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The rise of location-based personalized shopping

September 20, 2010

wilson-kerrBy Wilson Kerr

What if you owned a small restaurant and I could generate $160,000 for you with just two location-based mobile campaigns that were marketed only to opt-in consumers and redeemable only if those same consumers actually came into your restaurant?

What if this could be done – in just two days?

If this sounds far-fetched or unrealistic, you are not up on the latest craze to sweep the mobile space.

Personalized shopping, based on location, is the hottest thing going and, in my opinion, is poised to finally unlock the full potential of mobile marketing.

Personalized shopping takes off
The promise of mobile location-based advertising and marketing has been painfully slow to materialize.

Perhaps wisely, most businesses and brands have favored cautious observation over wild abandon.

Recently, this has changed, as large national brands and local businesses alike are racing to partner with upstart personalized shopping platforms and reaping impressive performance metrics as a result.

The basic premise is fairly simple: limited-time local deals, delivered by mobile application and email to an opt-in audience of subscribers, via a prepaid discounted voucher for goods or services.

The deals are promoted virally via social networks such as Facebook and Twitter and the cornerstone of the model is proven, performance-based upfront revenue for the participating merchant or brand.

Three reasons driving adoption
Why this sudden movement, if the deals-near-me premise is so simple?

A shift in consumer behavior that has fueled the rise of personalized shopping is that consumers will share their location with a platform and others in their social network if there is a tangible upside.

Once they are rewarded and the mobile redemption element works smoothly, these consumers come back for more.

Another key factor is that local, regional and national businesses already know this model.

Gift certificates, coupons, loyalty cards, local specials and limited-time offers are not new tactics for driving sales.

The value proposition of the personalized shopping platform has a performance-driven why-not factor at its core.

Getting business owners to understand the value of a check-in or a digital icon reward badge is no easy task.

Asking these business owners if they want to drive customers through the door with a no-risk special offer they only pay for if the campaign is a success is apparently much easier.

Another reason is perhaps as simple as the increase in the sale of the connected smartphones needed to run these mobile personalized shopping applications.

According to comScore, more than 45.5 million consumers nationwide owned smartphones (19 percent) in 2010, the fastest growing segment of a mobile phone market of 234 million subscribers, per Wikipedia.

According to an Aug. 12 Gartner report, mobile device sales were up 13.8 percent in the second quarter, while prices fell. Of this total, smartphone sales were up a whopping 50.5 percent from the same period last year.

Nailing model with metrics and money
Foursquare and Gowalla have proved that location sharing can be popular and fun, but a missing element has been the tangible reward for the effort.

Unless you love collecting digital icons or mayorships – and some do – there is little reason to play, especially since Facebook now offers the same thing.

While mobile media darling Foursquare has recently been scrambling to backfill real-life product specials into their growing game platform, a new breed of slick, powerful startups have snuck in the side door and seem to have nailed the model.

These companies are proving that consumers are willing to act on a mobile campaign and buy something fast when savings are offered at a nearby business.

And these actions are translating into some startling revenue numbers for businesses signing on with the two clear leaders in this space, Groupon and Living Social.

As its name implies, Groupon requires a minimum tipping point of people to commit before the deal activates, while Living Social does not.

Both are hiring local sales forces nationwide and have been given significant venture capital infusions to seize the high ground as fast as possible. These are simple, powerful models that work.

Check-in fatigue
Gowalla, Foursquare and other check-in platforms have paved the way, but should consider that advertisers will demand accurate metrics regarding brand or location interaction within a retail environment and that is linked to a front-side payment element and empirical upside in the form of cold hard cash.

While showing that they were there is great, knowing what these consumers bought is far-better.

With Facebook now in the location-sharing-check-in mix as well, there could well be a nationwide case of check-in fatigue brewing. This, I predict, will serve the personalized shopping companies well.

Is a nationwide case of checkin fatigue looming?

Incremental foot traffic and front-side revenue
These platforms have finally delivered on the promise of a performance-based mobile call to action linked to proven, tracked-in-the-door foot traffic and, more importantly, converted front-side sales revenue.

This revenue is generated and measured before the consumer even visits the store via numbered vouchers redeemable instantly through a smartphone.

Mobile coupons are not new, but the notion of prepaying for a voucher versus receiving a coupon for a purchase not yet made has changed the game.

When combined with a secure, functional backside dashboard so that the retailer or brand or its ad agency can track upside/ROI and other metrics has opened the floodgates.

A deal for me
I signed up for Living Social Boston and recently got an offer via its iPhone application.

For $25, I could buy a $50 voucher for a small local restaurant – The Fireplace, in Brookline, MA – three blocks from my house.

I bought the deal, along with 925 people, generating approximately $23,000 in tracked, gross revenue tied to a single, specific marketing campaign for the restaurant. Wow.

What traditional ad or coupon or campaign offers this sort of tracked response and capital boost for the business?

The real shocker came the following day when I saw that competitor Groupon was offering an even better deal from The Fireplace – $20 for a $50 voucher.

I checked the final deal numbers and thought I was misreading something.

To get to the bottom of things, I walked down the street and spoke to owner/chef Jim Solomon. The Fireplace, by the way, is a small, single-door “New England grill and barbeque” located on Beacon Street in Brookline, not far from Boston.

Fireside chat
Fireplace owner Mr. Solomon described the response to the Groupon campaign by saying, “It was staggering. We have been overrun with business.”

According to Mr. Solomon – this is also published on Groupon’s site – 6,700 people bought the Groupon voucher – in one day. By my math, this equates to $134,000 in gross revenue.

Combined with the Living Social deal, that is in the ballpark of $160,000, in two days.

While Mr. Solomon did not share his net, I found these rough numbers staggering. Mr. Solomon agreed. “It’s sick” were his exact words.

The Fireplace owner went on to tell me that he ran these campaigns during the slow summer as a way to increase cash flow and smooth out his annual August slow time when he sometimes closes to refinish the floors and do maintenance.

Mr. Solomon did not promote the offers via his own email list or social media accounts since he wanted to gauge the campaigns free of outside influence. Smart.

Asked if he would do it again, he said yes, but not until next summer, when things slowed down again.

Mr. Solomon’s answer showed that he recognized the fact that the lift in business also has a cost – namely the discount that The Fireplace gives on the voucher, plus the fees paid to the service provider.

While it cannot be proven that 100 percent of the business he drove in the door was incremental, Mr. Solomon’s sense was that most was. He also noted that his staff was very supportive since tips are not included in the voucher’s value.

Mr. Solomon also seemed very pleased to be so busy in a traditionally slow time, even as the fish vendor waited for him to finish with me and customers poured in.

The restaurateur attributed this directly to the two campaigns and cautioned that businesses participating have to be prepared to handle the sudden rush and be organized so that each voucher is checked off in the dashboard as it is redeemed.

Bridging gap between physical and virtual worlds
Platforms and applications that track in-store metrics showing both foot traffic and sales conversion – redemptions – fueled by personalized mobile location-based special offers bridge the gap between the virtual world and the physical world.

These platforms, with mobile proof of presence as a foundation, are just getting started.

If, for example, Groupon can sell 6,700 visits to The Fireplace in a day, what else can it do?

As the metrics build, so will the customization options for subscribers and this should further increase effectiveness and open up new areas of focus.

Magazine subscriptions, classes, vacations, airline tickets, hotel rooms and just about any other thing that is discounted to drive lift can be sold this way. And they can layer.

Not long after the Fireplace deal, on Aug. 19, Groupon offered its first national campaign with apparel retailer Gap. The consumer response crashed its servers – literally.

At one point, Groupon was selling 10 Gap vouchers per second.

How did Gap benefit from selling $22 million worth of vouchers for $11million in a day?

All the reasons you would expect and maybe one you would not.

Expected would be: increased/incremental in-store foot traffic, brand exposure, new customers and the front-side capital infusion I have discussed.

The unexpected benefit is that the average consumer spends about 40 percent more when he or she is are armed with a prepaid voucher than without.

Chicago-based Groupon, by the way, is not even two years old and is valued at $1.2 billion (yes, billion). I can see why.

Mobile proof of presence
In April I wrote a post about the significance of validated mobile proof of presence and asserted that accurate location validation linked to special offers, and not mobile ads for brands, would be the key to unlocking the full potential of mobile. And it is happening.

The power of Groupon and Living Social is that they do not need to solve the problem of accurate check-ins. With them it is a requirement to visit the business to redeem the voucher, since the offer is on the services or products sold within.

The mobile location-based services (LBS) world was recently rocked by news that a new mobile proof of presence point-collecting application called Shopkick was attracting what Mashable called “an obscene amount of investor attention.”

Shopkick is using sound machines versus inaccurate GPS to track consumers inside large retailers and reward them for verified brand interaction via virtual “kickbuck” points that add up.

According to a recent Techcrunch article, Shopkick co-founder Cyriac Roeding said, “This is all about foot-traffic. So far, no one has nailed a way to entice people to actually come to the store that makes sense to the retailer.”

Hmm. Perhaps Mr. Roeding should sign up for Groupon or give Jim Solomon of The Fireplace a call.

Off the sidelines and into the game
Brands and retailers alike are finally stepping off the sidelines and onto the field, since they can finally start tracking ROI and link incremental sales lift to campaigns.

This they can do while providing a positive consumer interaction via significant savings as they recoup the discounts via new customer acquisition.

With Groupon, Living Social and others, the era of personalized shopping is upon us and mobile marketing, at long last, might be finally start living up to its potential.

I wanted to ask The Fireplace’s Mr. Solomon about his thoughts on mobile marketing, in general. But while we were talking, the hostess in front became overwhelmed and he had to go help her fill the last few seats in the place. The fish vendor was still waiting.

Wilson Kerr is a Brookline, MA-based location-based services consultant focused on mobile power of presence. Reach him at

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