Optimizing Geofencing for Location-Based Services: A New Application of Spatial Marketing

Abstract

Since the beginning of modern retailing, retailers have used geographic information to determine the trading area around their stores (Christensen and Tedlow 2000). Subsequently elaborated spatial marketing techniques have emerged and sophisticated models have been developed to address location based marketing efforts (Huff 1964, 1966; Applebaum 1966; Nakanishi, Cooper and Kassarjian 1974; Huff and Batsell 1977; Gautschi 1981; Malhotra 1983; Cliquet 1995, 2006; Baray and Cliquet 2006; Post and Kagan 2012). Today, the emergence of m-commerce and location based services (LBS) represent a new marketing challenge as well as opportunities for retailers. The ability to track customers’ moves through their smartphone Geographic Positioning System (GPS), allows retailers to refine their trading area and deliver timely and relevant promotional strategies to customers in their immediate vicinity through geofencing. According to the Pew Internet and American Life Project (2011) 28% of American adults and 58% of smartphone users, use Location-Based-Services. More specifically, Location Sharing Services (LSS) such as Foursquare, Google Places, and Facebook Places, (where users voluntarily indicate their location through “check-in” services) are starting to interest retailers as a way to reward and interact with loyal customers. However, privacy concerns have long plagued LBS and LSS applications: early adopters have agreed to share their location information in exchange for social interaction, gaming and competitions with their peers. Other consumers are more cautious and require substantial benefits from retailers such as timely and personalized promotions before opting-in for location sharing and the information transfer necessary to implement these operations. Technology has also been a partial impediment concerning the adoption of LBS and LSS applications: GPS tracking systems do not work indoor or around large buildings, and current smartphone battery life is also an issue as non-stop background tracking of users’ positions would deplete batteries in a relatively short time. Nevertheless, mainstream adoption of location-based retailing services appears to be just around the corner as Apple, Microsoft, Nokia and many other technology companies are actively researching solutions to these technological problems.