February 1, 2012, 12:00 AM

The Power of Place

Retailers employ geo-targeting to craft offers tied to weather, holidays and local prices.

Thad Rueter

Senior Editor

Lead Photo

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.

Winter waste

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%.

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