This is what happens when you shop with your phone in your pocket. (Illustration: James Boast)

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How Stores Follow Every Step You Take

Because it’s no longer enough to only know that you’re in the store.

By the time you finally submit a payment for an online purchase, chances are good that the seller knows quite a bit about you. Your browsing history reveals all sorts of clues: your interests, which advertisements you’ve been exposed to, and even basic demographics like your probable age range and gender. Just the operating system you use can send significant signals about the prices you’ll tolerate—researchers recently demonstrated that a variety of sites routinely charge more to shoppers using Macs or Android devices.

By comparison, when you make a purchase in a physical store you may as well be anonymous (unless you use a loyalty or membership card). Amongst the unignorable success of companies like Amazon and Alibaba and the exponential growth of e-commerce in general, it’s easy to forget that 75 percent of retail sales still take place in physical stores. And those stores are eager to know just as much about their in-store shoppers as they do about their online shoppers—if not more.

The keys to understanding shoppers in the offline world are emerging location technologies that can show how you and your phone move through the world. Retailers have begun using location-based, context-aware advertising and marketing campaigns to attract shoppers to their stores. And then, once potential customers are inside, indoor location networks can take over and help them make additional sales.

Local advertising used to be pretty basic—circulars sent by mail to certain neighborhoods, say, or maybe inserts and coupons in the local newspaper. But once location-sensing phones became commonplace, advertisers realized that they could be used as a more personalized platform for local advertising. Early location-based services were mostly focused on targeting promotions to specific geographic areas—when you entered an area, you might see that a discount was available at a nearby business. But over time, the advertising technology has evolved to become much more sophisticated. By analyzing your past locations and movements, and comparing them with other data, mobile advertisers can now create complete “geo-behavioral profiles.”

Basically, “where you’ve been tells us who you are,” says Alvaro del Castillo, the CEO of SONATA, a Spain-based company that provides location- and context-aware advertising for globally coordinated campaigns. SONATA mostly serves ads through mobile apps in which users have opted-in to sharing location data. On phones, latitude and longitude coordinates can be even more revealing than browser-based cookies. If SONATA’s system detects that a user has been at the airport for each of the past three Mondays, says Castillo, “we can guess that you’re a business traveler, and our predictive analysis tells us you’ll probably be there again on another Monday.” So in addition to targeting ads to customers who are currently near a store, SONATA can also reach customers who are likely to be near that store in the near future, based on their past behavior.

Once a customer is inside, however, GPS coordinates are no longer very useful—they’re not precise enough to determine what aisle a shopper is in or what type of products they’re browsing. In fact, exact physical coordinates are much less interesting “than whether they’re in the shoe department or not,” explains Sima Nadler, IBM’s worldwide research lead for retail. To address this need, Nadler invented IBM Presence Zones, a system that helps transform raw location data into contextually defined areas that are actually useful for businesses. That way, “if you want to run reports about all shoe departments, you don’t have to worry about the different XYZ-coordinates in each store,” says Nadler.

Presence Zones are compatible with several different customer-detecting technologies. One approach is to use multiple Wi-Fi antennas to detect nearby smartphones and triangulate their location. This “anonymous mode” doesn’t store any personal information about individual phones (“there’s no way to go back and figure out who the person is,” says Nadler), but is useful for analyzing aggregate customer behavior, because it can track user movement without requiring someone to opt-in or download a store’s app.

But to provide personalized in-store services, retailers do want to be able to identify individual users. “Once you actually walk into the store, we can check you in and check for promotions,” explains Jonathan Wall, the co-founder and chief technology officer of Index, a startup focused on providing physical stores with the same sort of customer data that they get online. In this case, stores often turn to proximity-sensing Bluetooth location systems like Apple’s iBeacon, which send a short-range wireless signal that can be picked up only by nearby phones that have a compatible app installed. When a phone moves within range, the system might send a push notification to a shopper’s phone, with a promotion or message specific to that area of the store.

Marc Freed-Finnegan, Index’s other co-founder and its CEO, believes that such location-aware messages and apps can provide an in-person shopping equivalent of the “other items you might be interested in” or “frequently bought together” sections of e-commerce sites, which are known to generate substantial extra revenue.

Location-aware apps can also save stores money by reducing the number of salespeople necessary. “Retailers have to be conscious of fixed costs, like floor space and staff members,” says Peter Christianson, the director of product marketing at Retailigence, another technology company that helps stores connect their digital marketing efforts to in-store sales. A hardware store, for instance, “might have an app that will give directions to in-store product locations, provide reviews, and suggest complementary products,” he says. “A lot of people look to employees to assure them that they’re making a good purchase so they don’t have buyer’s remorse,” and seeing contextual social reviews can serve the same purpose.

But location-based “triggers,” explains Nadler, don’t have to be limited to self-serve apps on a customer's phone. For some types of stores, the technology can be used to make existing employees more effective. High-end retailers like Neiman Marcus have found that when a customer shops with the same salesperson three times, they spend almost 10 times more than a customer who shops with a random salesperson, says Index’s Wall, “So how do you use technology to capture some of that for lower-margin, mid-range stores?” One solution is to provide employees with location-enabled devices that tell them not only where customers are in the store, but what they’re likely looking for and what they’ve bought in the past. Wall imagines that a common greeting of the future might sound something like, “My tablet says you might enjoy these other products.”

Stores realize that not all shoppers are eager to share their movements and be bombarded with personalized messages or sales pitches whenever they’re near or inside a store. With in-store beacons, “there’s a fine line between being useful, pushing the next promotion at the right time, and being annoying,” says Christianson. “And if you annoy your customers,” he says, “they’ll either delete the app or turn off notifications.” So many retailers are proceeding cautiously—a common approach is to start with customers who are already enrolled in a loyalty program, as they’re more likely to opt-in to location services in exchange for discounts or perks.

The key to gaining customer trust is to provide them with real value, says Nadler, who is part of a group working on industry-wide standards for location permissions. “What we have seen is that where there is benefit, people are more than happy” to share location data, she says, but when there’s no benefit, they’re not. While many people still have a general aversion to location tracking, the popularity of other apps like Open Table and Uber have helped increase the number of people who are comfortable with sharing their locations. SONATA’s Castillo says that the current methods of granting permissions—Android devices, for instance only ask once per app—also need to be improved. “We need an opt-in and opt-out mechanism for users to pick when they want to be localized, and when they don’t,” he says, which would give users more control over their privacy and reduce general skepticism.

And with retailers' growing stores of data, they have a priority to make sure it's secure for their customers. So in parallel with Nadler's work on Presence Zones, IBM has been helping retailers harden their data security as well as offer cloud services and platforms to securely manage sensitive data.

Stores may well make mistakes as they experiment with new location technologies, but the benefits are likely to be worth the bumps and bruises they acquire along the way. Retail needs to change, says Freed-Finnegan of Index, and “I think retail will change.” Several years ago, analysts were predicting the death of brick-and-mortar stores, says Nadler, but “I think the retailers who understand how to leverage both online and offline sales are the ones who will win.”