The Age of Sell Phones

By Evan Schuman  |  Posted 2006-08-02

The Age of Sell Phones

A free product coupon is a free product coupon, right? If its for the same product at the same merchant and the pricing and timing are roughly the same, it shouldnt matter how that coupon is given to the merchant. Andrew Kamps, the vice president of operations at a New York restaurant chain, recently learned otherwise.

Kamps chain of 12 Subway restaurants in Buffalo and four in Rochester has a long history of using coupons for free food to entice customers to try a specific location or a particular sandwich. When sent by direct mail—"its our primary means of advertising"—hes used to seeing a 2-4 percent when its a discount and a 10-15 percent response rate when the offer is a free sandwich, he said.

When Kamps recently tried having the same coupon (a free 6-inch hoagie) beamed to 3,000 peoples cell phones, he saw a startling 50 percent response rate.

"I was very surprised. Its a great number," Kamps said, adding that hes been using MobileLime, a vendor that offers marketing loyalty and purchasing programs on cell phones, for the experiment.

Although Kamps represents just one franchise, managers at the $9 billion 26,000-store chain are closely watching the trial, according to Kamps as well as Subway corporate officials.

Subway is far from alone. With smart-phone capabilities soaring almost as quickly as the percentage of consumers who will likely have a cell phone on them when shopping, retailers are trying to figure out how best to make use of the technology.

Online couponing is an entry-level step. The phone can be fitted with a contactless card-like device so that it can be used to transmit payment information instead of a credit card. The nature of the phone lends itself to two-way customer communications, either by e-mail or voice.

Kamps said he finds the potential for full customer communication to be the biggest attraction, although its not something he plans on using in the immediate future. "The absolute best part about the program is communicating with our customers so we can really find out what their needs are," he said.

At present, his chain can send timed text messages to customers at whim, but if a customer wanted to reply ("Thanks for the 50 percent off offer on a turkey hoagie, but Im not in a turkey mood. If you turn that into a 40 percent off offer on a tuna hoagie, Ill do it right now. Deal?") the system wont support it.

Another next step would be more sophisticated integration with existing CRM (customer relationship management) and POS systems, to truly allow for one-to-one-marketing. After that comes the Holy Grail of mobile marketing, the one that simultaneously thrills and petrifies marketers: location-awareness messaging.

Although the cell phone carriers dont go out of their way to advertise it, almost all cell phones today can be easily tracked even if the phone is not being used to make phone calls. In most instances, though, the phone does need to be powered up.

There was an incident last year where a couple got lost and stranded in a Washington state mountain range and they were desperately putting out calls for help, but they didnt know exactly where they were. Law enforcement worked with the cell phone carrier on the hope that the stranded hikers would not choose to save their battery power by turning the phone off. It was because they kept the phone turned on that law enforcement was able to find and eventually rescue them.

But the same market forces that made that cellular carrier refrain from boasting about how it saved its customers lives will impact retailers: the fear that consumers will see the technology as intrusive and rebel against it.

Kemps, for example, said he would love to be able to alert his more loyal customers when they are a certain number of blocks away from another one of his chains locations, especially if its an area of town far from that customers home and work. "The opportunities are endless," he said.

Googles plan to team with EarthLink to offer Wi-Fi in San Francisco gains powerful critics. Click here to read more.

In an attempt to compromise between perceived privacy invasion and the benefits of more intelligent communications, retailers are initially relying heavily on opt-in agreements from consumers. The only problem is whether such opt-in agreements will quickly become another of those privacy agreements that consumers reflexively click on when they are trying to download a new application.

In other words, will consumers be fully cognizant of what they are agreeing to? If not, then those agreements will do little to reduce their rage later on.

Next Page:What happens when smart carts meet smart phones?

What Happens When Smart

Carts Meet Smart Phones?"> A few years down the road, the potential of smart-phone integration could be even greater when other not-yet-ready-for-aisletime technologies are deployed, such as item-level RFID (radio-frequency identification) tagging, smart shelves and smart carts.

When that happens, the smart phone could become the representative of both the consumer and the retailer, storing shopping lists from the consumer (both typed and scanned in) and databases of recipes and inventory from the retailer. The phone would be the intelligent intermediary.

This could play itself out in two ways. Using historical CRM data about that customer, the system could recommend products the consumer has typically wanted, but try and encourage brand-switching through coupons.

It could also use situational data. An example of that might be if the smart cart, using item-level RFID, sees that the customer has purchased lettuce, tomato, cheese, anchovies and garlic and—using its recipe database—concludes that a Caesar salad is intended. It could then flag traditional ingredients that appear to be missing or it could flash an instant coupon for a particular salad dressing that might work well (and have a huge margin).

MobileLime CEO Bob Wesley said the direction technology is taking today will lead to morphing the smart phone—itself the merging of a cell phone and a PDA—into something more like a portable computer.

"The mobile phone will become the logical extension of the PC," Wesley said, in Boston. "It is a really rich way of accessing information."

Mobile marketing is something that should be of particular interest to global retailers, as the availability—and acceptance—of sophisticated smart phones is much greater in parts of Europe and Asia than in the United States. Consider SMS (Short Message Service) communications. Of the 200 million American cell phone subscribers, barely 24 percent use SMS, compared with 76 percent of European cell phone subscribers, according to Forrester Research, in Cambridge, Mass.

But the U.S. consumer is quickly trying to catch up, with Forrester citing industry sources as reporting a 154 percent increase between 2004 and 2005.

But increased ability to handle SMS communications does not necessarily translate to increased willingness among consumers to do so. Forresters Tamara Mendelsohn argues that those consumers may indeed be open to SMS, but only if retailers make it worth their while, most likely by subsidizing their monthly cell phone costs.

"As SMS usage increases, some consumers will show a willingness to allow approved retailers to communicate with them via cell phones, if they are given strong enough incentives," Mendelsohn said in a recent report. "Consumers tolerance for ads also increases as service fees decrease. While only 4 percent of U.S. consumers wouldnt mind ads when watching video on their cell phones, 25 percent would accept ads if it reduced the fees they pay."

Another Forrester analyst, Sucharita Mulpuru, agreed that the marketing potential of cell phones is attractive, but she strongly cautions retailers against moving too quickly lest they drown this channel before it can swim.

Mulpuru said the mobile marketing trials "are great experiments. I think coupons and relevant one-to-one marketing will probably be the most likely to take off, especially if advertisers help defray consumer costs of phone calls and text messaging in exchange…"

However, she stressed the problems: "Unsolicited spam will be most unwelcome, so both the telcos and advertisers will have to agree to set up a premium in place from the get-go so we dont have the same problems we now have with e-mail. If advertisers and retailers get greedy about this channel and think they can market to people for free, theyll eventually kill the goose that laid the golden egg."

How bad could it get if marketers push mobile too far and too fast? Pretty bad, Mulpuru said.

"There are two big segments of shoppers that are relevant to this topic. People who absolutely love hearing from marketers—yes, they do exist, although theyre hardly a vocal community—and people who hate it. It is so, so, so important to avoid ever getting near the latter," Mulpuru said.

"If a retailer doesnt [show restraint], those consumers will launch litigation and ultimately be the drivers of legislation that prevent one from ever cost-effectively marketing to those consumers who actually like it. It is important for anyone marketing in the SMS arena to be aware of this segment and figure out how to allay the concerns of those consumers."

Smart phones already are being integrated into promotional displays, connecting with both visible bar codes and virtually invisible codes meshed in with digital images, the so-called digital watermarks.

The digital watermark efforts are a great first step, as are trials such as the one being watched by Subway. When those cell phones are integrated with the rest of the network, vendors will be able to enter the age of the Sell Phone. The question will be whether consumers will by then be ready to answer the call.

Evan Schuman is retail editor for Ziff Davis Internets Enterprise Edit group. He has tracked high-tech issues since 1987, has been opinionated since long before that and doesnt plan to stop anytime soon. He can be reached at

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