Imagine this.

You’re a young, single father out grocery shopping. Money is tight, so you’re on the lookout for good deals. As you walk into the store, you notice a sign that says the store has recently introduced a beacon advertising system that might help you do just that.

You already have an app that the beacons will work with on your phone—no need to scan a QR code—so you simply continue shopping.

As you walk around the store, your phone begins to receive notifications.

In the cereal aisle, you get a coupon for 15 percent off your kids’ favorite cereal. Score!

In the dry goods area, the app pulls up a recipe for a tasty pasta dish, and even lists what aisles the ingredients are in. That would be perfect for tomorrow’s supper!

The store’s beacon system made your shopping experience more simple and personal.

Now imagine this.

You’re in the showroom of an auto dealership. At the door, you were prompted to download an app that’ll give you more information about the each car.

As you approach a car, the app pulls up a list of relevant statistics, like MPG, horsepower, safety ratings, and so on.

There are pictures and videos of the vehicles in action, as well as information about different color options and add-ons.

Thanks to beacon technology, you’re more engaged in the shopping process, and the showroom didn’t have to put up as much distracting, cluttered-looking signage.

What is beacon technology?

In case you’re unfamiliar with the term, it refers to small pieces of battery-powered Bluetooth-enabled hardware which can be strategically positioned around a business establishment, eatery, airport, or just about anywhere else.

When a customer who has the right app installed comes within the programmed proximity radius for the beacon—anywhere from five centimeters to fifty meters—the beacon will broadcast its presence and identity to the app.

The app then contacts the server, and receives a message to display for the user. If the app had been closed, it will automatically open and may send a push notification, if those are enabled. The message can range from an advertisement to a welcome message to a coupon.

The app can also harvest data from those who use it, which the company can analyze. Due to privacy concerns, not all companies that use beacon technology use this feature.

Advantages

Business insider predicts that beacon technology will have a five-year compound annual growth rate of 287 percent, with 3.5 million active beacons placed by retailers by 2019. And this is no surprise.

They’re inexpensive, costing between a buck and $50. They don’t need WiFi access to function. They may last up to three years on a single lithium battery.

And, of course, they have great potential to drive customer engagement and create a more personalized shopping experience.

Data collected by the apps can help companies better target the individual. By tracking how many times a customer visits a shop, for example, they might be able to identify “loyal” shoppers, who would then be offered special deals via a connected app. A custom app might be able to offer features such as a place to record a shopping list, which would link up to a map of where the items are located in the store.

These alerts truly reach customers.

According to mobile marketing firm Swirl, 67 percent of retail shoppers have received an in-store alert of some kind. Eighty-one percent opened the alert, and a stunning 79 percent proceeded to make a related purchase.

Furthermore, in-app ads have a higher click-through rate than web ads (.56 percent versus .23 percent).

Some companies are already reporting success with beacons—skip down to “Case studies” to read about a few.

Downsides

The technology isn’t without issues, however.

The first is fragmentation.

Stores must rely on proprietary or specific third-party apps to interact with their beacons. However, customers may be reluctant to download a separate app for every store they frequent.

Even if your company is advertising through widely-used third-party apps, what’s hot today might not be so hot tomorrow. Uninstalling, reprogramming, and reinstalling beacons to work with the new “in” app would be expensive and time consuming.

Second is cost. While individual units are inexpensive, installing and integrating this with advertising and apps can be a costly undertaking.

The third issue is security.

Customers are reluctant to share their data with companies. Seventy-one percent said they didn’t want to be tracked in-store, and 56 percent said they didn’t want to receive push notifications.

This is, in part, a generational issue. Shoppers aged 16 to 24 were 8 percent more likely to be willing to receive in-store, location-based advertisements than other age groups. There is also a fear of potential data leaks—what if nefarious third parties got hold of the customer’s personal data?

Not all who implement beacons choose to use them for data collection. For example, Apple, which developed iBeacon, implemented it in all of its U.S. stores (over 250 of them) right before the 2013 Christmas season. The beacons worked with their iOS Apple Store app and sent shoppers notifications about, for example, when their order was ready for pickup.

However, Apple chose not to collect any user data—perhaps because the exercise was intended to show off how their technology could be used.

Case studies

How are corporations making use of beacon technology today?

In so many ways! This is a novel field in which creativity is possible and rewarded.

1. One of the first measurable success stories in beacon technology comes from Hillshire Brands. In April and June of 2014, it used the beacons in grocery stores in major US cities to advertise its American Craft sausage. Working with marketing platform inMarket, they targeted shoppers who had downloaded one of several apps which worked with the technology, including Epicurious and Key Ring.

Customers received a banner ad and a link to a coupon for the sausages in-store. After the campaign ended, inMarket surveyed consumers who did and did not receive the ad. They found that seeing the ad boosted purchase intent by 20 percent and brand awareness by 35 percent, Hillshire claimed.

Not only that, but customer engagement was sky-high. Within the first two days of the marketing push, the notifications had been opened six thousand times—some 20 times higher than the average level of customer engagement with more traditional advertising methods.

2. In 2014, clothing retailer Hudson’s Bay announced it would be deploying iBeacons in some of its The Bay and Lord and Taylor locations. They used the Swirl marketing platform, claiming it offered the scalability and security a large department store needs.

In addition to third-party apps, the notifications are delivered through Lord and Taylor and The Bay’s proprietary apps. Notifications sent include a welcome message for those entering the stores (complete with a prompt to view special offers) and coupon codes. They also sent out a “mystery coupon” to shoppers within 500 meters of the store.

The three-month trial was incredibly promising. Engagement rates were as high as 50 percent for push notifications and 20 percent on click-to-claim messages. Hudson’s Bay proceeded to roll out the technology to all of the stores’ U.S. and Canada locations.

3. Overseas, Chinese jewelry retailer Chow Tai Fook installed Sensoro beacons in 237 of its stores in four cities. They paired the beacons with popular text and voice messaging app WeChat. This had the advantage of being more convenient for customers than downloading the store’s proprietary app.

Upon entering the store, customers were prompted to launch WeChat. This essentially started a game of Hot and Cold: Whenever customers came within a proximity radius of one of the beacons, they were prompted to shake their phone. Shaking the phone would deliver a coupon.

According to Chow Tai Fook, this initiative generated $16 million in revenue.

Customer engagement was sky-high as well. Participating customers performed the shake action an average of 4.8 times apiece (though .1 percent shook their phones over 100 times—overachievers!).

4. Duane Reade, a New York City drugstore chain, installed iBeacons at ten of their locations in May of 2014. (They may roll out the beacons to the rest of their locations in the near future.) They chose to pair the beacons with their proprietary app, but made major upgrades to the app to take full advantage of the possibilities beacon technology offers.

Customers receive the usual coupons and special deal alerts. But the app also gathers data on the customer’s previous purchases to offer targeted coupons. The app also allows customers to set up shopping lists, daily medication reminders, and maps of the store including the on-shelf locations of specific items.

Conclusion

Is beacon technology right for you? You’ll have to determine that for yourself. It’s a potentially powerful tool for customer engagement and promotion, with a wide variety of possible novel uses, but the security concerns are worth considering. At the very least, it’s a topic worth keeping an eye on.

Does your company use beacons? Do you have great ideas for implementing them? Talk about it in the comments!