What is location-based marketing?

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Origins of location-based marketing

The earliest online LBM services targeted the static IP addresses of customers’ computers (the unique numerical ID of a device). Since most of these computers stayed in one place, businesses could create digital ads for nearby customers, and for the first time, know if someone interacted with an ad, using clicks as a metric.  

However, it was still a challenge to know if someone physically visited a business after being exposed to an ad. And since the early desktops were usually shared by multiple people, targeting or identifying specific customers was impossible. 

This all changed rapidly once smartphones became available. The smartphone era really kicked off in 2007 when Apple launched the first iPhone. According to the Pew Research Center, by 2013, over half of the adults in the U.S. owned a smartphone. In 2018, that number jumped to 77%. As apps and other technologies used to track real-time travel behavior and location have become accessible, digital marketing has become more precise. 

Geo-targeting

Geo-targeting (geotargeting) is a type of location-based marketing. Ad servers look at a device’s IP address to figure out user ‎locations. The most effective data (for mobile devices) is usually provided through GPS satellites. ‎IP addresses for static devices aren’t as precise, making geo-targeting that uses them more effective for targeting larger regions, like a city or county, rather than specific, smaller areas. 

Geo-targeting doesn’t have to rely on a consumer’s real-time location. Instead, a potential customer’s historical locations and visit history can be used to deliver a relevant message.  Locations or businesses a customer has visited recently can be a strong predictor of interests and intent to visit. Combined with location data, these ads are much more precise than old media like billboards and coupons.

For example, a new upscale mall opening in a large city could target IP addresses within nearby area codes to announce its grand opening. The ad could be served to people in the area near the mall who have also visited brands with locations in the new mall. For a physical location, this is better because people targeted by brand interest alone might live too far from the mall to shop there.

Geo-fencing

Geo-fencing (geofencing) is a feature in a software program that uses the GPS, radio frequency identification (RFID), WiFi or cellular data to define specific geographical boundaries, or build a ‘fence’. It can be used to deliver a message or ad to someone when they’re in a specific area.

A geo-fence can be as wide as a city, but it’s more effective when applied to a specific neighborhood or street. Businesses can create extremely relevant and targeted messages for customers at a particular location and take advantage of the fact that customers are more likely to buy from the area they reside in or can walk to. 

A major difference between this and geo-targeting is that the customer is on the move. Cafes, like Starbucks, use geo-fencing very effectively. When a potential customer gets near a location, they can be served an offer or product info. 

Beacons

A beacon is a physical device that receives location data from nearby devices via Bluetooth. Because it’s Bluetooth-based, beacons can be used in places where cell reception is bad, like the interior of a large store. Beacons can also locate a device much more precisely than GPS, so it can be useful inside a business. 

Once installed, beacons send out signals to mobile devices within a range of a few meters to target messages to near-by devices. The device owners typically opt in by installing an app that grants the beacon permission to ping the phone. Generally, the app provides value for the customer. For example, Levi’s Stadium in San Francisco installed 1,000 beacons that help ticket-holders find their seats and have food and drinks delivered to them. 

Beacons allow businesses to do things like customer mapping, location targeting, visit tracking, and cross-selling of related products. They can also be used to guide customers around big shopping centers while delivering promotional messages and offers. 

Because location-based marketing helps reach customers in real-time, it can assist brand experiences and boost impulse purchasing. Beacons can also provide insight into customer behavior. In the large store example above, if there is an area of the store that is showing heavy traffic, the business can use that insight for things like planning merchandising.