Americans are becoming increasingly dependent on mobile devices, such as smart phones. These devices allow us to remain in constant contact with our family, friends, and colleagues. Moreover, the use of these devices is cross-generational; teenagers to grandparents are carrying around the latest iPhone, iPad, or Android product. U.S. retailers are taking notice and capitalizing on this social and technological phenomenon. By tracking mobile devices and their owners as they move about malls, shopping centers, and stores, retailers are able to study customer behavior, which ultimately enables retailers to better understand and improve their customers’ experience, thereby increasing company profits. This process is known as Mobile Location Analytics (“MLA”). Not surprisingly, privacy advocates are crying foul.
To fully understand the utility and risk of MLA, one must understand the technology associated with this process. Today, almost all mobile devices, including smart phones, are equipped with a Wi-Fi network interface, which allows the device to connect to surrounding networks. In doing so, the mobile device is continually transmitting repeated “probe requests” in search of available networks. Embedded in every probe requests is the mobile device’s unique identifier known as a media access control address (“MAC address”). Retailers, through the use of mobile analytic firms, are catching and tracking these MAC addresses as mobile devices pass through their stores by setting up devices known as “beacons” throughout the premises.
The customer tracking data captured by these beacons is invaluable as retailers are using this critical customer information to develop and implement individualized and general marketing strategies. For example, a retailer studies how a particular customer crisscrosses the store, how long the customer lingers in each department, and what products the customer purchases. Based on this information, the retailer develops a buyer profile associated with the captured MAC address. Using this customer profile and the associated mobile device’s MAC address, the retailer tailors an individualized marketing plan to that particular customer, which could include realtime advertising texts or emails to the mobile device when the customer passes through certain store departments or passes by certain merchandise, or even sending follow-up advertisements to the customer’s mobile device when she or he leaves the store.
Moreover, retailers use aggregated customer information gathered by store beacons to improve existing marketing strategies as customer tracking data better informs the retailer how to organize its products by location, grouping, and shelving to maximize sales potential. For instance, retailers place cashiers in high traffic areas to decrease customer wait time and increase product sales.
While beneficial to a retailer’s bottom line, customers have legitimate privacy concerns. Even though a mobile device’s MAC address does not contain personal identifying information specific to the owner, the tracking information alone reveals a wealth of behavioral data. By associating a mobile device to a behavioral profile, a retailer can potentially extrapolate the sex, age, and socio-economic status of the owner. Even more alarming, it is technologically possible to link a MAC address to a specific credit/debit card purchase, ultimately identifying the card holder.
The Federal Trade Commission (the “FTC”) has taken note of these privacy concerns. While there are currently no federal or state laws which prohibit MLA, there is little doubt that this area will be a privacy concern for some time to come. U.S. Senator Charles E. Schumer is pushing the FTC to require retailers engaging in mobile device tracking to advise their customers of this activity and to further give them the opportunity to opt-out of such tracking.
Even mobile analytic firms are cognizant of the privacy concerns associated with MLA and in an apparent attempt to self-regulate the industry, have developed a code of conduct designed to regulate the industry.
As with most technology, with the rewards come risks. There is little doubt that MLA offers many advantages to both retailers and their customers. However, the process must be transparent and secure to ensure customer safety and privacy, which in turn, will serve to protect and strengthen the retailer brand and reputation.