Customer Experience, The New Pickpockets: Retail Sensors and Other Tracking SystemsShoppers by Noreen Seebacher
The days when a phone was simply used to place calls are long gone. (A study last year noted calling is one of the last things we do with smartphones, ranking far behind activities like web browsing and social networking.) But odds are most people don't think of their smartphones as tracking devices.

In this final installment of our three part series on the loss of privacy in a big data world, we'll explore the secret life of smartphones.

Smartphones as Tracking Devices

Smartphones with Wi-Fi enabled periodically transmit Wi-Fi messages, even when not associated to a network. That makes them excellent devices for tracking your shopping route, a fact that has not gone unnoticed by retailers and malls. 

Tracking systems can identify individual shoppers by monitoring one of two things: a phone’s International Mobile Subscriber Identity number (The number constantly transmitted from all cell phones to their service providers. However, to reduce eavesdroppers, the IMSI is sent as rarely as possible and a randomly-generated TMSI is sent instead.) or the Media Access Control (MAC) address (transmitted when the device’s Wi-Fi is enabled, which is the default setting on most devices).

But it goes deeper. In a paper published last month in the International Symposium on Research in Grey-Hat Hacking, researcher Mathieu Cunche noted that the MAC address of the devices could be collected and used to uniquely identify mobile devices. He continued:

A device with a Wi-Fi interface turned-on acts as an actual wireless beacon by periodically advertising in clear a unique identifier. This is also true for other technologies such as GSM and Bluetooth that periodically send in clear a unique identifier (MAC address for Bluetooth and TMSI for the GSM) … Thanks to those wireless beacons that we are carrying in our pockets, Radio Frequency (RF) tracking is now possible."

In London, a company called Renew programmed "smart" trash bins to record the unique addresses of smartphones carried by pedestrians. People were unnerved, Bryan Pearson, CEO of Loyalty One, wrote in a blog post:

No one was notified, and there was no way for people to know that their personal data was being collected. But in one day, a small number of those bins collected data from more than a million devices. Renew since discontinued the tracking, but that won’t stop the technology."

Retail Interest

More and more retailers, from Nordstrom and Benetton to Family Dollar and Cabela's, are experimenting with technology that lets them track customers' movements by their cellphones as they make their way through their stores.

In theory, the in-store tracking isn't much different than the data mining online retailers do with shoppers' search and spending habits. The only difference: Instead of analyzing keystrokes and search history, some brick and mortar retailers monitor shoppers' moves throughout the store by following their smartphones' Wi-Fi signals.

The data about in-store customers can be used to create “heat maps” that glow red to show the spots with the most foot traffic or prompt management to reassign staff to busy areas of the store. But as Consumer Reports noted in an article earlier this year -- and recent research confirms -- these systems can also identify individual shoppers by monitoring IMSI or MAC addresses. Those phone IDs lets stores know when you shop, not just today but also every day your ID signal comes back in range.

Turn Off Your Phone

Euclid Analytics is one of the companies helping brick-and-mortar stores analyze foot-traffic by sensing smartphones. Euclid claims this anonymous foot-traffic analysis helps retailers improve store layouts, time promotions and sales, measure marketing effectiveness, even determine staffing levels and store hours. It also provides aggregate data that can be used to gauge things like the health of the economy and consumer confidence.

Just today, for example, Euclid released its US Retail Benchmarks for October, based on data from 20 million domestic shopping sessions nationwide. Traffic in October, defined as the number of devices detected by Euclid sensors at retail locations, decreased 4.5 percent compared to the previous month. October traffic was also down 3.8 percent compared to the same month last year.

More window shoppers entered stores this October (8.3 percent) compared to last October (6.5 percent), but the percentage fell slightly from September (8.7 percent). But not all those shoppers who enter make a purchase.

The percentage of shoppers who entered a store but left within five minutes was 10.5 percent in October 2013, up from 9 percent a year earlier. The only bright spot: the bounce rate declined slightly from September’s high of 11.1 percent.

Learning Opportunities

Euclid representatives told that the data suggests a mediocre holiday season: less traffic year-over-year, higher bounce rates, a decline in overall traffic and fewer repeat shoppers. To respond, retailers should focus on more aggressive up-front promotions, stronger in-store visuals, heavier staffing during peak periods and pay keen attention to out-of-stock inventory, the company suggested.

Euclid analyzes a lot of data, but claims on its website "No personally identifiable data is ever collected or used." And that appears to be true, based on a story in The Guardian that explored the ways retailers are using Euclid's data to improve the customer experience.

Euclid was the company that supplied the technology to Nordstrom for its ill-fated effort to track customers in a few dozen stores nationwide. By all accounts, the retailer known for its top customer service seemed to forget the feelings of its customers when it started tracking them.

The company didn't tell customers about the technology until months after it was using it. Even when it did, it failed to explain the potential benefits or how the data collected would be used. And then it did perhaps the most egregious thing. It told customers if they didn't want to be part of the tracking experiment they could turn their phones off. What customer wants to do that?

Into the Future

The convergence of big data, new technologies, customer expectations and the nebulous issue of privacy have created interesting challenges, to say the least.

Add in things like location awareness, the ability to determine geographical position, another emerging technology with both significant benefits and important privacy implications for users of mobile devices like smartphones. Do customers want to reveal their locations so retailers can offer special deals as you near the stores or do they just want to be left alone?

How can you balance the best customer experiences against fears about the technologies that promise to provide them? Or are privacy advocates right: Are we sacrificing too much, like privacy, in the hope of gaining more sales, customers and enhanced shopping experiences in return?

Title image by Noreen Seebacher /all rights reserved.