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How to Use Geofencing Correctly

Wednesday, May 1st 2013
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Summary:

The term “geofencing” is popping up all over discussions of location-based services, with a special focus on its use in retailing. Why are geofences “hot” and how can retailers interested in leveraging geospatial technology and data best use the invisible boundaries?Directions Magazine posed those questions to Rip Gerber, CEO of Locaid, a location-as-a-service company.

Directions Magazine (DM): Let’s start with this quote from Locaid: “When geofencing is understood and used correctly it can double the ROI on your marketing campaigns, increase the loyalty of your customers, and reduce operational expenses.” What is geofencing? Is the concept new or just getting a rebirth with today’s enhanced location determination and mobile marketing tools? 

Rip Gerber (RG): A geofence is a layer of intelligence that allows you to make decisions or take some action based on a geographical area. It is not a physical boundary. It is not a new concept, but as our society becomes increasingly mobile (it's being reported that by the end of the year, the number of mobile-connected devices will exceed the world's population), developers and enterprises are realizing the added value that geofencing can bring to their businesses in terms of increasing ROI on marketing campaigns, driving traffic and therefore sales.  Mobile marketing allows a customer’s location to be a data point in determining which promotion to send and when. This allows for ads to be tailored to a customer’s real-time location, increasing open rates and redemption rates.
The advent of network-based location allows wider adoption of geofencing because an on-device application and the costs associated with creating and maintaining an app are not necessary. Brands can simply obtain consent as part of a normal SMS campaign and then use geofencing to push location-relevant notifications and messages simply through integrating a simple set of APIs from Locaid.
DM: Can you explain more about “using geofencing correctly”? Can you provide of examples of correct versus incorrect use?
RG: Correct use is smart use. There is the perception that as a customer crosses a geofence they are automatically sent a notification. In practice, to make that happen, the marketer or brand would need to be constantly accessing GPS data or pinging the customer’s device to get the network-based location [Wikipedia explanation]. This is costly, time-consuming and, if pulling GPS data through an app, a sure fire way to rapidly drain your customer’s battery. We would class that as incorrect use. The “correct” way to use a geofence is to use it as an additional data point for your customers in order to send locally-targeted, relevant content at times that most benefit your business.
DM: On what campaigns has Locaid documented doubling the ROI? The ROI was doubled compared to what?
RG: Due to the nature of our customers’ businesses we cannot divulge this information. The only specific ROI figures we can talk about are the Alliance Data ones. Partnering with Locaid, Alliance Data implemented an opt-in geofence pilot program for cardholders of select branded credit programs, which ran from Black Friday to New Year’s Eve in 2012.  
 
The geofence was created around a mall in Eaton, Ohio and was designed to trigger an SMS text message to participants who had opted in to the campaign, when they were within a predetermined proximity of the mall. Initial findings revealed that participating card holders spent an average of 24% more in a shopping trip triggered by a text message than the average card holder. (See Figure 1) Credit card sales were up 2.5% over the projected sales for the pilot period and up 4.9% over projected sales for Black Friday alone. 
 
Without giving ROI figures, another case study is The North Face’s “Shop Alerts” campaign run by Placecast, which gets its location data from Locaid. (New York Times coverage)
Figure 1. Alliance Data and Locaid geofence pilot campaign results
 
DM: How does the use of geofences increase loyalty?
RG: By making marketing messages relevant. Location-based advertising lifts response rates with relevancy. That’s why the mobile ad networks are boasting 5x lifts in CPMs when a lat/long turns a campaign into high click-through rates. Taken from the “Location Based Advertising and Marketing” 2013 Berg Report: “Geo-targeting improves the relevance of mobile ads delivered to consumers. LBA ensures that the marketing messages are delivered to the right persons which are most likely to take action, leading to above-average conversion rates and results. Numerous providers have reported severalfold increases in eCPMs when adding location targeting, as well as impressive increases in CTRs and post-click engagement. LBA furthermore enables the analysis of actual purchases following campaigns, especially when including coupons and other marketing components. In a time when the CPM levels for mobile advertising have been lowered by the massive inflow of new inventory, sophisticated LBA still maintains its premium.”
DM: How are the implementations of geofences with Locaid’s technology any different than with other locating solutions?
RG: Locaid strongly advocates using network-based data for geofencing campaigns rather than relying only on an app. This makes campaigns wider reaching – network-based geofencing can reach all mobile devices connected to a network, whereas app-based only works on that smartphone, AND we are more cost effective – no upfront and/or app maintenance cost. (See Figure 2)
Figure 2: Comparison of app-based and network-based geofencing

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