Facebook Places, Foursquare: Social Media's Tiny 2% Impact On Businesses

"What our clients are struggling with is: How big a deal are social media and location-based services, and how much of it is just sound and fury?" says a senior VP of Applied Predictive Technologies, which runs data analytics for Starbucks and Subway.

"You've got your Groupon and Living Social, and your Foursquare and Facebook Places," says Jonathan Marek. "What our clients are struggling with is: How big a deal are social media and location-based services, and how much of it is just sound and fury?"

That's the question on the mind of most every marketer and retailer—and Marek might finally have an answer. Marek is senior VP at at Applied Predictive Technologies (APT), a software company that provides data and analytics to some of the biggest retailers and restaurants in the world, including Starbucks, Staples, Subway, and more. As he explains, APT essentially runs "clinical drug trials for businesses," measuring the incremental impact on sales of everything from traditional ad and social media campaigns to storefront physical remodeling and relocation. Like an FDA trial, the company uses "test and control patients," and a proprietary algorithm to measure campaigns against stores with similar traffic, sales, and characteristics.

Based on new data from APT provided to Fast Company, it's clear that location-based services like Foursquare and Facebook Places have—so far—had a minimal impact on businesses.

"In the tests we've seen, we generally haven't seen much of a lift in performance," Marek says. "There just isn't the reach in these things today to actually be able to drive the level of change in business as you could drive with a successful capital investment."

Marek says APT generally sees a revenue bump in the "2% range" in a successful promotion from services like Facebook Places, Foursquare, Yelp, or Opentable Spotlight. Marek is also skeptical of other foot-traffic drivers like Groupon and Living Social, which have gotten much more attention for their successes (not to mention failures). "You may see a bigger bump in sales from something like Groupon—but only on a temporary basis," he says.

The issue, he continues, is that the economics of Groupon's daily deals just don't have a sustained return, especially for national chains and brands. "When food costs may be running 40% of your sales, and you're going to give a $100 deal for $50—$25 of that going to Groupon—you're then working off $25 for a $100 offering," he says. "While you might get a bump in sales, we wouldn't call that successful unless you were able to see something sustained—and we just haven't seen that yet."

Still, Marek is optimistic about the potential of the services, and points out that there isn't necessarily anything risky for offering a check-in deal through Foursquare or Facebook (unlike a traditional ad campaign, which can cost retailers a lot up-front).

"It's still a pretty nascent space," Marek says. "I don't think anybody has gotten the model right."

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  • Cynthia K. Seymour

    As a Social Media Consultant with SeymourResults.com, this is a very interesting article. Social Media should not be considered "Marketing on autopilot." It takes time to build relationships. Business owners who jump onto Social Media deal services need to be prepared to over-deliver excellent service and develop a good impression that will create a "desire" that turns "foot traffic" into return business and fans. If Business owners use the leveraged "influence" of these coupon sites and then are not prepared to "Wow" the Customers, then they need to be prepared for a "bump" with little long-term impact. It is important for Business owners to use the tools only if they are willing to step up to the plate and learn to create lasting and valuable relationships with their Customer Base. If Business Owners do not take responsibility for investing in and developing the relationships, then they are just using Social Media as a quickie way to attract customers, and should not be surprised if all they get is just a "one night stand."

  • Rod Alanis

    I think it's key to step big and look at the big picture here. Platforms like Groupon are not a marketing plan in and of themselves, but they can play a key role in a larger marketing strategy. If you use these tools to drive a short-term spike in business, then be sure to think about what you're going to do to keep them coming back for more. Don't miss the opportunity to really appreciate them and build a longer-term relationship.

  • Martin Eriksson

    I'd take this data with a massive grain of salt - "Starbucks, Staples, Subway, and more" are probably the retailers that have the least to gain from LBS as its all about discovering new places - not the massive chains that already have the location but the independent place a block behind it thats much much better. I wonder if Applied Predictive Tech. would measure the impact on a local Starbucks when a local indy does a LBS campaign...

  • Sid Raisch

    Groupon is fast becoming the company people love to bash. Using worst-case offers as examples rather than best case is common. Any company that would do a deal that yields $25 for $100 just isn't thinking. But a company that would do $30 for $10 or $15 when their average plate generates $50 revenue has the numbers on their side. It's all in the art of the deal. Speaking of deals why would anyone pay Groupon $25 to use their platform when they do deals for lower amounts that would yield them only $5. That baffles me.

  • Tenth Muse

    We do marketing for small businesses and get a really nice return on efforts put into Yelp and Google Places. Personally, I'm not a big fan of Facebook Places, I don't think the return on time is there yet. The massage therapy business that we're working with has gotten probably a 20% bump in business from Yelp.

    One thing that businesses are going to find is that there will be no escape from their true value and customer service problems as more customers start to review on the web. Failure to monitor and deal with unhappy customers is going to be a make or break issue in the coming years.

    I tend to agree with the comments about Groupon and suggest that Groupon is in appropriate for national chains. Everybody already knows what they are going to get at Chilis, there's no sense in them running a Groupon. Groupon works best for small, local business that needs exposure. Restaurants that you've driven by and never tried, etc...

    The real point of social media is to bring shoppers back to main street, not promote more national chains where the profits are going to another state and an overpaid CEO.

  • Tim Lindberg

    While APT's conclusion that LBS promotions drive a 2% bump in revenue is interesting, much more so is the simple fact that APT is able to measure it. The bane of any marketer is figuring out exactly what you contributed to sales. APT's analytics may not capture the full impact of these marketing activities, but for anyone trying to measure performance even imperfect data is generally better than none at all. I'm excited anytime new analytics give us greater insight into what the impact of different activities or investments are.

    And I'm guessing there are retailers that wouldn't mind a 2% increase in revenues.

  • Tommy Toy

    Jonathan's findings are EXACTLY what I have been saying about location-based services like foursquare, Facebook Places, Gowalla, etal.

    LBSN startups are not filling a real need in the marketplace. They are trying to create a need, and nobody is buying it. They are a fad, a novelty, a service that promotes voyeurism. foursquare is mostly an online game, that rewards points that earn you badges for check-ins. I think I now have three badges, and the deals have been absolutely worthless to me. According to some estimates ( checkout http://xurl.at/3u9), the total ad revenues generated by LBSN's are about $43 million, which represents less than .00001% of total ad dollars. ABI Research forecasts LBSN's will generate $1.8 billion in revenues by 2015. That is so much BS. (checkout: http://xurl.at/1lp)

    The PROBLEM: LBSN's suffer from a huge gender gap (checkout http://xurl.at/3ua). Adoption among femmes is a problem. Anytime an online service is associated with privacy intrusions, stalking, and even portrayed as "dangerous" by some. That's a huge problem.

    For my money, the only real location-based shopping service is ShopKick. They really have it down.

  • Doug Wright

    Wow - being able to quantify a business' participation in LBS is awesome. With that said, I think that a business who does not participate in LBS is missing out on more than just a 2% bump in revenue. The perception by the LBS savvy, and even the not so savvy, will be that the business is not "hip", for lack of a better term. Even though a tiny minority of customers use LBS it's the same demo that tend to be communicators and influencers. And that group are ultimately responsible for the free publicity that comes with a check-in published to Twitter, foursquare, Facebook, Yelp, Google, etc. etc. I've been swayed by checking out places because of this. "Oh, so-and-so keeps checking into ABC wine bar. I gotta check that place out." Heck, that's the exact reason why I signed up and started using foursquare.

  • Jeffrey Marchand

    And 90% of the 2% are Us - media and marketing people directly or indirectly related to the project in question. The average Joe we are trying to secure long term has likely never heard of any of these services, let alone walk into a store waving a cell phone screen to get a free desert with their happy meal.

  • Jon Parks

    Interesting insight and it's not surprising that the "revenue bump in the "2% range" in a successful promotion" is small if you're just evaluating the immediate promotion. But isn't the intended purpose of using LBS tools supposed to be introducing yourself to new customer bases (as Yimei's personal experience details)? If that's the case, then the real question here should be "are businesses that use LBS tools capturing those customers into other marketing streams (i.e. e-mail marketing, etc.) to get them to return time and again? If not, why not? If they are, then the "revenue bump" would surely be higher than 2% over time because if the new customer likes the experience/the food/the atmosphere, etc., then you've got to use the tools to get that customer to make a return visit where they are likely to pay full-price for whatever it is that brought them in through the LBS tool.

  • sara coene

    What about indirect impact on performances and organizational culture? Use of social media should create or strenghten an open innovative culture. Any analysis there?

  • Yims

    I'm really surprised it only makes a 2% difference?! I have tried out so many new places due to:

    1. Yelp: finding out who's rated pretty high in some area I'm in, or using it to find the best _____ around a certain area (i.e. best bubble tea, or best beef noodles, etc) and it goes for haircuts, dry cleaners, etc. This should be a good businesses's best friend--if you're good, you're going to be recognized.

    2. Foursquare: seeing what's in the area I happen to be in, and checking in to try and earn points and also as part of twitter/facebook status update (which generates interest from friends about a new place)
    Being able to see other people who are checked in is also interesting...you can feel safer if you see alot of young people your age, and if you see a bunch of creepy guys then you know to stay away. Haha, kidding-sort-of. This whole thing is kind of new and I forget to check-in often, but if they can get more participation from businesses it could be even better.

    3. Facebook: people posting pictures of delicious-looking food, products, etc and generates interest; just the way restaurants who have picture menus help out the customers to know what they're getting, a picture on FB brings a restaurant menu right in front of your face. I may make a point of trying out that place next time, but I know those for whom: the moment they see it, they crave it and literally drive out right away.

    4. Groupon/Living Social: haven't tried it yet because it makes you spend more $ than you normally would anyway, per person ($35 for $70 worth of food....who spends $35 for lunch anyway?!), but it makes me more aware of the average prices and offerings in my area should I ever get interested

    I would say that social media is so worked in in many ways in our lifestyles now, that companies like APT just have to find better ways to quantify it.

  • Nikolas Badminton

    I think that businesses are too cautious to take chances in LBS + deals to make a big impact today.

    Companies are still stifled by siloes in their business and conflicting priorities in marketing, sales and retail operations.

    They need to integrate store experiences with LBS and make the experiences mobile, interactive and a game to earn perks like free product or vouchers for participation.

    Truly progressive companies will change the game.

    Nikolas Badminton
    Director of Digital - Tribal DDB