Summer '14 Commerce

June 23-25, 2014 | Salt Lake City, UT

Why proximity marketing is valuable for retail

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Hyperlocal tracking can identify precisely where shoppers are in stores. Here's how marketers should be using beacons and other proximity technologies.

Apple created a wave of excitement in the retailing world last fall when it released iBeacon, a proximity messaging system based on Bluetooth Low Energy (BLE) location beacons and integrated into iOS. By baking hyperlocal messaging into the operating system and letting apps send push notifications seamlessly, iBeacon and similar capabilities in Android promise to make hyperlocal marketing a much bigger reality. The biggest initial contribution of hyperlocal tracking, however, may be improved analytics rather than proximity messaging.

iBeacon isn't the first hyperlocal protocol. Classic Bluetooth, Wi-Fi, and even BLE have been around for years. They've recently been joined by other technologies, including smart lights and audio beacons, all of which communicate with apps to determine a precise location, often within a few inches.

Why proximity marketing is valuable for retail

In a retailing environment, these beacons can identify precisely where within a store a customer stands. This precise information opens up a range of new possibilities, and stores have been testing them aggressively in the first several months of 2014.

Safeway has been an early adapter, installing iBeacons in the entrances to 200 of its stores. As shoppers walk into the store, those who have downloaded Safeway's "just for U" loyalty app will receive discounts. The beacons allow the app to send offers to the chain's best customers at the exact moment when they'll be most effective. The pharmacy chain Duane Reade just announced a similar program geared toward loyal customers.

Mobile commerce vendor Branding Brand has experimented extensively with beacons and has found that some of the best uses are in preempting questions and providing a seamless path to additional information. A great example is linking a beacon to a mannequin in a store window. Shoppers can walk by the mannequin, and if they have the app, they can see what each piece of clothing costs, where to find it, and its availability.

As exciting as these use cases are, proximity technologies face a couple of big obstacles. First, shoppers have to opt in to location tracking, and they have to download an app or use a mobile wallet. This limits the reach to the most loyal customers. This isn't necessarily a fatal flaw. Improving the shopping experience of core customers is only a good thing, but the impact will probably be less broad initially than many of the more rosy scenarios predict.

Second, to truly launch a proximity campaign throughout a store, the inventory needs to be digitized and mapped against a digital planogram. "It's overwhelmingly complex for a retailer," said David Edelman, partner and global co-leader, digital marketing and sales practice, McKinsey & Company. "Retailers first have to know where everything is on the shelf, in every one of their stores." This will be a monumental task. So even as stores experiment with great niche examples, the mass deployment of beacons throughout stores and malls probably remains a few years away.

And lastly, some people may be disconcerted by technologies that launch ads based on their physical location. Although there's little indication that marketers have crossed the line and driven people away, the danger remains. Ads that too obviously use location data as a basis for messaging can alarm customers. The secret is to use the information to anticipate what a shopper wants, making it seem "like magic," in the words of Jennifer Kasper, group vice president digital/new media and multicultural marketing at Macy's.

Even so, beacons and other technologies that track shopper locations as customers travel through the store can be used to track browsing behavior as much as they deliver messages. Along with other dedicated shopper tracking tools, such as videos, iBeacon can measure store traffic, create heat maps of foot traffic, correlate offline marketing with online sales, and measure browsing behavior.

The most important contribution of these technologies lies in completing the 360-degree view of the shopper. Through cookies and logins, retailers have been able to track consumers for years as they crisscross the web. Through payment systems and loyalty programs, they're starting to connect their in-store buying behavior with online behavior. These location-tracking technologies complete the portrait, revealing in-store browsing in almost as much detail as online browsing.

With a complete view of shopping behavior, retailers can remarket based on in-store browsing or they can add in-store remarketing based on online behavior. The most effective use of this information may be at a later point. If someone looked at something in a store, it might make sense to offer a discount three weeks later right before the shopper heads back to school. It's this power to link together different media that will let these proximity messaging and tracking technologies truly shine, at least initially.

Yory Wurmser is principal analyst, commerce, at eMarketer.

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"Couple walking down a shopping street with shopping bags" image via Shutterstock.