Retailers employ geo-targeting to craft offers tied to weather, holidays and local prices.
Published by Internet Retailer
Written by Thad Rueter
For many English-speaking consumers outside the United States, the holiday shopping season doesn't end with Christmas. That's why Threadless.com, the e-retailer of satirical and ironical T-shirts that appeal to hipsters around the world, last year ran a 20%-off sale on Boxing Day, the Dec. 26 holiday celebrated in the United Kingdom, Canada, Australia and New Zealand.
Working with technology from Monetate, Threadless uses a consumer's Internet Protocol, or I.P., address—numbers that identify the location of computers, the prime piece of data required for geo-targeted marketing—to determine the place from where a shopper logs on, and then offers a deal that matches the geography. After all, a Boxing Day promotion might confuse shoppers in most of the 150 or so countries served by Threadless, which embarked on an international push about two years ago. "International business is a key part of our strategy," says marketing director Todd Lido, "and a big part of that is product and cultural relevancy."
That Boxing Day promotion is a recent example of geo-targeting, a marketing technique that tailors offers based on a shopper's location. It's a practice online retailers are slowly adopting as they try to sharpen their marketing, improve customer service and, for retail chains, drive consumers into their bricks-and-mortar stores. As they do, retailers are finding that geo-targeting can improve results, but requires integration with other marketing and merchandising systems and that the significance of geographic location must be balanced against other information the retailer has about the customer.
Among the retailers that use geo-targeting is The Home Depot Inc., which charges different prices for its products based on the region—a screwdriver in Nebraska might cost less than the same screwdriver in New York. Home Depot wants a consumer in Omaha to see the same price online and in his local stores, and determines the price to show each web site visitor based on his I.P. address. In another example, the home page of Overstock.com Inc. shows visitors the top sellers in their areas.
Capturing the I.P. address of a site visitor is easy. What's not as easy is making effective use of that piece of data.
Some marketing software divides the country by time zones, instead of more precise geographies such as state or metropolitan area, says Dave Lawson, director of mobile engagement at digital marketing firm Knotice Ltd. That could foil a sporting goods retailer that wants to promote Phillies gear to shoppers from the Philadelphia area and Pirates merchandise to Pittsburgh-area consumers.
Plus, targeting inevitably narrows the scope of a marketing campaign, raising its cost per sale, Lawson says. "When you really start to get good at assessing location, the temptation is to only deliver messaging, ads and offers to specific geographies," he says. "By limiting your potential audience, you are dealing with numbers that aren't needle-moving."
Another concern is that geo-targeting is not perfect—it only identifies a site visitor's true location no more than 85% of the time, says Geoffrey Hueter, chief technology officer of online marketing services provider Certona Corp. He estimates that fewer than 10% of Certona's clients use geo-targeting. However, that proportion this year could increase to as high as 30%, he adds.
One recent convert to geo-targeting is Brighter Blooms Nursery's Brighterblooms.com. The online retailer supplies flowers and plants to gardeners, and knows its customers in the frigid Northern states wait until spring to start planting. The e-retailer prefers not to waste money during the winter on paid search ads that would be viewed by Northern consumers, says Travis Zboch, the retailer's marketing manager.
To make better use of its marketing dollars, the retailer began making a state-by-state list of its poorest-converting areas during the winter months—at least six states made the list—and recently began working with ROI Revolution, its paid search management firm, to show fewer search ads to consumers in those states, at least from about November to late February or early March. "For every person who might place an order," Zboch explains, "at least $200 or $300 worth of advertising was being thrown at people who were not going to buy."
Brighterblooms.com uses Google Inc.'s Google AdWords, the search engine's paid search program, which recognizes the geographical location of consumers searching for products and looking at search ads. The florist and ROI Revolution simply removed the poorly performing states from the paid search campaigns during the slow months, Zboch says. This is the first season the program is in full force, and paid search costs for November and December decreased approximately 22% compared with the previous year, while sales remained steady.
Weather also factors into how Backcountry.com uses geo-targeting, says Mike Sherwood, director of customer experience at the web-only retailer of skis and other sports gear. For instance, if a winter storm system is set to move through the Northeast, the retailer can go into its live chat system from LivePerson Inc. and program proactive chats—that is, those pop-up windows that appear to online shoppers—that promote winter coats to site visitors from the affected region.
Backcountry.com also uses geo-targeting in other ways, such as declining to offer proactive chats to consumers from such countries as Nigeria or Singapore—from where, Sherwood says, fraud often originates—or to refrain from pushing certain products to consumers in specific locations—a particular type of snowboard, for instance, that the retailer is not permitted to sell in, say, France, because of a marketing agreement with the manufacturer. Backcountry, a unit of Liberty Interactive Corp., pays a monthly fee for making use of geotargeting features in the LivePerson system, and though Sherwood would not reveal that fee, he says that 20% of consumers offered proactive chats tend to make a purchase, and that, overall, the return on investment from such marketing exceeds 300%.
Retailers can create geo-targeted offers that go beyond holidays and weather to target consumers with more general types of promotions. WalkingOnACloud.com, a Toronto-based shoe e-retailer that also sells in the United States, uses I.P. location technology from OrderDynamics to craft both free shipping and in-store marketing offers, says Mark Zuckier, the company's president.
Site visitors from the west coast of Canada and the U.S. are likely to see marketing messages emphasizing coast-to-coast fast shipping options, he says; shoppers closer to the company's nearly 40 retail locations in the province of Ontario tend to see content related to the retailer's stores.
As retailers use geo-targeting to promote products based on the weather, or to display local store promotions to site visitors near those bricks-and-mortar locations, they are becoming more sophisticated about the relative importance of geographic location compared with other information that the retailer may know about a customer. That is illustrated by the geo-targeting effort undertaken in recent months by a U.S.-based women's apparel e-retailer that also operates a chain of stores. The retailer's senior e-commerce analyst agreed to talk about the geo-targeting campaign as long as the company remained anonymous; she said the initiative is important enough that it will consume a significant part of her time during the coming year.
The apparel retailer is taking the expected first steps: Its e-commerce site displays a link near the top of its home page to the retail store nearest the site visitor's location—especially important in light of the chain's store-expansion plans. The site also promotes clothes based on weather and season—such as emphasizing warm weather apparel to Northern consumers nearing the end of their long winter hibernations, as determined, again, by I.P. addresses. That data will also help the retailer to promote merchandise specific to the store nearest the online shopper's location.
All of that will require a steady stream of product information flowing into the web servers of the retailer's marketing vendor, and constant testing that geo-targeted offers are producing worthwhile returns.
At the same time, the retailer wants to be sure that geo-targeting does not undermine another personalization program it has in place that tracks a shopper's online browsing and buying behavior with cookies that are placed into the shopper's browser. The personalization based on previous buying behavior will take precedence over making offers based on geography, the retail analyst says.
For instance, the retailer will have to create rules so that a customer located in Minnesota who tends to buy a lot of beach and cruise wear—maybe she is affluent enough to enjoy frequent Caribbean vacations—is shown more offers for that type of apparel instead of the heavy winter clothing that the retailer might present her based solely on her I.P. address. "Where money is spent says more than location," the analyst says. The I.P. address, meanwhile, might prove itself more valuable in tailoring offers to the relatively new site visitor, one without a purchase history or who regularly clears her cookies from her web browser, taking away that valuable data from the retailer.
Unlike in real estate, location is not always critical in retailing. But it's an important piece of customer information often enough to make geo-targeting a useful tool for online retailers in many situations.