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Putting Location-Based Ads to Work

Ads targeted to a person’s location are an advertiser’s dream. The reality is more complicated.

The spread of smart phones that track their owners’ precise location seems like a wonderful development for advertisers. These devices could enable completely new kinds of digital marketing that make ads more relevant, meaningful, and effective. At the Location Based Marketing Summit, held last week in New York City, experts discussed the promise–and teething problems–facing this new section of the advertising industry.

Geo fencing:Placecast offers a system that alerts businesses when a potential customer comes within a certain distance.

Search engines already use positioning information from smart phones to deliver search results–and search ads–that are more relevant to a person’s location. And location-based games, such as Foursquare and SCVNGR, which let users “check in” or perform other activities at locations to earn points or rewards, could enable new ways of reaching customers. These companies can make deals with local businesses to show users special offers when they are nearby.

According to a March 2010 survey conducted by the Mobile Marketing Association, 10 percent of all cell-phone users access location-based services at least once a week, and about 50 percent of those people have clicked on a location-based ad, or interacted with it in some other way.

Some early results suggest that location-based marketing could be every bit as effective as the industry dreams. A survey conducted in May 2010 by Placecast, a location-based advertising company based in San Francisco, found that 80 percent of consumers who have opted in to use a location-based service were receptive to being contacted by companies with offers based on their location. Placecast’s data suggests that one-third of those who use location-based services have entered a store in response to a mobile ad, and 27 percent have been influenced to buy something.

Placecast’s CEO Alistair Goodman notes, however, that the type of product being offered and its cost can have a huge impact on how effective a mobile ad is. For example, 33 percent of Placecast’s survey respondents expressed interest in getting offers related to fashion and beauty, but 50 percent were interested in restaurant promotions.

Big brands such as Starbucks and Charmin are already exploring location-focused phone apps. Charmin has created an application that locates public bathrooms and lets users rate how clean and well-maintained they are. But experts at the New York event note that it’s hard to determine whether many apps actually influence consumers’ buying decisions.

Jed Rice, vice president of market development for Boston-based Skyhook Wireless, which provides location information, says it’s important to find ways to measure the effects of these and other campaigns. Rice says that location-based services have a lot to offer small local businesses, which can make sure their ads are going to customers who are close enough to actually act on them. However, he says big brands are needed for the industry to take off.

In order to capture big brands’ interest beyond throwaway experiments, Rice says, it’s important to be able to analyze campaigns effectively. For example, even when a location-based ad campaign isn’t likely to cause an impulse buy, services will need to show that the advertising was useful. He estimates it will take at least another year before businesses discover ways to measure the effectiveness of location-based ads.

Goodman noted that small businesses can watch for changes in foot traffic, but large businesses might have more trouble measuring how a campaign is affecting sales. Products such as Coca-Cola or Pringles are already being purchased by many consumers in many locations, and location-based services will need to find ways to demonstrate the value of adding the element of location to the companies’ national marketing campaigns.

Andrew Turner, chief technology officer of Arlington, Virginia-based Fortius One, which offers a Web-based location analysis platform, says other types of information might make location-based advertising more effective and measurable. His company’s software tracks how fast a person is moving. If she is going at walking speed, this might suggest she’s open to receiving suggestions of things to look at in the area. But if she’s traveling at driving speed, it’s much less likely that an ad targeted to her location will be effective.

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