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Technology + Management + Innovation
Sunday, April 10, 2016

Customer Experience Eats Proximity Technology

By Jake Bennett

Proximity technology alone won’t transform retail—it must be used to address customer need in the digital age.

Store, shopping mall abstract defocused blurred background


Proximity technology is a class of emerging technologies (which includes iBeacon, NFC, RFID and a host of others) that enable marketers to pinpoint the location of a customer at a particular point in time. Although proximity technology holds vast potential for marketers, it raises some legitimate concerns as well. Probably the most famous (or infamous) example of the dark side of proximity marketing was in the movie “Minority Report,” which depicted a world where people are under constant surveillance, allowing governments and businesses to track people continuously via retina scanners. In this futuristic landscape, digital billboards identify customers as they pass by and speak to them with highly personalized marketing messages: “Hello Mr. Yakimoto, welcome back to the Gap. How did those tank tops work out for you?”

Fortunately for us, ubiquitous, government-controlled retina scanners don’t exist in the real world. But, an even more powerful and pervasive tracking device does — the smartphone. When paired with proximity technology, the smartphone provides all the computational horsepower necessary to create sci-fi-inspired personalized marketing experiences, experiences that truly add value for the customer rather than creating a dystopian landscape. So if that’s the case, why hasn’t proximity technology transformed retail?

Indeed, proximity technology is at a critical inflection point. Right now retailers are dipping their toes in the water. Most are focused on experimentation, and retailers are still learning the benefits and limitations of the technology. This tentative approach, though, hasn’t created the disruption retailers have been hoping for — a transformation that will lure online shoppers back to the store. Installing iBeacons in a few stores won’t by itself change macro consumer trends. Nonetheless, the question is still hanging out there: Will proximity technology truly enhance retail ROI? Or is it another technology fad that will fail to live up to its promise?

It is too early to tell for sure, but the evidence still strongly suggests that creating a personalized, in-store, digital experience will benefit retail significantly. According to a PricewaterhouseCoopers study, the majority of shoppers in every tracked category, ranging from toys and electronics to clothing, conduct research online before making a retail purchase. What if retail locations could give customers the same level of personalization they receive online?

Forrester Research confirms the business case for personalization: “eCommerce personalization engines have provided product and content recommendations for online retailers for years. In fact, 62% of US online adults have chosen, recommended, or paid more for a brand that provides a personalized service or experience. Online personalization technology is successful because it drives measurable, incremental sales and profit for retailers, and eBusiness professionals continue to highlight personalization initiatives as a top investment priority.”

In fact, as personalized recommendation engines for online shopping become more sophisticated, people increasingly rely on machine intelligence to help them find the products they want. Furthermore, as a result of their online shopping experience, customers have come to expect a wide product selection at their fingertips, which makes the limited inventory found in a single retail location an inhibitor to visiting the brick-and-mortar store. Customers want these limitations addressed when in-store shopping.

Although there is clearly an unmet customer need, most proximity technology implementations fail to adequately address it. Rather than focus on the factors that drive people to shop online instead of in-store, most proximity marketing executions to date have focused on pushing promotions to customers when they are in or near a retail location. This may have benefits by allowing retailers to experiment with proximity technology, but it’s insufficient to transform in-store retail as a whole because this experimental usage fails to address the root causes that drive people to shop online in the first place. People don’t choose to shop online due to a lack of in-store discounts — people go online because it’s convenient. Pushing promotions to a customer’s iPhone potentially makes this worse, not better.

Fortunately for retailers, the tools for retail transformation already exist. Now that the majority of in-store shoppers have smartphones and the cost of tablets for in-store use has declined, brick-and-mortar retailers have the opportunity to enjoy all of the advantages of online shopping (e.g., access to inventory beyond the local store for shipping), plus all the benefits of an in-store experience (which online retailers can never provide), such as the physical inspection of goods, in-person customer support and the enjoyment of “retail therapy.” Proximity technology provides the missing link by connecting the dots between the customer, her phone and her precise location inside of the store.

Experimenting with one-off technologies, however, won’t move the needle for retailers. The key to retail transformation is creating end-to-end customer experiences that cross channels and utilize the specific technologies that best support the experience. Technology by itself won’t transform retail – only the creation of engaging and helpful customer experiences will. The businesses that succeed will be the ones brave enough to evolve beyond the silos of retail and online. To be successful, retailers will realize that customers don’t fit neatly into our product categories, marketing channels or technology classifications. The arbitrary taxonomies we use to manage our businesses don’t reflect the reality in which our customers live — so why do we let these taxonomies drive and constrain the customer experience?

An excellent example of an effective use of proximity technology in a cross-channel execution is Nordstrom’s use of geofencing. In 2015, Nordstrom rolled out order online, pick up in store. This was not a super sexy, headline grabbing, technical innovation. However, it was a major logistical feat designed to take advantage of its 120 retail locations and to make shopping at Nordstrom more convenient. By itself, this was a major accomplishment, but Nordstrom didn’t stop there. The company also added geofencing to the mix, which allowed it to send a message to customers who were near a store and had recently shopped online, notifying them if any of their unshipped products were available to pick up in-store. This is a great example of a highly personalized proximity execution designed to improve customer convenience. (Why wait for my product when I can pick it up right now?) At the same time, it benefits Nordstrom by increasing the likelihood of add-on impulse purchases. A win-win for the customer and the retailer.

It is also worth noting that geofencing is not new, and that a great experience doesn’t necessarily require using new technology. All too often in our search for the next technological silver bullet, we discard technology that is a few years old because it’s no longer shiny: for example, “Our competitor already tried using technology X once before, and it didn’t seem to be effective.” But this is misguided. This is like saying, “I tried using a hammer once to build a treehouse, and the treehouse wasn’t very comfortable. Therefore, I don’t want to use any hammers when building my new home, just electronic screw drivers, because I hear that they are better.” Technology is just a tool — it is the customer experience that you build with it that moves the needle. The criteria for using a particular technology shouldn’t be the number of years since its inception, it should be its effectiveness in implementing the desired experience.

A word about privacy

Fortunately for us as human beings, the technology industry has heeded the warnings from the “Minority Report” and the like. They’ve realized it’s not acceptable to constantly track users and send them marketing messages without their consent. This is why most proximity technologies require some type of user opt-in. Sadly, many marketers see this as a deal breaker. At first glance, consent requirements appear to reduce the ROI of proximity marketing efforts because it decreases the coverage of the campaign. This becomes especially problematic if your proximity marketing strategy relies on low-user-value tactics, like pushing discounts that give users little reason to opt-in in the first place.

However, the fear of user consent is shortsighted. If we made the same argument for email marketing — and abandoned it because it requires users to opt-in — then we’d be passing up one of the most cost-effective marketing channels of all. Like email marketing, the potential of proximity marketing is powerful precisely because it is so hyper-targeted. It enables us to connect with users when it matters the most — when they are in the store and likely to buy. If we combine proximity information with knowledge about the customer, then we have the ability to provide über-targeted marketing to our most highly qualified customers. So rather than lamenting opt-in requirements, lean into them enthusiastically, address them in your campaign and give users a reason to say “yes!” by crafting great end-to-end experiences.

The breadth of proximity-focused technology is growing fast, and it can be difficult to keep up with the pace. Below is a review of some of the tools marketers can employ when crafting location-based experiences for customers.

Geofencing

Geofencing uses the GPS in a customer’s phone to approximate their position. It entails creating a perimeter (the “geofence”) that produces a certain action when customers enter or leave the perimeter, such as sending them a message.

Super powers:

  • Broad range: You’re not limited to the region around a store. For example, WWE used geofencing to greet professional wrestling fans disembarking the plane on their way to Wrestle Mania.
  • Proven technology: Geofencing has been around for many years, so the technology is well understood and stable.

Kryptonite:

  • Precision: Geofencing is not precise enough to pinpoint the location of a shopper within a store. It is accurate within 5 to 15 meters, which means you won’t know which endcap she is next to.
  • Battery life: The use of geofencing requires user permission for location services. If users don’t understand the benefit this provides them, then they may opt out.

Example:

  • See the Nordstrom example above.

NFC (near field communication)

NFC is best known as the technology that powers Apple Pay and services like it. NFC allows two devices (e.g., an NFC-enabled smart phone and an NFC reader) to communicate back and forth to perform specific actions (e.g., opening a specific app or webpage on a mobile phone). The near part of near field communications is key here. The devices need to come within two inches of each other to talk. Typically, the user air “taps” his phone near an NFC reader to activate the interaction.

Super powers:

  • Precision: NFC requires very short range to work, which means you know exactly where a customer is when he performs a NFC interaction.
  • Customer intent: Because NFC requires a “tap” to work, you know that the customer intended to interact with the NFC device. Contrast this to iBeacon, for example, where a user’s phone could trigger a nearby kiosk to display a personalized message, but you could never be sure if the intended user is actually looking at the kiosk.
  • Two-way communication: NFC can facilitate both one-way communication (e.g., your phone reads a pre-set NFC sticker) and two-way communication (e.g., your phone receives information from an NFC device and sends information to it as well).

Kryptonite:

  • Limited iPhone support: While most Android and Windows phones have had NFC chips for years, Apple didn’t release an NFC-enabled phone until the iPhone 6 launch. Maddeningly, Apple never opened up access NFC functionality to developers — so it can ONLY be used for Apple Pay right now. Given the high adoption of iPhones (with a 43.1% market share in the U.S.), this makes NFC a “coming soon” technology for most.

Example:

iBeacon or BLE Beacon

In 2013, Apple’s iBeacon technology put proximity marketing on the map. However, despite what most people think, iBeacon is not a device, but rather a communication protocol. The iBeacon standard specifies how devices can use Bluetooth Low Energy (BLE) to transmit their location to smartphones. The way it works is simple: A small device (typically battery powered) transmits a BLE signal containing an identifier that is used to encode the identity of its owner and its precise location (e.g., the lobby of the downtown store). A mobile phone with the retailer’s app then “listens” for these BLE signals. If the phone detects one, then it knows where it is and it can act on this information accordingly, for example, sending a personalized message to the user or notifying a customer service rep that the customer has arrived. Apple published the iBeacon protocol, but it doesn’t really sell beacon devices. Instead, other manufacturers like Gimbal (formerly a Qualcomm subsidiary) and Estimote have taken the lead in this area. Because the iBeacon protocol itself is so simple, much of the heavy lifting required for the enterprise-grade implementations, like security, monitoring and analytics, is provided by the beacon vendor — so choose your vendor wisely.

Super powers:

  • In-store positioning: Beacons can pinpoint the location of customer within 2 feet, making beacons perfect for more geographically targeted executions.
  • Cost: Beacon devices are fairly inexpensive, ranging from $5 to $30 each.
  • OS-level awakening: Beacon BLE signals are intercepted at the mobile operating system level, which means that your phone can receive an iBeacon signal on behalf of your app, even if your app isn’t open.
  • Cross-platform: The iBeacon protocol is supported by most modern mobile phones.

Kryptonite:

  • Maintenance: If you’re a small retailer, rolling out and managing a few dozen beacons is not a challenge. However, if you have hundreds of stores with dozens of beacons in each, deploying, monitoring and maintaining the beacons becomes an operational program.
  • Requires Bluetooth: BLE beacons require that Bluetooth be enabled on the customer’s phone. Unfortunately, Bluetooth drains battery life, so many people turn this off, which means their phone won’t be able to interact with iBeacons.
  • Permissions: Users need to explicitly give the app permissions to always use location services.

Example:

Audio/Sound Beacons

Audio beacons (also called sound beacons) use the same basic architecture as iBeacons, but utilize sound instead of Bluetooth to send signals to a mobile phone. Audio beacons transmit an inaudible sound that encodes the retailer’s identity and the location of the speaker emitting the sound. This tone can be embedded over an existing sound track (e.g., via in-store music) or as a silent signal. LISNR, Signal360 and Shazam all have audio beacon solutions. Some vendors, like Signal360, have products that use both iBeacons and audio beacons to get the best of both worlds.

Super powers:

  • No Bluetooth: Because audio beacons use sound rather than Bluetooth, they work even when users have Bluetooth turned off.
  • Leverage existing sound system: For retailers with store-wide sound systems, the audio beacon signal can be transmitted over existing speakers, reducing device costs and maintenance.
  • Broadcast: Some audio beacon vendors, like LISNR and Shazam, work over TV and radio broadcast so you can interact with users from a TV ad or radio spot.

Kryptonite:

  • App-level awakening: Unlike the iBeacon protocol, audio beacons work at the application-level, rather than the mobile operating system level. This means that if the app is not running in the background (because it hasn’t been opened recently) then it may not pick up the signal. There are ways around this (e.g., you can use geofencing to “wake up” the app), but it’s not as seamless as iBeacon technology.
  • Permissions: Sound beacons require permission to use the phone’s microphone. Although this is similar to the permissions required by iBeacon, the use of the microphone sounds a bit more intrusive, so telling users why you need this permission is critical.

Example:

  • University of Michigan uses audio beacons to increase fan engagement in-stadium, and the Budweiser Made in America music festival uses audio beacons to enhance the fan experience.

 

Other proximity technologies

The technologies above are just the some of the newer ones in the lineup of proximity marketing tools. Other technologies that exist in the proximity toolkit include the following:

QR Codes are barcode-like images placed on signage or digital screens that can be read by a mobile app to trigger actions like opening a webpage or downloading content. Although QR codes are considered “old school,” they can be effective when used correctly, and they avoid some of the drawbacks associated with other near-field technologies like NFC.

Internet-enabled digital displays are not typically considered a proximity technology, but they can play an important role in a proximity marketing experience. For example, Internet-enabled displays can send and receive information from cloud-based services, enabling two-way communication between the display and the customer’s mobile phone. This can enable a “Minority Report”–like marketing experience (but with the appropriate privacy safeguards in place, of course).

RFID is a close cousin to NFC. RFID tags can electronically store product information and can be read by RFID readers without being in the device’s direct line of sight. RFID has historically been used for inventory management, but it’s also now being used for marketing purposes. For example, Rebecca Minkoff used RFID tags to identify products in the dressing room to display additional production information on the touchscreen display.

Kinect is a motion-sensing technology developed by Microsoft. Kinect was originally developed for Xbox as an innovative controller that enables your body to act as the controller. However, because it has an open API, it is now being used for marketing applications as well. Kinect can project an image of the viewer on the screen, track the viewer’s movements and augment the image with graphics. For example, Barbie used the Kinect in a retail setting to enable girls to select an outfit and display how they would look in it on the screen.

Technology should never lead the customer experience; it should service the customer experience. Employing fancy tools just to do something new won’t have a great ROI. But by understanding what proximity tools are available and how they can be put use and work together, we can craft remarkable customer experiences that bridge the gap between the online and in-store worlds.