How location tracking will change the way you shop

Technologies that follow you around the store could be a benefit or the latest privacy invasion

Can't find an item in your grocery store? Some retailers want to help, but it could mean tracking your every move as you wander through the aisles.

In an emerging area that combines location data, marketing and analytics, retailers are testing new ways to learn how customers shop and move about their stores, and targeting them with promotions and in-store maps on their smartphones.

The concept, sometimes called place-based marketing, uses detailed location information, often down to the shelf you're walking past, to drive sales and give retailers more information about foot traffic in their stores. That means picking up a trail of digital breadcrumbs from people's smartphones and mobile apps.

Some of those apps will push special deals to shoppers when they pass by a particular item. Not a Pepsi fan? Maybe you can be swayed with a discount coupon as you wander through the soda aisle.

Think of it as your grocery store trying to outsmart Google, or better yet, Amazon. Those are the players, after all, that brick-and-mortar stores see as their biggest competitors.

A challenge is to do it without trampling on customers' privacy. Users have grown accustomed to being tracked on the Web, even if they don't like it, but using Wi-Fi to track people as they move through a physical store can creep people out, as Nordstrom found out when it tried it last year.

Retailers hope they can persuade shoppers to trade a bit of privacy if they get something useful in return, like a better deal or some helpful shopping information.

To do their digital sleuthing, companies are taking different approaches. One strategy is to make the smartphone a more useful shopping assistant. One company, aisle411, helps physical stores digitize and map their inventory so customers can find items more easily. Users can create lists, browse recipes and search for products in participating stores. Searchable store maps can be accessed from the app in more than 12,000 retail locations, said CEO Nathan Pettyjohn.

The company uses Bluetooth "beacons" made by Estimote to detect when shoppers pass certain locations or aisles, so it can push them offers and other deals. The St. Louis, Missouri-based company sees itself as helping to fill the digital void that impedes brick-and-mortar stores' ability to compete with shopping channels online, Pettyjohn said.

"For any retailer who is questioning this, I would say to put yourself in Amazon's shoes," Pettyjohn said. "Amazon would probably want you to stay non-digital."

He spoke Tuesday during Place, the inaugural indoor marketing summit organized by Opus Research in San Francisco. The event attracted a dizzying variety of companies promoting their wares.

In addition to apps like aisle411, there are data gathering companies like Euclid, Path Intelligence and GISi Indoors that track where consumers go and how long they stay there. There are Bluetooth beacon makers like Estimote, Qualcomm and StickNFind. There are household names like Nokia, which is focused on indoor mapping through its Here business.

And there are Wi-Fi hotspot operators like Boingo Wireless, which detects passive changes in Wi-Fi signals on cellphones to measure foot traffic. The company is already using the technology in airports to give travelers estimates of security checkpoint wait times.

But while the players are many, they have one or two common goals: to give retailers more shopper information on the back end, so stores can better manage their inventory, layout and hiring practices; and to give shoppers more information on the front end, through maps, coupons and loyalty programs.

Path Intelligence is working on the back end. It uses laptop-sized receivers to map people's movements at a given location by reading radio-frequency signals sent between cellphones and cell towers. The technology is designed to be anonymous, so the location of the phones can be seen but not the user data stored on them.

The technology is being used in about 150 locations, including shops, malls and sporting venues, to provide information about where people go and how long they spend there. The company says its equipment is meant to be marked and clearly visible, though ultimately it's up to the retailer if they notify people they're being tracked.

Path's technology is useful, one real estate developer said, because it can help malls see whether people are going to a movie and leaving right after, or grabbing a bite to eat next door after the credits roll. That can help the mall decide whether to re-think its dining options.

Indoor marketing is different from e-commerce, which is geared toward online purchases. Rather, it's about everything that happens up to the physical point of sale -- something brick-and-mortar retailers know very little about.

"There is a lot of use for this information," said Bob Rosenblatt, a consultant and former chief operating officer at Tommy Hilfiger Group. Compared to consumer apps, a lot more activity happens behind the scenes, he said, because store executives are already accustomed to reviewing and analyzing data to make decisions.

Research by Opus suggests retailers might be on the right track. In the U.S., most people already use smartphones in stores to do things like look for coupons, compare prices or pull up product reviews, surveys have shown.

Indoor marketing builds on those habits, with the hope that consumers will allow the occasional pushed offer, or even some tracking, if they feel they are getting something out of it.

There's plenty of futuristic thinking in the area. In a couple years, brands may be buying ads through Google not just to appear on websites, but to someone standing near a particular item in a store.

"As a brand, you could market to people in the store without paying the store, which changes the retail business in a significant way," said Ben Smith, CEO at Wanderful Media, which operates local shopping sites.

"The playing field between online and the in-store experience will be leveled," predicted aisle411's Pettyjohn. Right now, websites know your preferences, but so too, he said, will stores.

Another idea is to install LED lights that blink so fast the human eye can't see them, but the camera on a smartphone can. The light could be used to send messages or alerts to people's phones, said Don Dodge, a developer advocate at Google.

Dodge, who helps developers build new applications on top of Google technologies, is also looking at new sensor technologies that could detect movements down to a centimeter. He wouldn't say if it was Google developing the technology or one of numerous startups working in the space.

"There are many players in this," he said.

Of the top 50 major retailers, Dodge estimated roughly half are looking into some form of indoor location technology.

One of the biggest hurdles is being able to integrate all the different technologies to make indoor marketing work. "You can build a great app, but then the infrastructure may not be there," Dodge said during a keynote at the Place conference.

Another challenge is that current GPS technology does not provide a very precise location. Some vendors said their services provide accuracy of five to 10 meters. But less than 1 percent of stores are using the advanced technologies discussed at the Place conference, said Alexei Agratchev, co-founder at RetailNext, which does in-store analytics for retailers like Verizon and American Apparel.

Nokia said it has mapped 99 percent of the major shopping malls in the U.S. and Europe, but has not done so at the aisle level in every case.

Privacy concerns loomed large at the show and were the theme of many questions for panelists. Last year, Nordstrom began tracking customers' movements by following their phones' Wi-Fi signals. Although it posted a sign telling customers they were being tracked, it ended the program this past May, partly because of complaints from shoppers.

At the location conference this week, some said Nordstrom hadn't done a good enough job of explaining to customers the benefits of what it was doing.

Companies need to be transparent about what they're doing and why, said Jules Polonetsky, executive director and co-chairman at the Future of Privacy Forum.

"We're never going to convince consumers that they should love data exchanges or marketing," he said. But instead of burying their data gathering in a long privacy policy, retailers should promote the types of benefits Amazon offers with its recommendations, Polonetsky said, and tell customers, "We recommended this to you because you liked such and such."

Chandu Thota, an engineer at Google, agreed that companies need to explain the benefits to shoppers. "But phones are very personal," he said, and when stores try to gather location data, customers may be turned off by the idea.

GISi Indoors installed its Wi-Fi sensors at the Place conference to map the location of attendees, denoted by red dots on a map of the hotel displayed on a screen. Location tracking still isn't an exact science, though. Occasionally, a red dot would zoom by, cutting across a wide swath of the hotel.

"That's a car outside that was picked up by our sensors," a company representative said.

Zach Miners covers social networking, search and general technology news for IDG News Service. Follow Zach on Twitter at @zachminers. Zach's e-mail address is zach_miners@idg.com

Tags StickNFindNordstromInternet-based applications and servicesaisle411Boingo Wirelessinternetbusiness managementmobilemobile applicationsPath IntelligenceGoogleEuclid AnalyticsEstimoteNokiasearch enginesadvertisingbusiness issues

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Zach Miners

IDG News Service

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