People are more likely to respond to geo-targeted ads when they live neither too close nor too far from the retailer — but are closer to it than to rival stores.
While location-based marketing for retailers typically targets shoppers who live within a certain radius of a store, a paper published in the Journal of Marketing Research claims that relative proximity is more important than absolute proximity.
The researchers combined TV advertising data with mobile location data for 6.4 million people to determine the short-term effectiveness of geo-targeted campaigns by two large DIY retailers — Lowe’s and Home Depot — in the US.
They found that the effects of geo-targeted ads were strongest among people who lived quite far from the retailer (between six and 14 miles) but were closer to it than they were to any similar stores.
Based on their findings, the researchers suggest that brands take a different tack when marketing to consumers based on their location. Instead of targeting people who live within a set distance to a store — which they state is the default geo-targeting option on Google Ads and Meta — brands should aim their ads at the band of people who live a middle distance from their stores, while also factoring the location of nearby rivals.
Using this approach, the ideal geo-targeting map starts to look less like a pie and more like a doughnut, say the researchers.
This pattern doesn’t just apply to home improvement retailers, either. The researchers replicated the same analysis with general big-box retailers (Walmart and Target), department stores (Macy’s and JCPenney), grocery stores (Kroger and Albertsons) and pharmacies (CVS and Walgreens), and in every instance, the same pattern was observed.
According to the paper, Geo-targeted ads are generally most effective within a middle distance from retailers because long distances dissuade people from travelling to a store, while those who live closest to them get most of what they need to know from passing by the storefronts, such that ads have little additional effect on their propensity to visit. This hypothesis is supported by the finding that geo-located ads for stores with frequently changing stock have a larger effect on people who live nearby because they are more likely to learn something new from brand communications.
The nature of the ads also has an effect. The researchers found (in the home improvement retail study) that price-promotion ads were more effective than brand campaigns in general. Specifically, promotional ads were more effective among people who live closer to stores, in terms of absolute distance. Brand ads, meanwhile, are at their most effective when targeted at people a middle distance away from the store, although they do appear to provide a lift to the whole category, not just the advertising brand.
Two limitations of the research that are worth bearing in mind: the studies only measured the short-term effect of ads (looking at weekly foot traffic), and they only measured people’s store visits, not actual purchases. Also, the results are, obviously, only relevant to brick and mortar retailers.
The paper is called Mapping Spatial Heterogeneity in Retail Advertising Effectiveness, and it was written by Bowen Luo and Bhoomija Ranjan.