This sponsored post is produced by Plug and Play Tech Center.

It’s easy to get excited about the rapidly evolving retail-technology sector. The ubiquity of mobile phones is changing how shoppers research and buy. 3D printers offer the allure of low inventory and just-in-time production practices for small retailers. Google and PayPal are working hard to get their digital wallets adopted by the mainstream, and same-day delivery is being tested in multiple markets. However, most retail innovation is not taking place in the production and distribution cycles or in the payment processes.

At Plug and Play, we examine thousands of companies each year for investment and acceleration. The companies we see getting funding and traction are improving infrastructure inefficiencies, providing mobile-marketing solutions, and helping to make sense of the massive amounts of customer data being collected.

Here are six reasons why this makes sense.

Customers have taken control of the buying process

Customers with smartphones have access to all sorts of information and purchasing options when they shop. They can read product reviews, compare prices, balance loyalty rewards programs, rate their experiences, and share their findings with others. Retailers like Target and Best Buy started offering year-round price matching to curb plummeting sales due to “showrooming” — the practice of visiting brick-and-mortar stores to view a product and then purchasing it online at a better price. Savvy retailers realized they needed to win customers back from their online competitors and thus began offering in-store Wi-Fi, mobile-optimized websites, tablet-equipped sales staff, and self-service kiosks to encourage customers to research and buy at their own pace.

Retailers are adopting technologies that help engage in-store customers

With all the information needed to reach a purchasing decision already at their fingertips, customers no longer need to engage with sales staff. Retailers are looking for other solutions to learn about their customers needs as they “walk” them to their desired product.  Two of the startups in our Retail Center of Innovation, Aisle 411 and Micello, bridge the gap between physical shopping and digital browsing by offering indoor maps that help customers more easily navigate through stores and find what they want quickly. Their research shows that 20 percent of potential sales are lost due to shoppers’ difficulty navigating inventories. Though interesting, there is a much bigger play if the maps can serve their purpose in capturing a shopper’s digital attention. Aisle 411, which just raised $6.3 million, uses a Wi-Fi-based indoor positioning tool to measure how shoppers move through stores and where they lose interest. These insights can be used to improve store layouts, display racks, and inventory placements.

Retail marketing is getting more personal

Aside from tracking customer movements throughout a store, retailers can also track the purchasing habits of repeat visitors and use the info to further target their ad. Aisle50, one of our digital coupon startups, offers Groupon-style ads for the groceries their customers are already buying. The app enables customers to purchase groceries from their smartphone and then pick up at the nearest market. Another one of our startups, Envizio, integrates into the point-of-sale system at the retailer. This helps retailers cut back on coupon fraud and provides valuable data to brands about how and when their offers are redeemed. Both companies are leveraging data to come up with customized, digital coupons specifically tailored to their customers. It’s not a new concept — Amazon has used recommended purchases to great success — but nobody has quite figured out how to translate similar programs offline.

Omnichannel commerce is producing too much data

During 2012, retailers began to embrace the various purchasing channels – traditional POS, mobile POS, self-serving kiosks, and online shopping, to name a few. As the sales channels increased, so did the amount of purchasing data retailers could collect. Once Facebook and others began granting access to info from their social graphs, retailers gained access to personal information about their customers’ habits and interests. Data collection became a top priority, but data analysis was largely overlooked. Three years ago, Macy’s was still relying on spreadsheets to track and analyze their data. Now they analyze tens of millions of terabytes of information every day from store transactions, e-commerce, social media, and Twitter feeds. As a result, a plethora of startups have popped up to help retailers analyze their data and draw actionable conclusions. Since Macy’s began organizing their data, their sales have increased by 10 percent.

Data-tracking and analysis software is red hot

Several of our own retail startups are tackling data analysis in the retail sector. Traffic counts, capture and bounce rates, store visit frequency, duration, and loyalty are just some of the data points they help retailers analyze. Euclid analytics, for one, uses in-store Wi-Fi networks and other tools to measure foot traffic and then offers insights such as how busy your store was compared to the mall, how well your storefront drew in shoppers, and whether shoppers were engaged inside of your store. This information is then used to alter store layouts and automate marketing processes, all of which leads to increased sales. Retention Science uses predictive algorithms to automatically reengage existing customers, while Skytree’s machine learning platform aims to predict future trends with deep analytical insights.

Other analytics solutions like GraphDive focus on external digital activity to draw conclusions about customer shopping habits. They personalize recommendations for customers based on inferred interest through Facebook and other social networks and then use that info to find new customers with similar habits.

Advertising strategies are getting much more creative

With so much data and marketing automation in play, it’s becoming easier for retailers to test out new forms of advertising. Some of our companies are working on rich, engaging ad experiences or location and audience targeting techniques, while others are pioneering new ways to connect the manufacturers directly with the customers. Retailers can test creative approaches, measure the impact of their marketing plans, and iterate frequently. To see more examples of retail innovation taking place in the heart of Silicon Valley, check out the launch of our Retail Center of Innovation. Twenty-two of our best retail-focused startups will be demoing their latest products to an audience of industry experts and corporate partners.

This post was written as part of the launch of Plug and Play’s Retail Center of Innovation. For more information, come to our Silicon Valley launch event on Thursday, September 12. VentureBeat readers can use the promocode “vb30” for a 30 percent discount.

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