In 2013, Foursquare introduced a new kind of advertising for local businesses called Foursquare Ads. It promised to completely change the way local businesses reach new people and encourage them into becoming real customers.

Foursquare ads was particularly exciting for restaurants who have a massive number of Foursquare users that routinely check in. These customers post photos and tips about the restaurants that they visit.

Foursquare Ads has now been running for over a year and we now have a better idea of how it works and whether or not it is an effective advertising tool for restaurants.

How It Works

Foursquare Ads are short text-and-image ads that are shown to Foursquare users when they open up their Foursquare mobile application. Users can see an ad when they search for a specific place to go, or on the first screen Foursquare determines that the user is interested in a specific type of business.

A restaurant can create Foursquare Ads from the Manager Home page after claiming its Foursquare listing. The ads themselves are pretty simple to set up, all you need to do is follow the instructions. If you are short on ideas, Foursquare makes it easier by allowing restaurants to use customer-created images and tips as part of the ad.

Once the ad is created, the restaurant needs to decide on a budget and a bid amount. A budget is not a difficult concept to grasp, but the bid amount needs some explanation. Foursquare charges restaurants for the ads on a cost-per-action basis: every time someone 1) taps on an ad or 1) sees an ad and then checks in to that restaurant, the advertiser pays Foursquare a fee.

The bid amount is the maximum that a restaurant is willing to pay for an action. It seems that Foursquare Ads are competitive, meaning that if Restaurant A and Restaurant B both have ads targeting the same audience, then the restaurant with the highest bid will have priority over a restaurant with a lower bid.

Once the restaurant has decided on the budget and bid, and has entered its payment information, the ads are ready to run. Foursquare automatically targets its users based on their search queries as well as their previous Foursquare activity.

After the ads have been launched, ad performance information is available in Foursquare’s promotions dashboard, as well as a weekly email report.

How Should Restaurants Use Foursquare Ads?

Ad Copy & Images

The primary use of Foursquare Ads for restaurants is to attract completely new customers, or to remind existing customers of special items and offers. A restaurant therefore needs to create an ad that appeals to their customer base and will compel Foursquare users to dine at their location.

For example, if there is a signature item on the menu and the restaurant has high quality photos of this item, then it should be used in the ad. As for the ad copy, you have almost total freedom (within 160 characters), so creativity and succinctness are key. As with most ads, it’s a good idea to include a call to action like “Check-in to receive our Daily Discount”. Testing different ad copies and images is key.

Choosing the Right Bid Amount

Because Foursquare Ads are competitive, choosing the right bid amount is a balancing act between:

  • bidding high enough to show your ads to as many people as possible: there’s no point in creating ads if nobody sees them.
  • making sure that you aren’t paying too much for each action: you could end up paying so much for advertising that you don’t actually make a profit on the customers that it drives.
  • making the best use of your overall budget: you might be the highest bidder but this could blow out your budget in a few clicks.

The bid amount is also greatly influenced by the level competition for the restaurant’s market, but in terms of geography and concept. For example, an Afghan restaurant in Nashville will not face the same level of competition that a pizzeria in New York might encounter. A restaurant that advertises on Foursquare will need to experiment its budget and bids to determine the optimal allocation.

Reviewing Your Performance

As will all paid advertising, it is essential that you evaluate the performance of your Foursquare Ads on a regular basis. This enables you to optimize your campaigns and ultimately determine whether or not Foursquare Ads is an effective channel for your business. This is where it can get a little complicated.

As previously mentioned, Foursquare Ads are billed on a cost-per-action basis. This is great when it comes to check-ins, as you can be quite certain that someone who checks in at your location is an actual paying customer. This solves one of the great headaches of advertising: how do you prove that someone saw your ad and actually gave you money?

However, you are also paying for Foursquare users who see your ads and simply tap on them. This action demonstrates interest in your business, but does not prove that they became a customer.
In the example above, you can see that the cost per action was $3.30. If all the actions were check-ins, you could make a simple calculation:

  • Number of Check-Ins x Average Check Size = Total Estimate Revenue
  • Total Estimate Revenue – Total Cost = Total Estimated Profit

However, of the 29 actions, only 5 were check-ins. To further complicate the issue, the taps that Foursquare charges the restaurant for may have led to check-ins, but you won’t know how many there are, because Foursquare does not charge restaurants twice for taps that lead to check-ins. Hopefully in the future, Foursquare will also show the number of taps that lead to check-ins, but for now, this is all we have.

With all of this in mind, a restaurant that advertises on Foursquare needs to be clear on its goals.

If the goal is to drive direct sales profitably, then it must keep a close eye on the ratio of taps to check-ins and try to optimize the bid and budget accordingly. If the goal is to increase exposure, then the number of check-ins becomes less important but restaurant should still try to optimize the bid and budget for a maximum number of actions.

Final Thoughts

Overall, Foursquare has become a useful way for restaurants to acquire new customers and bring back old ones. The ability to track check-ins has made it especially attractive to restaurants, which are always trying to stretch their marketing dollars. There are still, however, some limitations to the platform:

  • The ability to optimize campaigns is hampered by the performance tracking issues mentioned above. If Foursquare can provide more tools to encourage and track check-ins, many more restaurants will sign on for Foursquare Ads.
  • The automatic targeting makes it easier for restaurants to get set up, but limits the control they have over their campaigns. For example, a vegan gluten-free diner may not be able to show ads to all of its customer base due to the multiple categories that it belongs to.
  • The reach of Foursquare, despite its millions of users, is still relatively small compared to other platforms like Google or Facebook and geographically concentrated in major metro areas. Restaurants may be able to acquire more customers through Foursquare Ads, but the increase in revenue may not necessarily move the needle.

Despite these limitations, many restaurants could benefit from an increased presence through Foursquare Ads, and Foursquare will undoubtedly continue improving this novel form of advertising.

Gourmet Marketing was an agency partner of Foursquare up until April 2014.