5 Things You Need to Know About Geofencing

Here's what you need to know about this location-based mobile service that lets marketers send messages to your smartphone when you enter a defined geographic area, such as a shopping mall.

1. It can engage local shoppers. Geofencing is a location-based service that sends messages to smartphone users who enter a defined geographic area. Some companies send promotions to customers' smartphones when they enter a store, mall or neighborhood.

It's easy to get started: "All you need is an app and GPS coordinates," says Tony Costa, an analyst at Forrester Research. But he says geofencing is immature because most companies haven't integrated it with their CRM systems.

2. Deals can be hyper-local. Knowing that customers are nearby lets businesses tailor offers based on local events or holidays. For example, 1-800-Flowers deployed targeted ads for 20 percent off bouquets in the days leading up to Valentine's Day.

Their ads could pop up in any app someone was using when they entered a specified area. Amit Shah, VP of online, mobile and social at 1-800-Flowers, says the company wanted to push traffic to its retail stores. "The ad is a click-through map and opens to show your location and how to get [to the store]."

3. It leverages your location. By sending a targeted offer to a customer in a parking lot, you may be able to steer them away from competitors. Apps such as Shopkick give customers rewards, such as gift cards or coupons, for walking into participating stores.

Companies can also work with businesses that offer complementary products. For example, 1-800-Flowers geofenced the area around jewelry stores that are close to their flower stores. Shah says if people are shopping for jewelry, they may want to pick up flowers as well. When a customer walks up to a jewelry store, they receive a discount offer for a bouquet from 1-800-Flowers. "Figure out what situation [customers] are in and attack that context," he says.

4. It adds depth to analytics. "If you have behavioral models, location gives you another layer of understanding," Costa says. Using data analytics, companies can see whether targeted offers actually bring people into stores and result in more sales. Other metrics include how often a customer visits the store, how long they shop, and how well a window display works.

5. You need more rewards. When you know where customers are and how they behave, you can not only customize offers but also give them rewards and a personalized experience. Neiman Marcus is piloting geofencing in its stores so salespeople can see when VIP customers are in store, look at their purchase history and provide more personalized service. But Costa warns: "Make sure it's not intrusive, make sure it's additive. The value exchange has to be there."

Lauren Brousell is a staff writer for CIO magazine. Follow her on Twitter @LBrousell. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.

Read more about mobile/wireless in CIO's Mobile/Wireless Drilldown.

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