Geofencing enables retailers to recognize customers when they are within a predetermined radius around a specific location and send them messages and special offers designed to encourage them to walk into the store and make a purchase. A couple of the programs already in place are opt-in, so merchants know they are delivering offers to consumers who have expressed an interest in receiving them.

“Overall, geofencing technology offers a great deal of opportunity to retailers – primarily, reaching consumers as they are out and about, often when they are already shopping and in the mindset to make a purchase,” said Alistair Goodman, CEO of Placecast, San Francisco. “But campaigns that are based on geofencing alone are not as successful as campaigns that combine geofencing with other factors — such as time of day and consumer interests.

“This means that retailers must enable consumers to share their preferences in order to send the most tailored, relevant messages possible,” he said. “Opt-in programs that put the consumer in control of their experience have proven much more successful than other types of mobile marketing such as banner ads, etc.”

A big opportunity
Placecast’s ShopAlerts geofencing service for retailers has been used by White House Black Market, The North Face, Starbucks, L’Oreal and Kmart. Some of these brands are not simply putting geofences around stores, but around locations that they know their customers are likely to visit, such as parks.

Placecast reports it has also seen wide adoption of geofencing by retailers in Britain through its partnership with wireless carrier O2.

Additionally shopping center operator DDR Corp. is working with Placecast to enable shoppers to opt-in to receive offers via text message from the retailers in a specific shopping center.

Geofencing has also come to college campuses with bookstores on over 130 campuses giving brands such as General Motors a way to connect with students by sending them offers when they are close by a store. The bookstores are using TOUCHPOINT’s proprietary technology for the effort.

While more retailers are expected to adopt geofencing strategies this year, these are likely to be smaller tests.

However, the use of geofencing technology will continue to become more widespread over the next couple of years as smarpthone penetration continues to grow, location-based ad targeting gets more sophisticated and consumers become more aware of geotargeted advertising.

“The opportunity is pretty big,” said Nikki Baird, managing partner at RSR Research, Miami. “Retailers have long been trying to identify and communicate with customers as they walk in the door of the store, and geofencing offers a very interesting ways of making that possible.”

The benefit to retailers is the ability to reach new customers who are walking by their store with an offer that could incentivize them to come inside and make an immediate purchase.

Privacy concerns
Despite its opportunities, geofencing also presents retailers with several challenges, including that consumers are not that familiar with the technology and could feel that their privacy has been violated if offers suddenly begin appearing on their phone from a brand

“A significant challenge in geofencing exists due to the perceived Big Brother feeling,” said Barry Van Scoten, CEO of TOUCHPOINT, Lititz, PA. “The general public does not view the tracking of their handheld via GPS as necessarily a good thing.

“Unfortunately for those retailers contracting with firms to use geotracking technology, the consumer may not separate the company that communicates the retailer’s message from the retailer itself,” he said. “This has the potential of giving the consumer the perception, right or wrong, that this retailer is following/tracking them, even into their homes.”

Relevant messaging
Another challenge presented by geofencing is that most retailers do not yet have a well-developed mobile database of customers who have opted-in to receive communications from them.

Retailers that really put the time and research into developing mobile databases and the ability to deliver relevant offers will see better results than retailers who simply put geofences around stores and wait for consumers to come by.

“It’s much more effective to send an offer to someone whose interests are similar to what the retailer has to offer, while keeping a consumer’s age in mind – for example, sending a message about a sale on vacuum cleaners to an 18 year old may not prove as effective as targeting people over 25,” Placecast’s Mr. Goodman said.

“This is what retailers are learning — the value of getting to know the customer, educating the customer on how geofencing works, and putting time into the overall strategy of a program,” he said.

Another challenge retailers face with geofencing technology is that it requires more than a mass campaign.

Retailers need to be able to deliver offers for a specific location and many are not organized to enable this.

“I think retailers need to work through how to support it from a marketing process perspective – how to support enabling that local market touch without having to potentially hire a marketing person for every store – before we’ll see widespread adoption,” RSR Research’s Ms. Baird said.