Fad or forever: Geo-fencing to target customers

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

Retail analyst Michael Baker asks if mobile marketing can pull customers into bricks-and-mortar stores.

The new technologies of ‘geo-fencing’ are an enticing prospect for retailers and shopping centre owners rattled by the growth of e-commerce. 

Geo-fencing is mobile marketing that involves setting up a virtual zone around a physical store. When they enter the zone, customers who have opted into the retailer’s geo-fencing program can receive text notifications on their mobile phone or tablet that contain special offers, coupons and other information. It’s a form of one-to-one marketing that has hummed quietly for a decade or more, but become a lot more sexy now smartphones are ubiquitous.

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Geo-fencing at work

Geo-fencing can either work off a customised app created by the retailer based on GPS technology, or simply key off the location signal of a customer’s smartphone within a mobile network.

US-based Placecast has carried out geo-fencing campaigns for more than 130 retail brands on four continents over the past seven years, and plans to enter the Australian market this year. Its technology uses mobile networks so retailers can send ‘ShopAlerts’ to consumers’ phones when they arrive in the geo-fenced area.

One of Placecast’s clients is upscale cosmetics brand Kiehl’s, which had its 45-strong US store fleet geo-fenced. Placecast claims its research found 73 per cent of those who signed up for the program actually made purchases after receiving text message alerts.

Location based promotion

Placecast CEO Alistair Goodman says the upfront costs to the retailer for a geo-fencing campaign are small. “There is no capex required, no hardware to install or gear to purchase. We have retailers that begin to work with us for as little as US$10,000.”

This low capital cost and modest ongoing expense make geo-fencing a realistic possibility even for small retailers. The retailer can sign people up for its geo-fencing program using social media, email and some conspicuous signage within the store itself. Small retailers in shopping centres can also benefit from a geo-fencing program for the centre itself or even nearby retailers. Anything that drives foot traffic to the area near your store could have positive spillover effects for you.

The SMS alerts in geo-fencing programs can be customised to some extent, using the information consumers are invited to provide about themselves and their specific preferences at the time they opt into the program. The same goes for another location-based technology called Shopkick. In this case a customer who has downloaded the Shopkick app and opted into the program is detected by a sensor when entering the geo-fenced zone. The customer is then sent special offers and rewards for entering the store. Shopkick has been rolled out by a number of large US retail chains, including Macy’s and Target, and shopping centre operators are experimenting with it, too.

Again, small retailers are not barred from this kind of technology because of the low capital investment. Doug Galen, Shopkick’s chief revenue officer, explains: “All the retailer has to do is plug in a small device that costs $100. The device doesn’t require internet, WiFi or maintenance. Just plug it in and that’s it.”

How to find the sweet spot

But the big question is not “Will it work for customers who sign up?” but rather “How many shoppers are willing to relinquish more of their privacy to make it worthwhile for retailers?”

In countries like the US, the willingness of consumers to ‘let it all hang out’ has traditionally been greater than in countries like Australia. Research suggests, though, that the generational differences in attitudes toward privacy may be greater than cross-country differences. A recent survey of 2307 consumers by Placecast found that resistance to the use of personal data by marketers is significantly lower among people in younger age groups. 

In the specific case of merchants using shopper location information to send marketing offers, 51 per cent of 18–34 year olds were “somewhat/very comfortable” compared with only 27 per cent of those in the 55+ age group. 

Another challenge for geo-fencing is finding that sweet spot for customers who have opted into a program, to ensure they don’t get annoyed by receiving too many promotional messages. In the Kiehl’s example, customers received an average of three messages per month. 

Like Baby Bear’s porridge, what is going to be just right? Retailers will need to figure that one out quickly, or geo-fencing will end up being a fad rather than forever.

Verdict

Retailers and shopping centre operators are seeking every opportunity to get customers coming into their stores rather than browsing and shopping online. Geo-fencing is an exceptional opportunity to make physical retail environments more productive and I give it a tick. Company size doesn’t matter.

For small retailers it offers a realistic opportunity to use a powerful marketing technology at a cost they can live with.  However, I caution that its long-term success will hinge on consumer attitudes to privacy and if the number of promotional messages can be calibrated for minimum annoyance and maximum return.

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