Location-Based Advertising And The Consumer: What Works, What Doesn’t

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Why does location-based advertising sometimes work and sometimes not?

So, what’s this location-based advertising thing, and why is it (going to be) so important for the future of retail and mobile transactions?

Well, if you’re an advertiser or somebody whose job it is to get products and brands in the face of consumers, then location-based advertising literally is the next big thing in mobile retail transactions.

There’s a reason, after all, why 66 percent of marketers listed location-based advertising as the “most exciting” mobile opportunity of 2016, according to a study at the beginning of the year by IAB UK.

Location-based advertising blends mobile advertising and location-based services available through your smartphone — and, nowadays, who of us doesn’t have their smartphone with them practically at all times — to “pinpoint” a potential customer’s location through their smartphone, which then allows advertisers to bombard them with location-specific advertisements on their phones while they are in the area where those ads would be most useful and convenient to them.

Or to put things more succinctly, location-based advertising is the reason why you’ll get an ad or push notification from Starbucks offering you a deal on your favorite latte when you are in the vicinity of a nearby Starbucks (the company literally did this with customers on its mobile app toward the end of 2014 as a way to experiment with then-nascent location-based advertising).

Location-based advertising also allows brands and retailers to tap into the lucrative number of consumers who use their smartphones to help or influence purchases while in brick-and-mortar stores, which accounted for $970 billion, or 28 percent, of total sales in 2014, according to Deloitte data.

And consumers who use smartphones during their brick-and-mortar shopping experience also tended to be consumers who were more willing to spend, on average, spending 25 to 50 percent more at stores than customers who didn’t use their smartphones during the transactions.

And because location-based advertising is a relatively new playing field for advertisers, it’s also a rapidly growing one. BIA/Kelsey believes that 38 percent of all mobile ad spending will be focused on location-based targeting and advertising by the end of 2016.

“The key takeaway is that people are using their smartphones while they are shopping in brick-and-mortar stores, which reinforces the importance of location when it comes to mobile advertising,” according to a report by 4INFO that sets out to try and identify some of the adherent pitfalls in the still-burgeoning location-based ad biz. “And it’s clear they don’t mind that brands know where they are, since two-thirds of consumers have said they are willing to share device location … the data clearly shows that consumers are using their devices in-store and are willingly sharing locations with brands.”

So then, how can brands, retailers and advertisers capitalize on all this new data consumers are “willingly” making available to them?

4INFO believes that advertisers and retailers shouldn’t necessarily take location data as foolproof or entirely without its flaws and that another layer of critical thinking is necessary to truly exploit the tech to its full potential.

“Knowing where people are or where they go doesn’t necessarily tell you who they are and what they buy,” 4INFO noted in its study on the subject.

4INFO identified two major problems right off the bat that brands and retailers will have to contend with if they want to become successful with location-based advertising.

First, even though you might be able to figure out where the smartphone is at that moment and can probably piece together the device’s search and purchase history, you really have no way of knowing for sure whom the device actually belongs to.

For example, some of the companies that specialize in location-based advertising can “identify” a person as a “traveler” based on their tendency to consistently be in locations other than their “home market,” such as at an airport or a hotel.

But the problem with using location-based advertising merely to blanket guests in a hotel or passengers in an airport is that all you know is that the potential consumer is on the road a lot, for whatever reason, but you don’t know if they are a 25-year-old single guy, a 30-year-old mom with kids or a man or woman in their 50s with adult or college-aged children.

And you can bet that all three of these groups are going to have different purchasing habits and be interested in buying different products.

The second big problem with location-based advertising, according to 4INFO, is that the new technology still has a basic location accuracy problem.

“These proximity targeting platforms often overlay demographic or purchase data onto the audience because they don’t otherwise know who owns the device,” according to 4INFO. “So, location targeting involves guesswork and assumptions and doesn’t tie a specific mobile device to a specific individual.”

As exciting — and potentially lucrative — as location-based advertising is for brands and retailers, the technology is still far from perfect (or even widely understood) and can definitely benefit from advertisers and retailers who think critically about the process and are willing to experiment.