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In this four-part series, we'll look at how small businesses can leverage the power of location-based services such as Foursquare and Places

In the first two parts of this series, we looked at location-based services, and examined why some users are still reluctant to take advantage of them.

But assuming resistance to such services is waning (as a growing user base would suggest), it's important for small and medium-sized business owners who plan to hop on the location bandwagon to take a look at how companies are already using such tools.

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At the more complex end, some companies have essentially built entire businesses out of location awareness. UrbanSpoon, for example, developed a smart phone app that links users to nearby restaurants - complete with reviews and price ranges - based on their location and choice of cuisine. It quickly became popular, spreading to almost all of the major smart phone platforms.

But not all small business owners want to base their entire business around location. Instead, a growing number of non-tech companies are entering the industry tangentially; by luring new, tech-savvy customers with steep and relevant discounts.

A good example of location-based promotions can be found among the 11 partner companies who recently helped Facebook launch its new smart phone "Deals" service in Canada. Deals basically points Facebook users to discounts and special offers near them on their GPS-enabled smart phones.

One of the Facebook partners, clothing retailer Joe Fresh, offered a significant discount on its $19 jeans, selling them for $5 to the first 500 Canadians to check in at one of the retailer's stores.

The Joe Fresh deal illustrates some of the growing trends in location-based discounts. Firstly, the price-slashing is substantial. More often than not, users of group-based deals sites such as Groupon and TeamSave (which are location-based in the sense that the deals are focused on specific cities) offer their customers discounts of at least 50 per cent, and often as high as 90 per cent. As such, companies looking to leverage such discount models can expect at best a modest return in terms of profit.

The real payoff for participating businesses, however, is in the foot traffic such deals generate. In the case of Joe Fresh, customers must physically walk into the store to redeem the discount. That greatly increases the likelihood that customers will come back, or find something else to purchase while they're in the store. With most location-based services, businesses are really making a marketing purchase, hoping that word of mouth will prove more valuable than a traditional ad or sale.

Another strategy some companies have used involves offering content to customers for free. Last year, the free daily paper Metro partnered with Foursquare to provide location-based editorial content to the Web site's users. The idea behind the partnership was to take advantage of a user's location to offer relevant information, such as reviews of nearby restaurants. Metro is one of several companies to offer non-traditional perks and services using Foursquare. In British Columbia, for example, Vancouver's transit authority teamed up with the website to offer a "badge," or sort of digital award ribbon, to anyone who uses FourSquare to check in to a certain number of train stations.

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Many businesses - on FourSquare, Facebook Deals and related services - have tied discounts to the number of times a user visits a store. The concept became popular after FourSquare introduced the concepts of "mayor," a title given to the user who checks in to a certain location most often.

Other companies have tried similar stunts to increase foot traffic at their stores. Skincare product boutique Kiehl's, for example, offered a free moisturizer product to Facebook users who brought a friend with them to one of the company's stores.

But remember: Not all such promotions are successful. Roughly half the companies that partnered up with Facebook when the social network launched Deals in the U.S. are no longer regularly offering discounts through the service. Although some companies have found new and interesting ways of using location-based services, business owners will need to find a balance between alluring deals and the prospect of turning such discounts into something customers expect on a regular basis.

Special to The Globe and Mail

The series continues with a new post every Thursday for the next month. Stories can be found on the Web Strategy section of the Your Business website.

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