JFDI

This post is a continuation to a previous post where I discuss what I believe to be the biggest opportunity in location-based advertising (LBA). 

Instead of targeting advertisements based solely on location, advertisers are able to use behavioral information as well.  If a user frequently visits a restaurant, then a promotional ad targeted to him is likely to be much more effective.  This is good for both advertisers and the consumer.  Advertisers no longer waste money on people who would never be interested in their offering, and consumers are actually happy to get deals from places they already visit.         

Advertisers will want to carefully decide the best way to advertise to each specific customer.  They will want to take a different approach to increase loyalty with existing customers than they will use to attract new customers.  There is a fine balance that needs to be achieved with the ad between adding value to the vendor and adding value to customer.  In the above example, Starbucks runs the risk of discounting a product that would otherwise have been purchased at full price.  Instead, they may want to consider offering a complementary product at a discount.  If robust data shows that people who order Chai Tea Lattes are also inclined to order Banana Chocolate Chip coffee cake, then it may be more beneficial for Starbucks to offer a coupon to redeem it for free if that person has never tried it.

It is much harder to attract new users.  But if advertisers have data on what kinds of purchases people make, then they can provide much more personalized incentives to get these people in the door.  For example, suppose a customer has a propensity to order cheeseburgers at restaurants.  If your restaurant has great cheeseburgers, then it would be a good idea to offer a huge discount or even a free burger knowing that if they like it, then they’ll likely come back many more times.

The prevalence of mobile devices has made location-based advertising a great way for advertisers to extend their reach and effectively target customers.  With LBS applications, such as foursquare, advertisers can couple location with the customer’s penchant for certain restaurants, bars, or stores.  When loyalty deals move from unconfirmed checkins to legitimate purchases, LBA will begin to cross the chasm.  The advertiser will be able to target based on location and purchase behavior, and the customer will receive ads that are so good that they are no longer ads.