Location-based advertisement is relatively easy when apps are used that require users to enter their specific location by “checking in” to a bar or restaurant. But what do advertisers do if a consumer does not personally provide information on their whereabouts? The answer in recent years has been “geo-fencing.” Geo-fencing is a type of technology where a specific action is triggered based on a user’s proximity to a physical location. Unlike check-ins, geo-fencing requires no input from the user and can, by default, reach 100% of all smartphone-equipped consumers within the boundaries of the fence.

How Geo-Fencing Is Used

Using geo-fencing, a business owner can specify an area around the business that, when physically entered, automatically sends a text message or alert to a mobile users’ smartphone informing them of a sale, products or services. While the same can be done with a sign, there is no guarantee that a sign will be viewed. Geo-fencing, however, can provide that guarantee.

Geo-fencing is not only used for sales. Some recent mobile apps have been designed to track family members and trigger certain actions based on their proximity to an area. Perhaps you need to remind a family member to do the laundry when he or she gets home. With geo-fencing, you can set up an automatic alert as soon as this person enters the door.

Why Is This Important?

While the ability to track family members can be useful, the real economic potential of geo-fencing lies in its ability to offer targeted advertisements directly to consumers. Mobile advertising is a complex field that has always sought ways to research and get the most out of users’ preferences and purchase history. With geo-fencing, mobile advertisers gain a tremendously valuable tool for sending relevant ads or promotions to users precisely at the point where they would be most likely to take advantage of a deal.

In 2012, a mall in Eaton, Ohio participated in a field test of geo-fencing for Black Friday shoppers. In this case, a geo-fence was set to trigger a text message informing users of specific sales as soon as they were close to the shopping mall. Initial results were positive for retailers. Users who received the text message spent an average of 24% more than users who did not.

Several months ago, Google announced three location services application programming interfaces (APIs) that developers could use to deliver increasingly complex notices to consumers. Perhaps you feel that users are less likely to view a text or that some users may have blocked messages from unknown numbers? Recent iterations of mobile operating systems can have location-based triggers built in. Google’s own Android operating systems has been designed to seamlessly support geo-fencing and provide unobtrusive alerts to consumers on special deal or offers. While privacy advocates will be pleased to know that users can opt out of location tracking, the economic potential for other users is large enough to warrant concern.

It is difficult at this point to see the exact impact geo-fencing will have on advertising and sales. Initial tests do, however, seem extremely promising, leading many analysts to proclaim geo-fencing as the future of mobile advertising. With Google on board and more studies that confirm the economic gains of location-based digital advertisements, geo-fencing appears well positioned to change the way smartphone users interact with shopping areas.

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