These small wireless sensors are becoming increasingly popular with major retailers. They allow stores to communicate with their customers in context and to gather vital information.

Beacons firing the imagination of US retailers

The smartphone is not necessarily a retailer’s best friend. These mobile devices enable customers for example to easily compare prices at different store chains and with online commerce sites. However, this situation could change fast with the development of beacons – small Bluetooth Low Energy-enabled sensors which connect with the smartphones of people close by. Only a few centimetres in length, these devices are small enough to be easily hidden from view in a store. And they cost almost nothing: San Diego, California-based wireless telecommunications products and services company Qualcomm sells them from $5 per unit.

There is no doubting the ‘disruptive’ potential of beacons. “They’ve transformed retailers’ imagination,” argues Adam Silverman, Principal Analyst at independent technology and market research company Forrester. He recognises nevertheless that there is still a long way to go. Many companies have already started to deploy the technology, sometimes in test mode, sometimes on a large scale. Since end 2013 Apple’s iBeacon functionality has been installed in all its 250 stores across the United States and it looks likely to be used abroad too.

Location-based promotions and personalised services

When you go into an Apple store you receive a welcome message. You are offered various options: for example you can book the next available slot with the help service. Then the system sends you messages containing promotions. And this is where the real promise of beacons lies: it allows the store to communicate directly with the customer and make personalised offers, taking into account exactly whereabouts in the store s/he is right now. Is the customer lingering at a display? A discount coupon could well entice this potential buyer to make the purchase.

“We all enjoy saving money, and pushing offers to us via beacons will be a popular use case. However it’s possible to offer a deeper level of engagement. Based on location, retailers can allow customers to unlock dressing rooms, authenticate a mobile payment, or provide an enhanced service such as preparing your favourite latte as you enter your local coffee shop,” explains Adam Silverman. This is what the Paypal Beacon app does. The system recognises its users as soon as they walk into a store and they can then pay for their purchases without having to take out their wallets or even reach for their smartphones.

“We’re creating the future of shopping,” says Cyriac Roeding, co-founder and CEO of Shopkick, a Silicon Valley startup which supplies the technology to such major US retailers as Macy’s and clothing specialist American Eagle Outfitters. Shopkick’s sensors are already installed in over a thousand stores in the US. “It’s a win-win for the buyer and the retailer,” underlines the German-born entrepreneur.

Beacon technology provides a whole range of options for retailers. In addition to sending money-off vouchers, it can be used to reward loyal customers with gift cards and so on. Beacons also enable the store to capture data on buyer behaviour and track how they make their way through the store. New York City beacon technology supplier Nomi provides stores with the means of calculating the number of people in the store and obtaining such essential information as which displays and shelves customers stop at most often, plus extra data on customer demographics.

‘Indoor location’ is booming

So it is hardly surprising that other retailers such as Macy’s and American Eagle Outfitters and US supermarket chain Safeway have followed Apple’s lead. The technology is now also being used at sports events. In February it was tested on a small scale during the annual National Football League championship game – the Superbowl – in New York and since late March most of the professional Major League Baseball stadiums have installed beacon technology.

“We’re looking at strong growth for this type of infrastructure,” says Patrick Connolly, Senior Analyst at ABI Research, a market research and market intelligence firm based in New York City. He forecasts that over 800 million smartphones will be using ‘indoor location’ by 2018. “It’ll be used as often as GPS is today,” he predicts.

However, there are still a number of barriers to be overcome. “Concerns over data privacy could make customers worry about the idea of sharing their data with stores,” warns Adam Silverman. So retailers will need to find the right balance, and should not deluge their customers with unwanted messages and untargeted promotional offers. Already many apps are sending data privacy notifications to their users.

Another not inconsiderable hurdle to overcome is that the system only works if the customer has downloaded the store’s app and given explicit authorisation to use his/her personal data. The smartphone’s Bluetooth functionality also has to be activated but many users prefer to de-activate this functionality in order to prolong battery life. To get around these problems, Shopkick recommends that retailers offer an incentive – e.g. a free coffee or a music download – to the customer to encourage him/her to engage with the beacon-based services. The company says it has so far distributed over 25 million dollars’ worth of gifts. Meanwhile retailers are finding that the beacon system does pay off: over $500 million in additional turnover was reported for 2013 by merchants that have installed this technology.

By Jérôme Marin