In the early 21st century, traditional physical retailers realized that they would have to change their business model to survive. Most department stores, supermarkets and other retailers by this point have already clearly understood that they will not be able to compete on price with Walmart and other discount chains. The threat has also arisen from online retailers like Amazon, which have begun digitally collecting vast amounts of customer information.
To compete successfully, retailers had to replicate the tracking and marketing targeting mechanisms used by online retailers in the real world. They needed to examine their databases to differentiate between buyers - to identify the most profitable customers and start sending them personalized promotional materials and offers. Such tasks required a completely different approach to observing shoppers in a store, bordering on invasion of privacy. However, stores first needed to train shoppers to be spied on and get them to accept the fact that providing personal information to a store was an integral part of the shopping process.
When all buyers were equal
In the 19th and 20th centuries, the retail business proceeded from the premise that all shoppers had the right to expect the same treatment. Before the advent of department stores in the 1800s, bargaining was a common practice when buying. The visitors did not know if they were buying the product at the best price. In the middle of the 19th century, retailers took steps to accommodate shoppers by introducing the concept of “quoted prices”. Stores have garnered customer loyalty by combining protection and privilege. Protection was understood as a guarantee of transparent prices and satisfaction with the purchase process. Stores have cultivated “equality of privilege,” offering personalized service and luxurious interiors to all shoppers to emphasize the importance of each customer.
Niche Markets
In the 21st century, retail stores have focused on niche markets in an attempt to compete with Walmart, whose efficiency and ability to dictate terms to suppliers has made price competition unpromising. Retailers have come to the conclusion that stores need to identify high-value niche customers and collect customer information to do this.
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Online retailers like Amazon have forced traditional retailers to take on additional tasks that are unfamiliar to them. In addition to such advantages as unlimited retail space, online stores had a significant advantage in tracking shopping behavior. They could see what products visitors were looking at and offer them similar ones. They could follow customers to other sites and show them advertisements for products that they were interested in previously. To win the competition, traditional stores had to copy digital surveillance systems. This opportunity first appeared in 2007 with the introduction of the iPhone.
Tracking Technologies: Wi-Fi and Bluetooth
Data collection and processing companies such as ShopperTrak and Euclid have created technologies that allow stores to track shoppers through Wi-Fi or Bluetooth as long as they have the store's mobile app installed on their smartphones. This gave managers the ability to determine how long each customer is in the store, direct sellers to those parts of the sales area where they are most needed, and send coupons and advertisements to customers' phones.
The innovative company inMarket has proposed a different approach using Bluetooth technology - Bluetooth Low Energy, or BLE. Stores install BLE beacons on the sales floor to track inMarket code in mobile applications. inMarket embeds this code in store apps (which shoppers download to receive information about sales and the like). In addition, it partnerships with other firms in various fields to embed its code and applications. For example, if you came to shop at the Marsh supermarket, the BLE beacon activates its application on your smartphone. If you don't have the Marsh app, it activates an affiliate app (like a fashion magazine) that shows you Marsh ads. With inMarket technology, stores and brand manufacturers can track consumer movements not only at specific retail sites, but wherever the company hopes to find potential customers.
Geolocation
In 2010, smartphone makers began supplying them with GPS chips, a global positioning system that, among other functions, enabled retailers to track shoppers outside of store walls. Then inMarket offered a service to continuously track smartphones with a specific application in a specific location. Stores indicate geographical coordinates, and when a smartphone is in this zone, an advertisement from inMarket comes to it. Another geolocation company, xAd, tracks the location of shoppers and tries to establish a purpose for a store visit. This helps retailers identify the most receptive audience for their ad. They can even reach out to visitors to competing stores, trying to lure them away with seductive ads.
“Internet of Things” and wearable technologies
Sooner or later, retailers will be able to look into a customer's home. To do this, they will use the "Internet of Things" - networks formed by interacting with each other "smart" devices and remote controls. Thus, marketers will receive a new source of data: by monitoring a refrigerator or thermostat, they will be able to draw conclusions about the habits, lifestyle and even personal characteristics of their owner. As marketers predict, smart products will soon emerge, such as talking food packaging that announces expiration dates or explaining where else to buy the product.
For retailers and data analysts, wearable technologies like the Apple Watch are taking consumer behavior tracking and analytics to the next level. These devices are especially valuable to them, as consumers tend to wear them all the time, while giving retailers and advertisers the ability to continuously collect information about their lifestyle, location, shopping habits and health.
Another rapidly gaining popularity technology is face recognition on video camera screens. Its plus is that it does not depend on whether the buyer has a smartphone. Experts at companies experimenting with this technology say they will soon be able to identify preferred customers and analyze customer emotions.
Hidden Learning
The priority for retailers today is to convince shoppers not to resist being watched. To do this, retailers are implementing what is called “hidden learning” in theoretical pedagogy. In education, this means knowledge, values and behaviors that the school teaches implicitly. Psychologist George Gerbner defined the goal of covert learning as "establishing rules of the game that most members of society will then take for granted."
Retailers hope to convince consumers that providing personal information and consent to constant surveillance and discrimination in exchange for convenience and discounts is common sense. To introduce "hidden learning," they modified the very concept of customer loyalty. In the past, stores have cultivated brand loyalty in customers by offering “good” customers discounts and other bonuses. To get into the loyal category, the customer had to regularly make purchases in the store. Nowadays, stores are making a new demand: you must share information about yourself with them.
Retailers and discrimination
The purpose of tracking is to create customer profiles and rank them according to the degree of attractiveness to the store using statistical analysis. Special offers and discounts are then sent to the most promising customers to encourage them to make repeat purchases. Less valuable shoppers can receive other personalized discounts to motivate them to become preferred customers. The most "high-class" customers receive the most benefits and privileges, similar to first-class passengers and airline mileage program members.
For example, Ulta Beauty, a cosmetics retailer, uses its loyalty program to create a database that currently contains information about a million customers. The company studies its customers by monitoring their online activity using cookies. Ulta Beauty also acquires information from third parties, tracks the location of customers' smartphones, invites them to log into their accounts via Facebook or Google+. If a customer logs into the site through a social network, the retailer gains access to information such as date of birth, likes, and the user's list of friends. When a customer with an account on the store's website comes to a real store, the salesperson opens the customer's profile on his tablet and immediately sees the history of his purchases and determines whether he is a priority customer.
Influential clients
Retailers who are discriminatory these days value powerful customers. Alex and Ani jewelry store, for example, ranks customers not only by the amount of purchases, but also by the degree of their influence on other potential customers. The level of influence is assessed primarily by the number of friends on social networks. This data is then collated with data generated by Radian6, a technology that analyzes millions of online product statements. Alex and Ani uses customer profiles designed in this way to decide what each customer sees when they visit the store's website or open its app.
Consumer protection
Consumer has the least influence on retail transformation of all participants in the process. A customer who wants to use a store application or participate in a reward program has no choice but to accept the company's privacy policy, set out in obscure legal language. Surveys by the Annenberg School of Media Research at the University of Pennsylvania found that most people want more control over their personal information. Polls revealed the following:
- Most consumers don't understand data mining mechanisms. What they don't know is that retailers combine information from different sources. The respondents are confident that the privacy policy ensures that the store will not disclose customer personal data without their permission.
- Consumers overestimate the government's ability to protect their privacy. Most of them are unaware that the law does not prohibit companies from selling personal data or setting different prices for different buyers.
- Most consumers don't like being monitored. Most Americans (young and old) don't want personalized advertisements or discounts.
The rapid penetration of tracking systems into people's lives could be halted by new legislation. In 2016, the US Federal Communications Commission proposed introducing a provision that would prevent service providers from sharing customer data without the explicit consent of the latter. The most optimal approach seems to be one in which obtaining such permission would be mandatory for all companies that collect customer data. A government might, for example, require each company to send an email when a user downloads its application, detailing how it intends to use the data received. The collection of data would only begin after obtaining the user's consent.
Already in high school, teens should become familiar with how marketing and digital media work. They just need to know the basic terms and prominent names in the field. Journalists, teachers and parents must educate the public about the hidden intent of marketers and manufacturers and uncover the truth behind complex privacy policy formulations. Such initiatives will help increase public pressure on businesses and create a level playing field for consumers and sellers.
