I’ve written here before about growth of location-based services, specifically the current LBS darling foursquare. Foursquare is a location-based social network that helps you connect with friends using GPS via your mobile device. For merchants this type of location-based service has tremendous potential for increasing customer loyalty. A simple tap on an iPhone can associate a person with a local business thereby broadcasting buying intentions to their social network, as well as allowing you to deliver targeted offers.

While many have written about the potential of location-based services for merchants, others have been cautious. In a recent report “Location-Based Social Networks: A Hint Of Mobile Engagement Emerges.” Forrester recommends that bold, male-targeted marketers start testing but that most marketers should wait until they can get a bigger bang for their buck, when adoption rates increase and established players emerge from the fray. Basically the study found that just 1% of US online adults are using LBSs weekly.

In addition to the challenges associated with a small adoption rate, location-based services have other issues merchants will need to overcome before widespread adoption. Two of my favorites are ‘Check-in Fatigue’ and ‘Faux-squaring’.

Check-in fatigue refers to those frequent users of foursquare that complain about the tedious nature of having to haul out your iPhone each time you visit your favorite haunt to check-in to a venue (yeah, I know, life is tough :-). If check-in fatigue is a problem for you – there’s an app for that. Future Checkin is an app that allows you to check-in to your favorite foursquare venues automatically when you’re near them. You don’t have to do a thing besides simply have your phone on you and this app will check you in while running in the background with OS 4.

Another issue that some merchants may be concerned with is the ability of crafty foursquare users to cheat the system – in other words, check into a location that they are not physically present. There are a number of terms used to describe this, but my personal favorite is ‘faux-squaring’. Obviously if a business is going to invest effort into developing a location-based loyalty program, they want to ensure that the customers are actually frequenting their locations.

On August 16, 2010 Best Buy announced that it plans to launch a location-based loyalty experiment in 257 U.S. stores with shopkick. Customers download a free app for their smart phone that remains open, and when they walk into a participating Best Buy, it detects the shopkick signal technology installed in store. The customer then instantly receives rewards, called “kickbucks,” which can be accrued over time, then redeemed in the store or converted into Best Buy certificates through a user’s shopkick account.

While Best Buy may have gotten around the challenges typically associated with location-based loyalty program by forgoing the GPS route and working with a technology installed instore, there are interesting developments on the horizon that may assist.

Place-based geofences are basically virtual perimeters for real world places. In a great posting over at ReadWriteWeb, they explain that geofences work via a constant stream of pushed location data that is used to identify a user entering or existing a place or static zone. Imagine a geofence that automatically checks you in to one of your favorite venues, without having to even interact with the foursquare mobile client. Or when you leave, it checks you out so your friends aren't wondering where you are. This field is very nascent at this stage, and has multiple hurdles to overcome before making it to the mainstream as a commercially viable option.

In closing, while there are obvious challenges with location-based services, Best Buy’s gamble on the shopkick location-based loyalty program signals that more merchants will be investigating location technology as a means to improve customer loyalty.

So what do you think? Would you participate in location-based loyalty programs?