Location-based services like Foursquare saw their popularity increase
dramatically in 2010, and along with that popularity came plenty of
press attention. To some, location-based services may represent the holy
grail of mobile marketing for brick-and-mortar businesses.

But are brick-and-mortar marketers overestimating how much these services can help them?

AdAge, in conjunction with Trendrr, tracks check-ins on Foursquare, which has been the subject of a lot of the press in the location-based services market. According to AdAge 54,000 Foursquare users checked in to McDonald’s locations the last week of 2010, making McDonald’s the second most popular check-in spot. Yet according to the McDonald’s website, the fast food giant serves a whopping 47m customers around the world daily, or 329m customers per week. That means that Foursquare users who checked in to McDonald’s during the week account for less than .02% of McDonald’s weekly customer base.

McDonald’s was criticized when its social media head Rick Wion celebrated the company’s ability to increase check-ins on Foursquare 33% with a mere $1,000. Despite this, Wion stated that “I think…the entire location based services area holds great promises for all businesses.

It’s fair to point out that Foursquare, however hot, is but one location-based service. There are others, including Facebook Places, so despite the fact that check-ins to popular stores like McDonald’s, Starbucks and Walmart pale in comparison to the total number of customers these companies regularly serve, location-based services shouldn’t be dismissed entirely.

But businesses looking to generate meaningful increases in foot traffic and conversions have a lot to consider this year as the sector continues to attract interest. Here are several of the questions brick-and-mortar businesses should be asking themselves.

Are we rewarding profitability?

Does it make sense for brick-and-mortar businesses to reward individuals for simply checking in when they visit? In most cases, the answer is probably ‘no‘. Like it or not, the check-in alone is a poor metric for most businesses. While it would seem to serve as a proxy for loyalty, most businesses don’t thrive on loyalty alone. They thrive on profitability.

Rewarding the small fraction of customers who check in for multiple check-ins isn’t necessarily an effective strategy as customers who visit frequently aren’t necessarily profitable customers.

Where’s the targeting?

Not all customers are the same. Businesses know that, which is why most of them have specific groups that they target. Right now, it’s somewhat hard to target effectively using services like Foursquare and Facebook Places. Yes, these services might make it easy to connect with customers and potential customers who are nearby, but targeting capabilities are, at least for the time being, fairly unsophisticated when they exist at all.

Brick-and-mortar marketers should consider that trading targeting for proximity is not necessary a good trade.

How are we reaching the 99%+ of customers who aren’t checking in?

The numbers don’t lie: even if location-based services have immense potential, the number of customers checking in is dwarfed by the number of customers not checking in, and it will for a very long time. That doesn’t mean that brick-and-mortar marketers shouldn’t experiment and invest in location-based services. But it does mean that they probably shouldn’t put attracting customers who use location-based services above attracting those who don’t. 

An average store in a major city may have hundreds of thousands of potential customers within a one or two mile radius, and tens of thousands of those potential customers may be walking or driving by on a daily basis. Marketers shouldn’t forget that.

Photo credit: whatleydude via Flickr.