Location-based marketing: What are the chief challenges?

16th Jun 2016
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While to some degree, the online world allows brands to build an understanding of their customers, their nuances, their behaviours and their preferences, the physical world provides a different challenge.

“Companies by and large know almost nothing about their customers,” Forrester’s principal analyst, Tony Costa, told MyCustomer in 2014.

“They know how many people came in through the door, and they know what happens at the cash register; but between those two points businesses are flying blind. There are assumptions and anecdotes but there isn’t the visibility into what happens in those environments. Behaviour isn’t being tracked. There’s no on-going, deep understanding of what’s happening.”

Yet, as smartphone proliferation increases, the gap between the on- and offline world narrows. Being able to establish a customer’s location through GPS, Wi-Fi, beacons and other mobile technology opens up new realms of behavioural understanding for marketers. The problem is – consumers aren’t easily evangelised. And convincing them of location marketing’s raison d'être poses a number of questions.

How do we make location relevant?

At present, around 40% of app users hesitate or don’t share location with apps, according to a 2015 survey of 1,000 smartphone app users from Skyhook Wireless.

One of the greatest challenges for brands is establishing why using a consumer’s location might be relevant to both parties involved.

Yet, for the consumer, a major concern around location tracking is the sheer glut of apps and adverts vying for their attention. At present, 20% of people switch location services off in an effort to avoid advertising all together.

Marketers are being encouraged to establish the value exchange in any location request. For apps such as the Strava running app or weather forecasters such as Dark Sky, this exchange is easily established. But for those looking to location for advertising, an understanding of what represents a motivation to share is a must.    

“Without the longitude and latitude coordinates that geolocation provides, location data is sometimes inaccurate and the 40% of users who turn off their geolocation data can be targeted only through log-in data. Marketers need to help users understand the incentives for them to accept geolocation,” says Christophe Collet, Founder & CEO of mobile adtech firm, S4M

“They can do so by offering special services tailored to location, or special location-based offers to incentivise users towards turning on geolocation on their mobile devices.”

In this respect, apps such as GasBuddy in the US and Canada –  which helps users track down the cheapest nearby petrol station based on their location – stands tall as a great example of innovation in this space. As many of the prices are based on user reports, GasBuddy rewards users with points for reporting and updating a station's prices and in turn makes them eligible for regular offers and discounts. It’s a value exchange that arguably works for both parties.  


Am I adhering to privacy concerns?

Skyhook’s survey found that 83% of app users understand location can be or is “vital” to selected app experiences, yet half of the 40% of smartphone users currently turning their location settings off specified that concerns around privacy were their chief reason for doing so.  

And at present, their fears are justified.  A recent experiment at Carnegie Mellon University found that, with some smartphone users, their location was being shared over 5,000 times in the space of two weeks without them actually knowing. Major brands, such as Nordstrom in the US or Mothercare in the UK, have previously been cited for running location tracking trials without any proper intent to inform customers of the activity. Many retailers now offer free wi-fi in-store as an incentive, but don’t always explain how data from the offer is being used.  

Much like with establishing relevance, brands are being encouraged to highlight exactly how location tracking is beneficial to customers, and crucially, make their communications around why and how data is being used much clearer.

While still eminently controversial, an example of this in action might be the Placed Panel App, which offers prizes to consumers in exchange for perminently tracking customer location and selling the data to third-party providers. Placed’s communication of how it uses consumer data is positioned within its opening promotional bulletpoints, and explains what the application’s core purpose is right from the start.


It’s something Tony Costa says more brands need to adhere to, as a minimum:

"If someone is being tracked in a retail store, at the moment most people don’t understand what the value exchange is and what they get out of it beyond an invasion of privacy.

“Privacy isn’t a 'yes' or 'no' issue, it’s really a gradation of what’s being given up and what is given in return. If all that’s given back is a bunch of adverts, that’s a hard sell. But if I get a store that’s more efficient and better adapted to my likes and needs and wants, and provides a better environment, perhaps there’s more justification. It’s about industry communicating that value in an explicit manner; what exactly is being collected, what it’s being used for. It’s a Pandora’s box. The education process needs to happen and people need to start seeing the benefits.”

How do I ensure data is accurate? 

As is the case for any data-driven exercise, inaccurate data is plaguing the marketer’s capacity to enrich experiences using location, and in many cases, raising some of the aforementioned questions around privacy.

This is especially prevalent for advertising, which is not always reliant on real-time tracking from smartphone signals. According to data from xAd and Foursquare, up to 60% of ad requests contain some form of location data. Yet of these requests, less than half are accurate within 50-100 meters of the stated location.

“The biggest challenge for effective location-based marketing is aquiring accurate location data and matching users across multiple data sources,” says Ken Parnham, general manager for Europe at Near.  “Especially when you consider that data can be anonymised or obfuscated, partitioned in space and time, and highly sparse or noisy. 

“Brands must fully understand what data sources their chosen location provider has access to and how they ensure incoming data is cleaned for errors. At an industry level, overcoming the challenges of location-based marketing also relies on greater standardisation to keep data reliable and accommodate the ever increasing number of data providers in the ecosystem.

According to the Mobile Marketing Association (MMA), some of the main issues encountered in this process include:

• Lack of accuracy standards and market education (a lack of education in the market on how certain data should be pulled and importance of including certain data elements, or no requirements around what fields are mandatory)
• Inaccurate interpretations (i.e. location data is translated into a GPS coordinate that is not representative or has been extrapolated from a variety of sources)
• Freshness of data (publisher may leverage location data from other apps or data pulled in the past)
• Urban density (location signals and precision of data can be skewed in dense urban environments such as multi-story buildings)
• Speed: (Whether the device is static or moving, and if it’s moving, how fast is it travelling?)

The complexity of getting location accuracy is enough to put marketers off, but the MMA suggests there are two methods for limiting potential inaccuracies:

Use pattern recognition technologies: “In this way, brands are able to target end users based on their proximity to points of interest such as their own retail outlets, or even competitors’ stores, and can adapt their ads to reflect different messaging at different locations,” says the MMA report, ‘Demystifying Location Data Accuracy’.  

Analyse historical location data: “In addition to applying big data methodologies to filter out inaccurate locations, and by analyzing historical location data as well as first and third party data sets, advertisers can further refine the information about a given device to provide useful insights and determine patterns or place usage. This data helps to build a picture of how any given location is used in real life (e.g. whether a place is residential or commercial) and provides an opportunity to target audiences based on their context and not just their physical location,” the MMA report adds.  

Getting investment

And it’s not just marketers being put off by the complications surrounding location-based marketing. Their boards are apprehensive too.

“The problem is that IT budgets haven’t gone up enough to manage wireless infrastructure for both corporate and customer use,” says Mark Thomson, retail industry director EMEA for Zebra Technologies. “Therefore, technologies such as beaconing and locationing for marketing are further down the line when it comes to tech investment priorities. They are also harder to implement. You can’t just implement these solutions and let them work their magic, you need the marketing implements and expertise to make sense of that tech.

“Some exec teams look at the evolving omnichannel situation and say only about 10-15% of my customers would do this, so I won’t invest,” “But it’s OK if it’s just 10-15%. It’s a matter of reaching the right customers with the right messaging. The Pareto principle doesn’t apply in a case like this. It’s about creating a personalised approach so that you maximise their experience and your reward.”

In Adobe’s February 2015 Digital Trends report, just 8% of retailers were using location-based technologies, compared with 23% of telecoms providers, 18% of financial services, 18% of consumer goods suppliers and 10% of travel and hospitality providers.

But with any new technology, Thomson adds that if the use case and value exchange has been identified and the demand is apparent, it’s up to the marketers in an organisation to win an executive board over:

“These days, we’re all becoming a lot more connected. Whether it’s customers, staff, the store itself or physical products on the shelf, the Internet of Things is connecting us all and is the driving force behind the smart store. By 2020 it’s estimated that we’ll see somewhere in the range of 20–30 billion connected devices across the globe. Many marketers may be thinking this is a long way off, but, the way I see it, location and beacon solutions will lay the groundwork for the connected store. Those that ignore this will miss out.

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