The Importance of Location for Digital CIOs

By Jack Rosenberger
David R. Bell

The Importance of Location for Digital CIOs

By Jack Rosenberger

In his groundbreaking book Location Is (Still) Everything: The Surprising Influence of the Real World on How We Search, Shop, and Sell in the Virtual One, David R. Bell, a marketing professor at the Wharton School of the University of Pennsylvania, writes eloquently about real worlds, virtual worlds, how they influence and affect each other, and are increasingly merging together.

One of the main theses in the book is "that the way we use the virtual world of the Internet—for commerce and for information—is dictated to a large extent by the physical world each of us resides in. This influence is pervasive, and sometimes counterintuitive, with implications for our lives in both worlds," according to Bell. "[If] you and I live under different physical circumstances and in different physical environments, we will use the virtual world very differently—even if we are very similar people in terms of our ages, incomes, education levels, and so on. We'll shop differently, search differently, and won't be equally attractive to sellers."

One example of how the physical world impacts the virtual world (and vice versa) involves Diapers.com, a seller of baby care products. Interestingly, Bell and a coauthor discovered that the consumer demand for Diapers.com goods was dramatically higher in physical locations in which there were fewer households with young children. Why? Because retail stores in these physical locations didn't cater to households with children as they were a small subset of the local market. But for these consumers, Diapers.com was a virtual godsend as it provided goods that were otherwise unavailable in their immediate area.

Bell was recently interviewed by CIO Insight Managing Editor Jack Rosenberger about Location Is (Still) Everything, his Gravity framework for understanding the ways that location affects both physical and virtual worlds, and how the behavior of Bell, a colorful New Zealander who divides his time between Philadelphia (which plays a prominent role in the book) and San Francisco, is influenced by the real and virtual worlds, often at the same time.    

CIO Insight: What do CIOs need to know about how the real world influences the way we shop online?

Bell: First, CIOs need to be on board with the key principle that physical world location explains quite a bit about the virtual world behavior of shoppers and consumers. This is important because via the Internet most companies serve very large markets (e.g., the whole U.S.) and within these markets, where there are huge geographic variations in sales. Second, being able to relate sales differences by location to differences in customers’ physical circumstances can produce a lot of insights and "easy wins" for new ideas and growth. (In chapter five of the book I show that sales at Diapers.com were up to 50 percent higher in locations where customers had lousy offline options because they had “minority preferences,” i.e., not many of their neighbors had kids and so physical stores didn’t cater to them). Third, once CIOs are on board, they are no doubt going to be invaluable in the collection, dissemination and use of new data that describes the real world around us. This might even lead to entirely new businesses being developed.

CIO Insight: How is our motivation for using the Internet based on our physical location and circumstances? And why do you think these patterns might evolve?

Bell: First and foremost, our physical circumstances dictate the offline options (for shopping, for information and so on) that we face. The quality of those offline options then, in turn, affects our overall need for the Internet and the intensity with which we use it. For example, parents with young children living next to a 24-hour Duane Reade store in Manhattan may need Diapers.com less than a similar family in the Philadelphia suburbs does. Second, since we choose our physical circumstances to begin with (city vs. suburb, etc.), that choice often says a lot about our characteristics and overall consumption needs as well.

CIO Insight: In your book, you write about resistance, or existing obstacles that prevent people from obtaining what they want. Please explain how the real world often places obstacles in our way of getting what we want and how the internet often helps remove these obstacles.

Bell: The real world puts two key obstacles in our way and the Internet helps remove them. First, prior to the Internet, it was often a chore to get information about products and services before making a decision to consume them. An economist or academic might refer to this as a "search friction." If we wanted to purchase a new TV, we’d have to visit a store to check prices and availability, and then have to decide whether to continue searching by going to another shop to see if we could get a better deal. Similarly, we’d have to call airlines and hotels about prices, availability and performance, eat at restaurants to determine whether we liked them, etc. Now all of that information is available to us immediately via the Internet. So, we’re much more informed. Second, we were subject to "geographic friction" as well in the sense that we could only buy what our local markets offered us. If we lived in a small market, or our tastes were very different from those of our neighbors, then we couldn’t always get what we want. There’s a great story in Brad Stone’s book The Everything Store about the fact that the first customer of Amazon lived 50 miles from the nearest bookstore—hence his attraction to the Internet.

The Importance of Location for Digital CIOs

CIO Insight: Tell our readers about how demand patterns for virtual-world sellers spread systemically from one real-world location to the next.

Bell: Through my research on a variety of Internet sellers, I found a really interesting pattern to how sales evolve over time and locations. When the business opens, demand pops up in a few locations, presumably those where customers are most interested or those who first find out about the new business. From there, it spreads outward via contiguity. There are two important reasons for this. First, the old "birds of feather flock together" idea. If one person in a given location likes a particular Internet seller, then odds are his or her neighbor will, too (or, at least, the neighbor will be more likely, on average, to like the same seller than a person chosen at random from some other location). This is because that neighbor faces the same offline options and likely shares preferences and characteristics with the earlier customer, which is why they both chose the same location to live in. Second, neighbors either interact directly via word-of-mouth or observe each other indirectly, like my apartment neighbors see the Harrys.com and Soap.com boxes of mine piling up in the foyer.

CIO Insight: In your discussion of vicinity, you write about how clusters of people in the virtual world often live far apart in the real world, but that these people often share common real-world circumstances and preferences. How'd you discover this?

Bell: This finding grew out of the earlier finding, which I discussed in the previous question, and relates quite a bit to Chris Anderson’s idea in The Long Tail. I noticed that if I looked long enough, customers were not only springing up through contiguity (for the two reasons mentioned above), but also in places that were far apart, yet that shared characteristics in terms of both resident profiles and offline options. This lead me to discover something I call The Spatial Long Tail in deference to Chris’ original idea, but this time the x-axis is location sales rank rather than product sales rank. That is, when you rank sales of an Internet seller by location you have the real hot spots in the head where there is a lot of demand (and it’s coming through contiguity) down to the tail locations where this is relatively less demand, but that demand is still important when all added together. Those tail locations tend to be physically separated, but share circumstances and preferences.  

CIO Insight: Looking ahead, as the online world gets increasingly mobile, how will the variation of real-world landscapes predict the behavior of buyers and sellers in the virtual world?

Bell: I think the main thing is that consumer behavior will become more local and more spontaneous. Since we carry our devices with us all the time, there’s always an opportunity to "snack" while waiting in line at Starbucks or walking down the street and because the device has sensors and is location-enabled, we will be drawn to local options that are close (perhaps in everything from shopping, to restaurants, to meeting other people). So, that’s the local part. The "spontaneous" or opportunistic part might be driven by the seller, with deals popping up in my phone as I walk through certain locations, or by my own changed behavior. For instance, instead of searching on a laptop at work for where to go to lunch, I simply head to downtown Philadelphia, then take out my phone and search on location-aware Yelp for the option that’s decent and closest.

CIO Insight: Lastly, tell us about how you have made Gravity (geography, resistance, adjacency, isolation, topography and you) work for you?

Bell: Hmm, I like the question! When writing the book I wanted to have an organizing framework that was based on a simple yet powerful concept (Gravity = things that are close and "large" [i.e., better prices and assortment when we are talking about commerce] have more pull over us). Next, I wanted to expand that key idea as an acronym as well, because I thought this approach would help readers navigate all the underlying nuances. That’s why all the chapters have a “gravity-type” title, too.

So, as to my personal behavior …

The ideas in Geography have given me more insight into where I like to live (more urban environments and "up and coming" neighborhoods within them) and why. In a very real sense, living in Philadelphia really shaped my preferences for beer. It was here that I was first exposed to Belgian beer and now Belgians are my favorite. As to Resistance, I use the Internet all the time to access information and products that would otherwise be hard to come by. On a practical level, I haven’t set foot in a Wal-Mart or similar store for years as I get all my non-perishables from Soap.com. In terms of Adjacency, I am always on the lookout for new sites and sellers to try and get most of my ideas from co-located friends and colleagues. Vicinity is an easy one, especially in terms of content. I am part of a disparate community that interacts about rugby matches on Rugby365.com. Isolation is a little trickier as there isn’t really a product or service that I feel totally locked out of locally—since Philadelphia is pretty good—although I guess I have been exploring online classes in guitar. There isn’t a sufficient density of guitar students in my neighborhood for a teacher to be right next door so I am getting that service online. Topography is quite straightforward—I do a lot of poking around on Bonobos.com for clothes and to get ideas, but I still prefer to stop by a Bonobos Guideshop and try them on before buying. So, I use the Internet to get informed, but the real world to complete the transaction.

 About the Author

Jack Rosenberger is the managing editor of CIO Insight. You can follow him on Twitter via @CIOInsight. To read his previous CIO Insight article, “Why Your Heartbleed Patch Isn't Enough," click here.

This article was originally published on 08-22-2014