Tracking consumers via their smartphones and the data held by them

January 12, 2014 |

The International Consumer Electronics Show (“CES”) again delivers a story of technology having huge privacy implications.  In Want to find a great deal? It’s looking for you, too the Washington Post reports on technology used by department stores to not only to use a person’s smartphone to track his/her movements but use other data from in it to sell.

The article provides:

Salvador Alejo was a man on a mission. Walking the floor at the Consumer Electronics Show in Las Vegas, he used his phone and the event’s app to find nine spots that would earn him the digital badges he needed to finish a high-tech scavenger hunt.

But in this case, the scavenger hunt was looking for him, too.

The Consumer Electronics Association placed sensors known as “iBeacons” across the showroom floor of the International CES, joining in a practice used by major retailers such as Macy’s, Best Buy and Target to track consumers through their smartphones.

The sensors tap into information from consumers’ cellphones, sensing, for example, that a potential customer is lingering in front of an item and then sending alerts to that person’s phone with customized coupons aimed at cinching the deal. Some retailers’ apps can sense when a loyal customer is in a store and notify a nearby employee of a sales opportunity.

At CES, Georgetown-based Radius Networks pitched the idea to the show’s organizers to get attendees to go places they may not have visited without the scavenger hunt to motivate them.

Radius is among many companies that have jumped into the tracking market, helping retailers use information gleaned from a customer’s smartphone to compete with online shopping sites. But the innovation is raising questions about whether retailers are doing enough to notify consumers that their trips around the store are being carefully watched.

“It’s a fundamental shift in the way we shop in the United States,” said Jeffrey Chester, executive director of the Center for Digital Democracy, a privacy advocacy group. “It’s just beginning, and it’s ripe for ma­nipu­la­tion.”

The Federal Trade Commission is studying it. “It’s an emerging issue, and no one’s really tackled it head on,” said Kevin Moriarty, an attorney in the FTC’s privacy and identity protection division. “That’s what we see as our role.”

Retailers have several methods for electronically monitoring shoppers, including installing sensors in stores that communicate with apps on shoppers’ phones. When a customer is within about 100 feet of a sensor, it triggers a push notification or other alert on the phone. Sometimes the beacon can also help a store collect more data on consumers by prompting them to share information with the store’s app. To verify the CES scavenger hunt results, for example, Radius employees had Alejo call up a code that told them when his device had earned each badge and matched it to data of their own — a tool the firm also used to see whether people who said they finished the scavenger hunt spent enough time on the floor to hit all nine, far-flung locations.

For more advanced tracking, some retailers also collect the unique code that smartphones send out when trying to connect to wireless networks, known as a MAC address. Retailers, such as the restaurant Sweetgreen, have used this information to find out how often a customer visits a store. Retailers can also leverage the data collected during a visit to determine which displays attract the most shoppers, or how many people pass by a storefront without going in.

Retailers are aware of the privacy concerns prompted by these programs. After it was reported that Nordstrom was working with the MAC address tracking firm Euclid, the company abandoned the service, calling it an “experiment.” Several companies, including Best Buy, Macy’s and Sweetgreen, declined to comment when asked for more information about how their phone-tracking programs work.

Fighting the perception of privacy invasion is a primary concern for retailers, said Marc Wallace, chief executive of Radius Networks, which has helped stores, hotels and other companies install the systems. Radius stores MAC address data for only 30 days and the data are encrypted, he said.

“Our customers are concerned, genuinely, with privacy,” Wallace said. “They’re saying some of their customers don’t want to be tracked, or annoyed with pop-ups.”

But without government guidelines on what firms can legally collect, retain and sell, privacy advocates say, consumers are at risk of having their shopping habits shared without their consent. And even in cases in which customers download apps with the promise of good deals and discounts, Chester, of the Center for Digital Democracy, said that consumers are in some ways over a digital barrel.

“It is truly disconcerting,” Chester said. “But you also have to be realistic. People are enthusiastically entering into this — they have little choice if they’re going to find the best prices and deals.”

Laura Harders, who has been writing the “Beltway Bargain Mom” blog for five years, said she doesn’t mind giving up a little personal information for a good discount, and considers her smartphone an essential tool for shopping and checking prices.

Tracking customers while they shop is okay, she said, but there should be proper notifications.

“I like using an app or my phone to find the deals,” said Harders of Manassas, Va. “If the store is locating my phone, and I’m not even on their app .?.?. that is on that edge. I would at least want to be notified or know to what extent the amount of data they’re collecting.”

Several firms have joined the Future of Privacy Forum to address the issue. In addition to establishing industry rules for data collection and notification, companies are working on developing a sign that can be placed outside stores to let shoppers know that they’re being tracked.

The forum is also creating an opt-out service, similar to the Do Not Call list for telemarketers, to make it simpler for shoppers to prevent retailers from tracking them. The service is in development and is expected to roll out in the next few months, said Jules Polonetsky, director of the Future of Privacy Forum.

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