Location-Based Services and the Indelible Importance of Awesomeness

The growth of the web over the last decade-and-a-half has been a mixed blessing for brick-and-mortar retailers. While it's created a vast array of new customer touchpoints, it's also introduced the pernicious problem of maintaining those touchpoints across channels. The challenge is much the same today as it was in the days of the first digital wave: How do you ensure that your online efforts are actually bringing consumers into your stores, and how do you measure that impact?

A fresh-faced set of players on the digital stage would very much like to answer that question for you. They're part of a new wave of digital marketing opportunities spawned by the growth of mobile computing. As smartphone usage in the U.S. rapidly approaches critical mass — it's expected to top 50 percent of the U.S. population by the end of 2011 — location-based services (LBS) have garnered tremendous interest among retailers, marketers and analysts as a potential means of breaching that age-old digital divide.

All About LBS
While the main LBS players differ widely in their mechanics and market niches, their core appeal to consumers and retailers is very simple: they offer consumers some means of connecting with friends and places while on the go. LBS offer retailers some means of making their physical locations a prominent part of those connections. Most LBS programs encourage retailers to offer coupons or other forms of discounting to lure in consumers. Because consumers earn incentives on their phone and redeem them in-store, the effectiveness of the effort is unmistakably measurable.

At first blush, LBS looks like the sought after missing link in the digital-to-physical equation. Successful marketing is increasingly a matter of pinpoint relevance, and location is a very powerful form of relevance. What brick-and-mortar retailer wouldn't rather connect with a consumer while they're strolling the shopping district than when they're hunched over their home computer?

But as with all emerging technologies and attendant marketing opportunities, consumer behavior turns out to be the wild card. Although LBS services like Foursquare and Facebook Places have enjoyed exponential growth and enviable buzz over the last two years, it's not at all clear that these services (at least in their current incarnations) have what it takes to reach critical mass of usage outside of smartphone early adopters. It's even less clear whether the primary 
marketing opportunities they provide are aligned with the ways consumers prefer to engage 
with brands.

Privacy Concerns
My agency, White Horse, is focused on aligning user behavior with new digital marketing experiences. In March we conducted a survey of LBS app usage among 437 smartphone users (you can download the full report here). For the sake of clarity, consistency and perhaps even our own sanity, we focused on services whose main function was the ability to "check in" with one's network of contacts. These included Facebook Places, Google Latitude, Foursquare, Twitter Places and Gowalla. We didn't include shopper reward apps like Shopkick and WeReward. While those are undeniably of interest to retailers, consumers see them in a different context from other LBS services, so marketers must approach them differently.

We began with the question of actual usage. We found that 39 percent of smartphone users who are aware of LBS are using them. Given the relative newness of LBS, that's certainly encouraging.

But when we looked at the reasons that the remaining 61 percent of LBS-aware users are holding out, the results are more sobering.

One-third of nonusers cited privacy concerns as an obstacle to adoption. While assuaging data privacy worries is in some respect simply a day-to-day reality of digital marketing, location information is a special case. Our respondents were vocal on the subject, evoking the possibility of real harm arising from careless use of location details. One wrote: "It's not very safe to constantly let people know where you are … Someone I don't want to see or a dangerous stranger could follow me if they know where I'm at by using these types of apps."

The burden is on LBS app developers to reassure consumers about their data privacy. The broader issue for retailers contemplating LBS marketing is the consumer perception of the trade-offs between giving up location information and getting back something useful. A combined 45 percent of nonusers either perceived no benefits of LBS or saw them as redundant to other ways of connecting. Because these services place social connections at the center of the user experience, users must first find value in personal location sharing before they're also willing to share their location with marketers.

Discounts and Incentives
LBS players like Foursquare are betting that discounts and incentives will provide the benefit that consumers need to connect with marketers. Most of the LBS/retailer case studies to date have centered on discount rewards for checking in at a retail location. But the most revealing finding in our study was that discounts and games weren't important drivers for LBS usage: only 8 percent of consumers said discounts and rewards were the most important benefit of LBS, and only 4 percent were mainly interested in earning competitive rewards like badges.

Once again, the trade-offs between privacy, hassle and perceived benefit are at issue. In a typical LBS scenario, a consumer might have to eat at a certain restaurant, broadcast their location and hope that 19 other users of the same app do so at the same time in order to receive a discount for that visit. In the much-cited Ann Taylor/Foursquare experiment, consumers had to check in at an Ann Taylor location on five separate occasions in order to receive a 15 percent discount from the apparel retailer.

While some consumers will feverishly pursue such discounts despite the trade-offs, the data suggests that such experiences won't scale and won't necessarily provide you with greater access to your most loyal or influential customers. Just as display advertising clickthroughs have been revealed to be driven by a narrow segment of the online population, deal-seekers are emerging as a segment of the social and mobile population that doesn't repay discounts with loyalty.

Breeding Loyalty
So then what does breed loyalty among LBS users? What would persuade them not only to shop at the same store week after week, but to earnestly recommend the experience to everyone in their network? In a word, awesomeness.

One of the main lessons of social media marketing is that brands that thrive in social media aren't the ones that are inherently great at social media, but the ones that are inherently great at taking care of their customers. Those customers' natural inclination to evangelize the brand to their friends simply found its outlet in social media.

This same principle applies to LBS, which are, after all, social networks in their own right.

Our survey found that 41 percent of consumers see the LBS social connection as most important, and another 21 percent especially prize the recommendations that those connections provide.

The ability of LBS users to obtain and act on these recommendations is what we call "guided exploration," and it's where the rubber meets the road for retailers hoping to benefit from this new form of connectivity. Retailers that deliver awesome customer experiences will find their brands buzzed about on LBS networks. The impact of that buzz will be even greater because it will reach consumers actively looking for new experiences.

I'm not suggesting that retailers that excel at the customer experience can blithely ignore LBS marketing, secure in the assurance that their happy customers will evangelize them to their friends and family to the fullest. Rather, I'm suggesting that the two need to go hand-in-hand. Our study found a very high correlation between LBS usage and frequent social network updates: 61 percent of LBS users are daily social networkers, as opposed to only 39 percent of nonusers.

This means that your brand's most active Facebook fans and Twitter followers are also the customers most likely to talk about your brand via LBS. Your best bet is to engage these customers throughout the development and roll out of your LBS program, letting them help shape your Foursquare Specials, for instance, or inviting them to contribute reviews to your Google Places entry.

It's no exaggeration to say that the LBS space is evolving daily, with the best opportunities for retailers yet to be uncovered.

But in addition to the recommendations contained in our full report, the best advice I can offer retailers today is the following: Keep an eye on the space, ensure your location listings on LBS networks are current and accurate, and stay close to your best customers as you venture into unfamiliar terrain.

And, of course, keep being awesome; the indelible impact of positive word-of-mouth is worth its weight in check-ins.

Eric Anderson is a partner and vice president of marketing for White Horse, an interactive web agency. Reach Eric at eanderson@whitehorse.com.