If all publicity is good publicity, what’s even better? Free publicity. And what’s even better than that? When the free publicity comes straight from customers.

One key to developing your online marketing strategy as a small business owner is understand and leverage the increasingly valuable location-based social media services that are springing up.

The advantage of services like foursquare, Gowalla and now Facebook Places is that they the users do most of the work. As a business owner, if you manage things well, you can sit back and watch the reviews, check-ins and mentions come pouring in!

Here are 7 steps to developing a successful location-based social media campaign:

1. Offer Strategic Incentives

All businesses have down-time. In the restaurant industry, this generally occurs in the afternoon. Even the most successful restaurant that’s booming at 1pm is probably seeing patronage decline in the “between time” shift change that falls between 3pm and 6pm.

The solution? Offer incentive that increases your volume during down times. Providing offers through foursquare that are specific to the afternoon hours will not only give you the brand awareness benefits of check-ins and micro-reviews but also drive traffic to your location at a time when you’re probably seeing a lull in visitors.

Remember: having customers at your location says something about your business, if you can show this when others can’t you’re just one more step ahead of your local competition.

2. Reward the Influencers

It’s often very easy to find influencers in your area. They’re the ones who are most active on blogs and Twitter and probably have the largest Facebook friend lists. Why are these people important? They talk to their networks. Providing freebies, or at the very least fantastic service and a potential loyalty discount to regular customers is a fairly well established practice.

Our suggestion is that you extend this to people who are likely to speak favorably, loudly and often about your brand. If you have a social media personality in your location, use their network to promote your business. Better yet, provide rewards to such personalities and they’re likely to tell one another. Viral marketing? Check.

3. Decide Which Promotions Make the Most Sense

There are as many different reward structures as there are rewards. What’s important here is to consider the number of people who are using foursquare in your region and make adjustments in your strategy based on this.

In the meantime, consider two specific foursquare promotions for your business:

If your region is saturated with foursquare users, think about providing incentives and rewards to the mayor of your location. The thinking behind this tactic is that competition for mayorships drives buzz, traffic and subsequently, customers. Generate excitement through deadline-based mayorship promotions. Apple, as an example, gives away an ipod to the mayor of some of its locations every month on the 1st.

But whether you’re Apple or if you’re just selling apples, your brand will be made highly visible through this type of competition.

In smaller foursquare markets, a more desirable approach is to target your promotions to as many users as possible. This not only encourages the use of location-based apps like foursquare, but also allows you to entice a wider customer base. In many instances you’ll be able to drive immediate traffic away from your nearby competitors with these kinds of promotions.

4. Customers are Vital, but Don’t Forget Your Employees

Though they might not be eligible to receive it (consider your staff social media policy for this), your employees are vital to the proliferation of your location-based offers. The last thing you want is for your employees to be unaware of the specials you’re offering. Bad.

Ultimately, you want the promotion to be well known, so combine your online efforts with a front-of-house commitment to reminding your patrons about the benefits of using location-based apps. Do this well and you may be able to assist in the spreading of such apps locally and hence be able to move up to more advanced offerings.

5. Leverage Your Customers’ Networks

This is where you can really make strides with location-based marketing. Rather than going out and generating a network of your contacts, promote discussion and reviews of your location by your patrons. Offer them incentives and visual clues at your location at the register or on the door. Remind them to check-in and compete for the mayorship.

Every mention, every check-in, every positive review is free marketing to a huge network of people that you would otherwise have to find yourself. Let location-based apps do the work for you, but optimize your location to give them the best possible chance to be effective.

6. Make Effective Use of Reporting Tools

You’re probably already using analytical tools in some aspect of your online marketing, ie: Google Analytics. Conveniently, foursquare, Yelp and Facebook Places also offer a huge amount of information to businesses.

With minimal effort you’re able to monitor check-ins, mentions across networks and reviews (social media dashboards can put all these in one place too). Analyzing this information and being able to react to changes over time is something you should be doing.

If your check-ins are dropping off amongst women or at specific times during the week, it’s time to analyze your services and those of your local competitors. Similarly, if a specific promotion is doing incredibly well, it might be time to use it on your other location-based services as well.

Remember: the tools are free but very few businesses make effective use of this information. Don’t get stuck in a rut, be pro-active with your information.

7. Creativity Counts!

As in conventional advertising, if everyone starts jumping on the location-based bandwagon (as well they should!), the services and specials will rapidly come to resemble one-another. Be sure to be different!

Offer an exciting new badge for late-night check-ins. Name a dish after your most prolific mayor. Generally try to be as cutting-edge as you can. The key is to keep it fun. If your customers view you in this light they’ll be happy to promote you to their followers.

Care to share some of your most creative location based marketing tactics? Become the mayor of Sprout Insights – leave a comment below!