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Privacy concerns arise with proximity-based beacon technology

Beacon technology aims to change the way retailers interact with customers. But new location-based technologies usher in not only convenience but also privacy concerns.

SAN FRANCISCO -- Last year, Rosetta Stone instituted a major shift in strategy to gain new customers. The language-learning software used to be ubiquitous in airport and mall kiosks staffed by salespeople demoing the product. The company's marketing strategy of one-on-one demos targeted those who wanted to learn another language for work or "global explorers" who frequently traveled internationally.

But the demos were falling flat. After determining the model was unprofitable, the Arlington, Va.-based company shut down the last of the kiosks to migrate to the cloud. Further, the company explored new ways to use its kiosks to interact with customers  and sell products.

At the center of this new strategy is beacon technology, most notably Apple's iBeacons. While the protocol is in its infancy, companies have begun to wonder how location-based services like it could provide customers with more immediate and targeted service on mobile devices. With beacons, companies can save time they spent previously hunting down customers interested in their products. By interacting with consumers through the company's app, customers already present in the company's physical location can take advantage of special offers and promotions.

The technology was the focus of the session "Meet Your Customers Where They're At" with Don Stroberg, COO of Radius Networks, and Kevin Martini, VP of retail sales and marketing at Rosetta Stone at Dreamforce 2014,'s annual user conference, last week.

The marriage between consumer products and beacon technology "has been lacking in retail for quite some time," Martini said. "Wireless networks do not have the accuracy needed when you're in a building, and that's what beacons bring to the table in a very inexpensive, broad-based way."

Beacon technology on the rise

With Bluetooth Low Energy (BLE) wireless transmitters, beacons can track a mobile device's location and notify apps when a device approaches or leaves a location. In many cases, a retailer's app will contain a software development kit (SDK) that corresponds with the beacon is in the store or display. By knowing whether customers -- particularly those who already have the company's app installed on their devices -- are close to a store or product display, companies can send offers or marketing materials instantly.

Rosetta Stone changed tactics with its demo strategy, moving to 150 unmanned interactive kiosks in airports and malls, as well as retail chains such as Best Buy. The new kiosks enabled customers to try the software and explore its features. Outfitted with beacons -- and knowing that the majority of its traffic came from mobile devices -- Rosetta Stone waited for the sales results to come in. It found that interactive kiosks boosted sales.

"I wanted to give people the ability to interact with the technology in [a retail setting], do a demo, and then, ultimately, provide a real-time offer push notification so that, if I can see you there taking a demo, I can push an offer to your phone," Martini said.

Martini said the kiosks promote product sales by providing immediate, real-time demos of the software. "We have an additional ability to incrementally drive more sales because now I can interact with you while you're standing right there," Martini said.

Forrester Research analyst Adam Silverman said that since the cost of a single beacon pilot is low, many retailers are trying small scale deployments of the technology. Retailers are starting to study how this technology drives revenue and fosters customer engagement.

"These solutions are not necessarily mature enough to manage tens or hundreds of thousands of beacons," Silverman said. "There needs to be a maturing of the vendor solution in order for beacons to roll out in scale."

Data security concerns

But beacon technology raises concerns about data security and customer privacy. While a customer has to opt-in or give permission for a company to track his location, when he downloads a company's app, companies need to walk a fine line between offering useful information and being invasive.                                                                                                                                                                                 

Radius' Stroberg said the only information that beacons record today are whether a customer is in close proximity to it, how long he was at this physical location and if he returned. Rosetta Stone's Martini said the technology also provides opt-in capabilities.

"You can always turn that capability off," Martini said about push notifications on apps. "And it's not like we're begging you 16 times a day, we're only subtly interacting with you when you're within proximity of our display."

Forrester's Silverman said it's unlikely at this stage that companies will constantly bombard customers with offers, perhaps causing them to delete the app out of frustration. Privacy issues come into play when beacons feed customer proximity information back to a company's analytics application, giving organizations more information in their efforts to track and record customer behavior.

The future of beacon technology

While Silverman describes customer reaction as "lukewarm" at this stage, he said customers -- particularly Millennials -- are comfortable with offering retailers access to their locations in exchange for "some sort of value" -- meaning discounts, upgrades and other offers. What is critical, he said, is for companies to hone the cadence of the alerts so as not to annoy customers.

"We haven't gotten to the point yet where we've pissed off customers," Silverman said with a laugh. "Right now, it's just data, not insight. Once the foundation is built, it'll be about covert communication versus overt communication."

While Rosetta Stone lost sales when it closed its kiosks, Martini sees beacons as an opportunity to take advantage of a new touch point: mobile. Martini believes his "significant investment" will pay dividends. "I think you're going to see it explode within the next two years," he said.

"The technology is here to stay, Silverman said. "It's going to be part of a series of location technologies that will create a foundation for retail, which includes GPS, geofencing, Wi-Fi in the store, BLE or proximity-based marketing, and authentication."

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