Geofencing Still Slow to Catch on with SMBs

xAd | 08/07/2013

As technological advancements improve the effectiveness of geofencing, industry insiders say adoption rates still lag, particularly at the SMB level.

Geofencing allows marketers to draw a fixed radius around a certain service area to reach in-market consumers with promotional messages, usually via short message service, or text messaging. So far, the bulk of its users are large retailers, but the field will eventually include more SMBs, experts say.

The revenue potential for this type of location-based mobile marketing is there, experts say, and although a lack of education has impeded more widespread use, the ability for marketers to narrow their message to consumers within a particular geographical area and demographic could change the way advertisers think about reach-based messaging.

“Advertisers doing it now represent the early adopters and are very much not in the definition of what I would consider ‘merchants,’” says Michael Boland, senior analyst and VP of content at BIA/Kelsey.

Currently, large national advertisers, such as a chain store targeting a local audience, employ geofencing technology, Boland says, but not as many small-and-medium sized businesses do.

Of the SMBs that do employ geofencing technology, the ad buy is often part of a digital marketing bundle that includes a mobile location component, according to Monica Ho, xAd’s VP of marketing. Here, merchants are not buying geofencing on its own, but rather leads at a cost-per-click or cost-per-call rate, Ho says.

As with other advertising media, Boland predicts, SMBs with limited time and marketing resources are likely to be late adopters. Boland says more large advertisers must first embrace geofencing, at which point its use will trickle down to smaller shops.

A CEO of a major innovator in the geofencing — and, more broadly, location-based marketing — space agrees and says that shift is underway.

“We have always had a dual focus — about half of our business comes from location-based advertising for national brands and the other half from bringing those same, leading-edge technologies to SMBs,” says Tom MacIsaac, CEO of Verve Mobile, in an email. “The SMB market has huge, untapped potential.”

Geofencing technology is compatible with at least 92% of mobile phones. Released in May, Verve’s “State of the Market: Location-Powered Mobile Advertising” QSR and casual dining report concludes advertisers who employ geofence technology around their locations are 3.9 times more likely to attract in-market consumers to their stores.

The report also finds merchants who geo-conquest — the increasingly popular strategy of drawing virtual fences around a competitor’s location — are 3.1 times more likely to attract those consumers to their brick-and-mortars. Those consumers are also 18% less likely to visit the competitor’s location, the report says.

For geofencing to take off, Boland says, advertisers must reconsider traditional reach-based methods. Whether in TV, print or digital, many ad campaigns are judged on impressions and CPMs, so convincing an advertiser to segment an audience to a limited geographic radius — and then further based on behavior — is no easy task, Boland says.

“Advertisers are really accustomed to thinking about the world in terms of reach [as] kind of their holy grail,” Boland says. “Mobile location targeting, in some ways, goes against that — even though the trade off is a benefit it can offer, it goes against that traditional mindset.”

Instead of buying space on a mobile site, marketers generally pay when a consumer clicks to call, loads a map or literally winds up in the store.

“A lot of retailers still look at geofencing or local targeting and think very small business,” Ho says. “But the fact of the matter is, if you employ targeting like geofencing that takes advantage of people that are not only near you and your competitors, but also allows you to target this specific audience while they’re at other places of interest, this truly becomes national targeting, only more efficient and effective.”

The key hurdle is marketer education, the experts say.

“I don’t think you will see a lot of movement in regards to SMBs’ adoption of techniques like geofencing until they really start to understand the value that can be achieved outside the call with hyperlocally-targeted display ads,” Ho says.

Until late 2011, Ho says xAd initially marketed its locally-targeted ad products — which included its geofencing technology — direct to the SMB, but spent a lot of time teaching value. SMBs, Ho says, mainly valued consumer calls, not those who may have clicked for navigation or just walked right in a location.

XAd has since changed its strategy, partnering with larger media companies, Ho says. xAd provides the platform and technology to complement the media company’s sales team, which generally sells a digital bundle and not isolated items.

The knowledge hurdle aside, Verve and xAd studies report more marketers employing location-targeted campaigns.

In 2011, 17% of Verve’s campaigns used geofencing or geo-aware (in which consumers are sent real-time messages based on their proximity to a certain location) technology, according to the company’s “State of the Market” 2012 review; in 2012, that number jumped to 36%.

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