Beacons: One year later

Retailers are grappling with a lot of new technology, and few have held more promise or posed more predicaments than beacons. But now that beacons have been in the field for a year, it's a good opportunity to look back on the lessons of pilot programs that have been launched and what the future might hold.

Beacon technology still has yet to take hold for many retailers. According to an IHL study conducted for Earthlink and Airtight, just 7 percent of retailers currently have beacon programs in place, while 23 percent intend to deploy them by the end of 2015. Another 35 percent aim to roll out beacons over the next two to three years, while 35 percent have no beacon plans whatsoever.

Retailers, it seems, are still evaluating beacons before the technology becomes an integral part of the in-store experience.

Maya Mikhailov is co-founder of mobile commerce company GPShopper, whose clients have been some of the first to begin experimenting with beacons. For her, two of the biggest points retailers need to focus on when it comes to deploying beacon technology are both shopper concerns that tend to be high profile in mobile payment discussions: privacy and security.

"The way that beacons are implemented, the way they're messaged to consumers, the way data is being collected, has to be done in a rigorously transparent fashion," Mikhailov said.

Nothing demonstrates that better than the response to outdoor media company Titan placing 500 beacons in phone booths throughout New York City last year. Their presence made residents so uncomfortable that City Hall eventually asked the company to remove them.

Mikhailov is a proponent of multiple opt-ins, because simply allowing location-based services on a mobile device isn't enough for a store to track a shopper. A store should send a second opt-in, informing them of the beacon experience and what the shopper can gain from it while providing a clear opt-out as well. So far GPShopper's retail clients have experienced opt-in rates of higher than 50 percent, indicating that it's possible to achieve a favorable rate while making sure shoppers are comfortable with beacons.

Just as important to consumer confidence is security. With all the personal information being gathered as beacons track shoppers' locations and buying habits, it's crucial that the devices don't generate data that can be accessed in a non-secure fashion, whether that means autorotating IDs or functioning as "dumb" tech.

"Our philosophy is a beacon should just be broadcasting. It shouldn't be like a read/write beacon. It should simply broadcast information and then, in an odd way, beacons should be 'dumb' devices," Mikhailov said. "So if one goes missing the beacons are not showing any customer data. There's not a server that has to be located in a store that's storing all this customer data."

Time to level up

When it comes to how beacons are actually being used, couponing is by far the dominant application. Beacons create an easy opportunity to target mobile users with deals at various times during their shopping experience, whether they've just walked in the door, are near a product for which there's a special deal, or haven't even entered the store yet and are just passing by.

Those are all great chances to tempt shoppers with a sale, but for Mikhailov, mobile coupons are just level one. Larger retailers such as Target have begun to experiment with beacon-based geolocation and wayfinding in stores. The launch of the Apple Watch opens the door to even more possibilities as both shoppers and app developers learn more about the best ways to use and apply wearable technology.

Ultimately, what is standing in the way of these more interesting applications is that they're just more difficult to implement. Take, for example, integration that allows a store to recognize that a shopper is near the aisle or in a store where an item on their wish list is available or on sale and send them a message with more information on the product.

"That requires multiple integration points, first with a local inventory and then with the e-commerce system," Mikhailov said. "Where I think the reason you're seeing a lot of couponing applications is because that's sort of the lowest hanging fruit in terms of integration. It doesn't take a lot of integration to shoot out a coupon."

Who falls through the cracks?

As a followup to IHL's findings on beacon adoption, MediaPost's Chuck Martin requested further analysis of beacon usage as it relates to a retailer's size (Tier 1 companies bringing in $1 billion or more in sales, Tier 2 companies earning from $500 million to $1 billion, and Tier 3 companies making less than $500 million).

Currently, 10 percent of Tier 1 retailers have some kind of beacon program in place, compared to just 7 percent of Tier 3 retailers and no Tier 2 retailers.

IHL's projections further showed that by the end of the year just 11 percent of Tier 2 retailers will have adopted beacons, compared to 37 percent of Tier 1 and 31 percent of Tier 3 retailers. In fact, it's not until the end of 2016 that IHL expects beacon adoption to level out among retailers of all sizes, with 56 percent of Tier 1, 50 percent of Tier 2 and 48 percent of Tier 3 retailers implementing beacons.

What accounts for this relative inactivity from midsize retailers when it comes to beacons? Much of it comes down to unique benefits that both large and small retailers have and those in the middle don't have. Larger retailers such as Target, Walmart and Best Buy are able to innovate because they have sizable teams dedicated to making new initiatives work. Conversely, while small retailers may not have that infrastructure, the size of their deployment isn't as overwhelming.

But mid-size retailers that need to roll out more than 50 beacons can't invest in dedicated teams to manage the devices and any problems that arise.

"I think when you start getting into the area of having 100-500 stores you have to scale, and you have to have the systems that scale," Mikhailov said. "But at the same time, you might not even have the bandwidth to do that organizationally given other priorities you may be tackling."

For that reason, many midsize retailers may have to wait a couple of years before they can fully implement a beacon strategy. As larger retailers test out new strategies with a willingness to fail and smaller retailers learn to apply those ideas on a smaller scale, those left in the middle will gradually compensate for the gap in initiative.

Different goals

As with any new technology, it can take retailers a while to figure out how best to apply beacons in their stores. Just as crucially, beacons will require new key performance indicators (KPI) by which success is measured.

While GPShopper's client stores are still in pilot phases with beacons, Mikhailov said it's already fairly clear that the areas where beacons are moving the needle are not necessarily in commerce alone. In-store discovery is one such area retailers should be looking to capitalize on with the particular benefits beacons bring.

Take, for example, a situation where a retailer has a new spring line and sends beacon notifications to shoppers about the new section where it is displayed. Retailers should be tracking how those notifications impact traffic in that section of the store. 

Similarly, dwell time is another new KPI that retailers should keep an eye on with regard to beacon pilots. Across the board, stores are missing out on sales as shoppers, especially millennials, pay attention more to their mobile devices than actual store displays. Beacon messaging provides an opportunity to engage with people in their stores who may not particularly care about in-store displays, thus keeping them around longer.

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