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Chapter 10 E-commerce: Digital Markets, Digital Goods 417

INTERACTIVE SESSION: ORGANIZATIONS

LOCATION-BASED MARKETING AND ADVERTISING

In October 2010, the UK-based cell phone carrier O2 • Age. The O2 scheme is not available to customers
launched the country’s first large-scale, location-based younger than age 16.
service for delivering targeted marketing to mobile • Data sharing. The targeted marketing is based on
devices. The concept of targeted marketing is consid- information supplied by the customer. This data
ered to be a vital part of any business. O2 Media, the must not be shared with other customers.
mobile marketing division of the company, already • Frequency. Because the SMS is triggered by the
uses customer data to provide personalized market- customer moving into the geo-fenced area, there
ing to companies. For example, an iPhone application is a danger that the customer will be bombarded
(“app”) for a theme park that was targeted at families with messages as he or she walks up and down
with children had great success, with approximately the street. The Placecast American trial capped
30 percent of those targeted eventually downloading messages at one per every 48 hours and three
the app. The traditional targets for marketing are age, per week. The O2 scheme limits the frequency of
gender, interests, and so on. Location-based market- messages to one per day.
ing can go further by targeting marketing at the right • Devices. The O2 scheme works on any mobile
individuals at the right time, when they are in the right phone. It is not necessary to download an app
location to make a purchase. (i.e., a smartphone is not required), and it does
Here’s how O2’s system works. O2 customers opt not affect the device’s battery life.
into the system by providing their age, gender, and As you might expect, O2 and its partners were
interests. When customers are near an outlet that enthusiastic about the venture. According to Shaun
matches their profile, they receive an SMS message for Gregory, managing director of O2 Media, the market
discounts or other special offers. As of O2’s launch, it potential is huge and this is a modern and efficient
was limited to providing discounts to Starbucks coffee way to reach a mass audience in one go. Hal Kimber,
shops and outlets supplying L’Oréal hair products, but head of CRM for L’Oréal, noted that the opportunity
O2 Media was confident that other partners will come was very exciting and L’Oréal would learn a great deal
on board. which it could implement in future initiatives.
The service is based on a technology called “geo- The use of text alerts for marketing does need to
fencing,” which is provided to O2 by a California consider the potential customer and their use of tex-
based company called Placecast. In 2009, Placecast ting. A survey conducted in October 2010 by comScore,
conducted a trial, under the name of ShopAlerts, a marketing research company that studies online
involving three different types of retailers— American behavior, found huge differences in mobile behavior in
Eagle Outfitters (clothing for young adults), North Face different parts of the world. The survey included cell
(outdoor equipment and apparel), and Sonic (fast-food phone users in Japan, the United States, and Europe.
outlet). Although there may be some overlap between The researchers found that in the European sample
potential customers at these three retailers, plenty more than 80 percent of people sent SMS messages
of people will fit one category but not the other two. to one another; in the United States the figure was
Targeted marketing reduces the likelihood of relevant 66.8 percent. In Japan, however, the figure was much
marketing messages being lost in “junk mail”; that lower—40.1 percent. Of course the lack of enthusiasm
is, customers get SMS messages that they know are for sending messages does not necessarily reflect an
probably relevant. According to research carried out unwillingness to receive marketing texts.
by Placecast on ShopAlerts users, most customers It appears that in Japan the emphasis is less on
opened the alerts immediately, and 65 percent made the opt-in approach of Placecast and more on loca-
a purchase as a result of receiving the SMS message tion- based mobile advertising, a more sophisticated
(interestingly, not always a purchase mentioned in the way of changing the advertising that a user receives
message). when using an application. For example, someone
O2 had to resolve several issues with this type of using an iPhone or Android app typically also sees
marketing. banner advertisements. AdLocal (now part of Yahoo!
• Opt in and opt out. Customers must be able to Japan) has the largest share of Japan’s location-based
opt out of the system at any time and must be advertising market (valued at US $1 billion!), and such
required to opt in at the start. technology can make sure that the advertising that the

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