar equivalent of the e-commerce “cookie. Stores that embrace this technology will be ahead of the pack in the near future, as the Smart Phone becomes the shopper’s primary internet tool.

Clearly, I’m a retail geek, so nothing excites me more than in-store and shopper marketing. But if you’re involved in multi-channel marketing and you aren’t excited by the amazing possibilities technology is enabling … you may be in the wrong business.