“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.”