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Location-based services: Controversy at every level

Lamont Wood | Jan. 22, 2014
Like it or not, commerce increasingly involves keeping tabs on the customer's location.

Schuman is not impressed. "If you use your phone to make a payment they will know who you are every time you walk in until you get a new phone," he notes. "They can pull your history. If you were fond of red sweaters, an associate can approach you and mention a 17% sale on red sweaters. What a coincidence!"

Beyond that, Schuman says the ultimate goal of in-store tracking is differential pricing, based on an ability to identify individual shoppers combined with accumulated information about their backgrounds. Price tags will be dispensed with, and customers will swipe a product's bar code and be given a price derived from various factors including their "price sensitivity" (i.e., their known spending habits combined with their presumed income level).

"You may be shown a higher price, because you are less price sensitive, while the next person may get a deep discount since they know that person will not buy it otherwise," Schuman predicts.

Analyst Golvin disagrees. "I would be surprised at any attempt at that kind of approach -- after all, they [the customers] are walking around with a very powerful communication tool that can provide price transparency."

In other words, there is nothing stopping customers from checking prices elsewhere.

Indeed, the implications of research from various sources — gathered by Qualcomm and shared by a corporate spokesperson — hint that the retailers are not trying to establish some kind of "1984" or "soak the rich" environment. Rather, they are primarily hoping to counter the practice of "showrooming," where shoppers go to the store to examine a product, and then go home to buy it online at a presumably lower price.

Around 43% of U.S. adults have engaged in showrooming, making the practice a real threat to brick-and-mortar retailers. Even if they are not showrooming, nearly half of customers have been known to check prices on their mobile devices while in a store to make sure they are getting the best possible deal.

But consumers are also 46% less likely to go comparison shopping if they have a particular retailer's app running on their device.

The issue is not going to fade away; some 73% of smartphone owners have used their phones while shopping (PDF), primarily for checking prices but also to take photos to send to friends or family members. Wal-Mart found that 55% of the shoppers who walk into a Wal-Mart store are carrying a smartphone. Those who have a Wal-Mart app on their smartphone enter the store twice as often and spend 40% more during their visits as does the "average" shopper.

But privacy-conscious or skinflint customers are not the only problems facing retailers when it comes to location-based services. Hunter at Qualcomm noted that Web retailers can send people into the showrooms of brick-and-mortar retailers (with non-Qualcomm equipment) to "wardrive" the Wi-Fi and BLE routers in the electronics departments of those stores -- in other words, use passive devices to collect the network IDs of routers in the vicinity of high-dollar items. The Web stores could then send offers to anyone browsing in those departments, telling them the same products can be acquired cheaper online.


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