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Location-based marketing: How to benefit without spooking your customers

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6th Jun 2014
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In an ideal world, location-based marketing would completely transform our understanding of customer journeys and everyone would win. It would resurrect the High Street.

The concept is: we all give our smartphones up as tracking devices and in return, any business or service can get to know our movements and habits and contact us directly via said smartphones depending on our geographical location; offering us all sorts of things we might need and want in those exact moments. Retail outlets all over the globe are currently trialing new systems and ideas using iBeacons, NFC and other tools. North America leads the way in terms of adoption, and even has associations in place looking to research and educate businesses on the technology.  

It could be a marketing utopia. The problem is, it could also be the customers’ idea of hell. This goes way beyond people using Foursquare to make those around them aware of their GPS; yes it gives businesses an opportunity to truly bring the physical and digital worlds together, but it also involves following and tracking peoples’ data movements in order to understand them better. People are already naturally suspicious.

Retailers know nothing   

You can appreciate the excitement among marketers, however. As Forrester’s Senior Analyst, Tony Costa explains, “in the real world, companies by and large know almost nothing about their customers. They know how many people came in through the door, and they know what happens at the cash register, but between those two points businesses are flying blind. There are assumptions and anecdotes but there isn’t the visibility into what happens in those environments. Behaviour isn’t being tracked; there’s no on-going, deep understanding of what’s happening.

“Location [marketing] analytics changes this. It can show what’s driving customer behaviour and tell businesses what people are actually doing. It allows them to use the data to change that experience to make things more meaningful and relevant to them. They can start doing things like A/B testing in a similar way to how you do online; trial different layouts, merchandising schemes. Figure out what is effective and what is driving sales. Begin understanding why, when people come into a store, a certain department isn’t performing well, for instance. There could be dwelling data that shows you that perhaps customers aren’t receiving sufficient assistance; that sort of thing.”

The Wild West

The concerns related to location-based marketing are two-fold. Firstly, that the benefits for businesses far outweigh the benefits for the consumer; and secondly, that once the technology becomes more widespread on the High Street, consumers will be bombarded by smartphone messages from every shop they walk in close vicinity of, which could lead to them turning their backs entirely on buying in the physical world.

As Martin Hayward, VP for global digital strategy at Aimia, puts it: we may be about to “go through a Wild West of location-based marketing”. With little regulation currently in place, and a market itching to start sending targeted messages and collecting data, customers could be about to face a lot of noise:

“We’re on the cusp of a period of exceptional activity in this space," Hayward adds. "The great unknown is really how much a part the customer wants to play in this game. It’s very early days in terms of people responding to location data, offers and messages; being asked to interact with their devices in-store and out. We’ve all got a hefty learning curve to go through in order to work out the right way to interact with customers in this environment.

“They’ll be a mixture of businesses doing things to customers, which isn’t good. The approach needs to be doing things for and with customers; it’s an important distinction in this space and one that will build trust as opposed to destroying it.”

No room for error

Eden Zoller, principal analyst at Ovum, believes the learning curve Hayward refers to will not be given time to exist; that in the ‘Age of the Customer’, making mistakes in the location marketing field will be far more critical to a business than people realise. “There can't be any trial and error with this,” she says. “If consumers are being hit with something they think is spam, they are likely to be pretty unforgiving. It will perturb them from the overall concept; a lot of service providers have already realised how difficult this is to get right.”

Tony Costa suggests a clear, transparent communication between retailer and customer is the key to creating trust in this setting. "If someone is being tracked in a retail store, at the moment most people don’t understand what the value exchange is and what they get out of it beyond an invasion of privacy,” he says.

“Privacy isn’t a yes or no issue, it’s really a gradation of what’s being given up and what is given in return. If all that’s given back is a bunch of adverts, that’s a hard sell. But if I get a store that’s more efficient and better adapted to my likes and needs and wants, and provides a better environment, perhaps there’s more justification. It’s about industry communicating that value in an explicit manner; what exactly is being collected, what it’s being used for. It’s a Pandora’s box. The education process needs to happen and people need to start seeing the benefits.”

Opting in

The good news is, research suggests around a third of consumers are not adverse to location-based targeting, and certain retail outlets are already heeding the call. While John Lewis, Tesco, Heathrow Airport have all recently announced plans to introduce iPhone tracking app, iBeacons into their stores, perhaps the most interesting recent announcement and most likely to capture customer interest comes from Sheffield-based shopping mall Meadowhall and its ‘Ladies Night’ promotion, in which it will allow consumers to activate offers on their smartphones using iBeacon technology throughout its shopping centre on one particular evening.

While only a promotional event, the hope is customers will be eased into the benefits of using iBeacons in-store through a night dedicated to stores agreeing to offer deals and giveaways via customer smartphones. It’s an easing-in process; testing the waters. It’s customer location tracking, but entirely on the customers’ terms, with a prefixed benefit exchange agreement.  

Disney is also heeding the call, and has been heralded for its innovative introduction of Magic Bands into Disneyland theme parks, with the benefits of customers having their movements around theme parks monitored being offset by the fact they can buy food, drinks, souvenirs and merchandise with a wave of the hand and minimal fuss.

Again, it’s on the customers’ own terms. But the key to success here, Tony Costa adds, is that it’s an opt-in technology, as opposed to opt-out, and that it doesn’t involve smartphones at all:    

“I think Magic Band works because it’s opt-in. There are ways that retailers could do the same thing; for instance there’s a company currently trialing Bluetooth beacons attached to shopping carts and baskets in supermarkets to track customers around the store. So those aren’t identified to specific individuals, but it does give the stores the data they desperately want, to find out what happens in stores without tying customers into contracts or having to give up any part of their personal identity.

“A phone is a personal thing now, so to ask people to give part of that up is much more invasive than communicating that you have technology attached to a shopping basket.”

Martin Hayward agrees, but says the opt-in process may also come with its own set of teething problems, smartphone or not; and that retailers looking to trial location-based marketing may still be faced with overwhelmed customers, unless they leave the opt-in process entirely to them with no nudges or persuasions:

“It has to be a very explicit opt-in process; with Bluetooth, NFCs, Wi-Fi etc, customers could end up in a situation where they’re turning different systems on and off in different stores. That’s going to be very confusing and the customer won’t buy it. It will, however, still need to be a more explicit opt-in process where the customer has said ‘yes, I’m happy with this’ in advance.

“It will have to be a more formal communication before the customer gets to the store. No one is going to be interested in managing their preferences as they walk down the high street. Everyone will be crashing into lampposts.”

A compelling proposition

Whatever the near future brings, the evidence suggests marketers need to be completely open about what they’re doing. While Apple recently announced iBeacons was being updated so it would be ‘always on’ within its latest patents, issues of privacy when no prior communication has been provided could lead to innovations in other parts of retail being hampered as a result:

What is igniting this is the push for mobile payments; particularly the in-store scenario,” says Eden Zoller. “If you mix that with location and advertising it offers a much more compelling proposition for consumers. This is why it's capturing so much attention at the moment.

“The other exciting thing about this is the potential evolution of digital wallets, as there’s no reason why this type of technology can’t lead to a payments revolution. So couple that with transactional data, demographic data, mobile-specific data, location, the type of device a person is using -Companies should theoretically have all the tools to target the right people at the right time with the right product and ease of purchase, but the issues of privacy come to the fore before all that, and can restrict that potential, which is a definite barrier, and rightly so.”

“Companies are just starting down the path of asking, if we have certain information, how does that change how we deliver experiences in new and compelling ways?” adds Tony Costa.

“We’ll certain see a lot more of these science-fiction like experiences come to fruition in the next few years because of technology like this. Especially once people understand the benefits and are comfortable with it.”

The big question now is, will brands have the patience to wait for customers to get comfortable with location marketing? If they do, the utopian world of understanding customers' needs without causing upset may be closer than we think.     

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