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Animation scripted by Michael Murphy and Gordy Stillman and produced by Next Media

Mike Murphy explains how location-aware technology works.

Retailers get personal with smartphone marketing—maybe too personal

by Michael C.W. Murphy and Gordy Stillman
Mar 4, 2014


AP Photo / Apple Inc.

An example of Apple Inc.'s iBeacon messages on an iPhone.

The next time Chicagoans walk into an emporium on the Magnificent Mile, they might get an unexpected greeting from the store via their smartphones.

A growing number of retailers are beginning to use location-aware technology to beam messages and special offers to shoppers who come within range. The software knows where shoppers are in a store and what they've been looking at. It also has a pretty good idea what to sell them.

Apple Inc. and American Eagle Outfitters are some of the companies testing the new way to reach gadget-focused shoppers.

Apple rolled out its iBeacon technology in all of its U.S. stores in December. The location-aware network lets Apple send messages to anyone with an iOS device when they walk close to an iBeacon emitter. The tech giant uses the messages for a range of purposes such as letting customers know when an online order is ready for pickup or trying to sell them the latest iPhones.

Retailers and marketers are excited about the potential of this new channel to reach prospective consumers, but some analysts and privacy experts are worried about the encroachment into personal privacy.

“Privacy is huge at the moment, especially in content-awareness - devices knowing what you’re doing before you do,” said Will Harvey, a creative technologist with Ogilvy Group, an international advertising agency owned by WPP PLC. “Some people are willing to give that information, but it’s a generational thing. Kids don’t think of the privacy side of things.”

The Snowden/National Security Agency scandal also may have sensitized people about any company or government tracking their whereabouts and habits. “We should also think about whether we care if our own government knows the minute details of our lives. Because as we have seen, any company with citizen data can be made to turn it over to our national security agencies,” said Cynthia James, a cyber security expert at Kaspersky Lab in an email.

James added that technology is often “in operation way before our legislators have any idea of the possible repercussions.”

But there’s no question that retailers will be doing more of it, particularly when shoppers are already in their stores and deciding what to buy.

“These hyper-local promotions are a big thing right now,” Harvey said. “They allow for some real ‘Minority Report’ style marketing.” The 2002 action film had a vivid depiction of what personal location-based advertising may soon look like—the main character walks into a mall and is recognized by digital billboards that start pitching him products.

IBeacons use Bluetooth technology in the same way that an iPhone can connect to a wireless headset or a car can pay tolls by driving through an I-Pass lane on the highway. A shortwave radio signal is sent from the iBeacon emitter, and once a phone is within range, the message is picked up. The iBeacons use Bluetooth Low Energy technology, which draws little power and does not drain a phone’s battery as much as traditional Bluetooth.

Apple has started to lease its iBeacon technology to third-parties looking to connect with customers in stores.

Shopkick Inc., in partnership with American Eagle Outfitters, is using iBeacon to interact with customers. The trial, which started last month, involves about 100 stores, including some in the Chicago area.

Shopkick has added iBeacon technology to its own proprietary emitter, called shopBeacon, which can be easily hidden around stores. When users with Shopkick apps on their phones moves in range, the device sends a notification.

“With shopBeacon, we can deliver a plug-and-play solution that works to personalize our customers' shopping experience in an impactful and powerful way," said Joe Megibow, a senior vice president at American Eagle, in a press release.

Unlike at Apple stores, users have to opt-in to Shopkick’s service and download a third-party app. Shopkick has partnered with retailers across the country to create a loyalty program app that members can use in a variety of stores.

Shopkick hopes to add more retail partners if tests at American Eagle prove successful, said Shopkick CEO Cyriac Roeding in an email.

Apple’s iBeacon might be the first technology of its kind to hit Chicago, but it is not the only platform available. Some companies are looking to communicate with customers even before they enter a store.

ISign Media Corp. has been in the location-aware business for more than six years with its flagship product, “Smart Antenna.” CEO Alex Romanov said other technologies move customers around within a location, while Smart Antennas can “draw people into the store.” Potential customers could be up to 300 feet away and still be sent promotions via their phone.

Last year, iSign used its antenna technology at a Super Bowl media event in New Orleans to push advertisements to attendees. The company’s antennae use Bluetooth to connect with compatible mobile devices; they use Bluetooth or Wi-Fi to connect with smartphones. ISign says on its website that the antennae can be used outside.

In a decidedly more consumer-friendly approach, iSign asks users to opt-in to messages after sending an initial notification when they move into range. If shoppers opt in, they can view promotions or coupons by connecting to the antenna’s network and browsing their phones.

Not every company in the location-aware space is relying on Bluetooth technology. Foursquare Labs Inc., which produces the location check-in app Foursquare, is used daily by 40 million people. Although the app started out as a social network to connect users to nearby friends, it has evolved into a user-recommendation guide and payment system for restaurants, museums and other attractions.

Foursquare “geo-locates” its users via the GPS receivers built into modern smartphones. The company has recently taken its geo-location services a step further, allowing businesses to “geo-fence” their buildings. This allows businesses to offer deals and push messages to Foursquare users as they pass by without checking in or searching for information.

Beyond retail applications, location-aware technology is also making its way into everyday life. Control Group Inc., a New York-based creative technology communications firm that operates the Metropolitan Transit Authority’s kiosks in New York, has been using similar location-aware technology to send messages to riders.

Control Group’s kiosks are powered by a new technology created by Qualcomm Inc., a communications equipment company. Qualcomm's Gimbal technology is a Bluetooth-based platform that senses when individuals’ devices are within “geo-fenced” areas.

Some experts believe this is just the beginning of how companies will use location-aware messages to drive new revenue streams.

“It’s the start of mobile payments,” said Gene Munster, a research analyst at Piper Jaffray Cos. Munster said that iBeacon in combination with Touch ID - Apple’s new fingerprint recognition software - will be important to Apple in the future as it will allow mobile payments right from iPhones.

Touch ID was introduced with the iPhone 5S and allows users to authorize purchases with their fingerprints rather than passwords. Apple customers won’t have to interact with a sales clerk if they don’t want to: They can now make a purchase with just the touch of a button on their iPhone.

Clifford Shultz, a marketing professor at Loyola University Chicago, sees location-aware services as “part of an ongoing technological trend to ‘help’ consumers.”

“I suspect at some point there may be some consumer resistance, but perhaps only for specific retailers or brands,” he said in an email. Shultz added that luxury brand consumers are less likely to be receptive to marketing messages that he refers to as “cyber-hustling,” when companies push out blanket untargeted sales messages.

Shultz contends that “more data, more accurate profiling of individual consumers, better ad tracking and communication technologies increasingly will enable retailers and brands to communicate with target customers and possibly sales.”

While it is unclear where these technologies will show up next, industry insiders seem convinced that there are here to stay.

“It’s the future of marketing,” Roeding said.