Keeping Customers Coming Back Through the Power of Data

This is the fifth in a five-part series on “The Local Stack” in local commerce that appears on Mondays. This piece focuses on consumers’ “engage” stage (see chart below). Read an overview of the full stack. The full series is being underwritten by Yext.

In late May, Senator Al Franken wrote a scathing letter to Euclid Analytics, a small, Silicon Valley-based startup that uses data from retailers’ wi-fi routers to measure when and how often people come into their stores: “It’s one thing to track someone’s shopping habits through a loyalty card or credit card purchase,” wrote the Senator. “It’s another thing entirely to track consumers’ movements without their permission as they shop, especially when someone doesn’t buy anything or even enter a store.”

The letter brought the company’s practices within the eye of the media, roiling privacy hawks and leading Euclid, as well as a handful of its competitors, to come together and flesh out a set of privacy guidelines with a Washington firm. The cry among the concerned citizenry was simple: that’s our offline lives, and it’s different.

But, in many ways, it’s not. Gone are the days where the only record of a visit to a local business was a credit card transaction, loyalty punch, or cash receipt. Now, from our search for a business, to the aisles we roam in the store, to the goods and services we purchase, our activities become user profiles, cookied paths and stored purchase history that help real-world businesses to track us — as much to retain their customers as to make that customer experience better suited to the individual and less frustrating.

And so it’s from this river of customer data — the by-product of an emerging local stack of digital technologies — that there exists a massive, and mostly still-nascent, opportunity for local businesses to rethink the way in which they engage with their customers. The “Engage” layer looks to develop a comprehensive customer relationship management (CRM) system capable of tying those disparate data together into a single programmable database. That vision is still far away, but a set of technology companies are building tools to use parts of those data to to help brick-and-mortar businesses understand their business beyond cash flow, bring consumers back in new ways, and personalize their in-store experience like never before.

Measure Everything, Cut Often

Traditional retailers have used data from sales records and loyalty programs to optimize their businesses for years, shifting inventory based on annual buying habits or offering incentives to retain their best customers. However, the web offers retailers a depth and variety of information about customer behavior, which, until recently, remained out of reach of brick-and-mortar businesses. That’s starting to change as the data flowing from the local marketplace is beginning to look as big as the online world.

But local analytics are exceedingly more complex, largely because those data come from a multitude of sources, ranging from payment processors and point-of-sale systems to website analytics and yes, even wi-fi routers. Marrying these systems is immensely challenging given the still-unfinished structure of the local stack today, leading many analytics services on the market to focus a single data source

Take Euclid Analytics, the retail analytics company to whom Senator Franken wrote his letter. The company can tell retailers the number of customers who visited their store, the amount who came back, and even the percentage of shoppers who peek into the window but never enter. And they can measure all of this by analyzing a single data point: the strength and frequencies of the wi-fi signal coming from a customer’s mobile phone.

Tapping into a more traditional data source, Swipely, a Rhode Island-based startup that raised $12 million in March, pulls the credit card data, which most payment processors send to merchants in an itemized receipt, immediately into the cloud. There, the company can use the data to run a suite of ancillary services. That includes metrics to determine a business’s most valuable customers, the percentage of new versus returning customers, and more.

These metrics give brick-and-mortar retailers the opportunity to shine a light on the darker corners of their businesses, identifying inefficiencies and allowing them to optimize processes and strategies in much quicker intervals. What’s more, those data provide a quantitative layer against which a business can evaluate the impact of initiatives like marketing campaigns.

Solving the Identity Problem in Local

Perhaps the most sensitive issue for privacy advocates is the ability for companies to pick out individuals, and track them over time without their consent. To quell these concerns, analytics companies often lump and split data, segmenting consumers into various buckets and, in effect, laundering out the personally identifiable information.

But anonymity limits the personalization and engagement, which an integrated local stack affords. Smartphones provide brick-and-mortar businesses with a direct channel to customers that, for the first time, follows them throughout the local consumption cycle. It’s our digital avatar in the local marketplace.

Physical stores need to solve the same identity problem as e-commerce sites — how do we convince consumers to build an identity with our business — but in a largely inert, offline environment. That means taking the consumer from being anonymous and offline, to anonymous and online, to online and identified.

For the most part, that’s done through incentives and loyalty. A host of loyalty firms have popped up in the past 24 months to rethink loyalty programs for the local stack, building mobile apps, installing iPads in stores, and integrating with a convoluted landscape of point-of-sale systems to capture slices of data about customer’s activity. Mobile payment plays like LevelUp have bet the ranch on loyalty programs, effectively using mobile payments as a loss leader to sell re-engagement tools to businesses.

Social networks also offer a solution. Irrespective of concerns over Foursquare’s future, the check-in provided a way for customers to share a digital identity with a local business, opening a direct channel to customers in the same way that adding an e-mail address had done in the past.

Mom-and-Pop at Scale

But engagement is not just about getting customers back in the store. One of the biggest opportunities for brick-and-mortar businesses is in using that data to improve the in-store experience, bringing back the days of high-touch that was largely lost with the introduction of big-box retail.

Shopkick uses custom hardware that retailers can install in stores to identify and ping users of the app inside a store. The company began by developing a loyalty program, where customers can earn “kicks” each time they visit a location, and has since rolled out a product that allows customers to tag goods in which they’re interested in buying beforehand, and then the app notifies the user when they enter a participating store that has the product in-stock.

Another startup, Nomi, plans to use the same wi-fi technology that powers Euclid to build customer profiles for brick-and-mortar retailers. Part of the idea, Marc Ferrentino, the company’s CEO, told Street Fight in the spring, is to take detailed customer profile with information about what they’ve purchased, when they’ve visited a store but didn’t make a purchase, and even what they’ve searched for on a company’s e-commerce site, and put it in the hands of the associate on the sales floor.  Then, an employee could suggest products or pull sizes in the same way that Amazon recommends a book based on what you’ve read in the past.

Beaten on price and outgunned in inventory by e-commerce players, local businesses have struggled in the “experience economy.” But the engage layer of the local stack harnesses the breadth of data generated by the tools consumers use to find, buy, and retrieve goods locally to create a richer experience across the lifetime of a customer’s relationship with a business, finally giving real-world stores a way to grow closer and retain their hard-won customers.

Over five weeks, Street Fight has taken a deep dive into each layer of the local stack, detailing the dynamics and key companies that will help to build the future of local commerce. This series, which is underwritten by Yext, is aimed at educating industry players new and old on the inner workings and ecosystem of the new local stack.

Steven Jacobs is Street Fight’s deputy editor.