Beyond Ice Cream And Hamburgers

This column was written by Evan Schuman, the editor of StorefrontBacktalk.com, a site that tracks retail technology, e-commerce and security issues. He can be reached at e-mail"> and on Twitter.
The Retail Realities column appears each Friday. Click here to read earlier Retail Realities columns.

For the last two weeks, consumers walking into the Dairy Queen in Rochester, Indiana, have been offered something beyond ice cream and hamburgers: A pile of identical tiny RFID tags, each with peel-off adhesive strips, sitting right next to the waffle cones.

But when those consumers return to that Dairy Queen with those tags stuck to their wallets, their watchbands or the back of their cellphones, identical those tags shall be no more. Given the differing purchase histories of each customer, the tags will deliver sharply different discounts and offers. In effect, the tags will serve as digital coupons as well as makeshift retailer loyalty programs.

The 69-year-old $2.6 billion dessert merchant, which has about 5,700 locations in Canada and 49 states in the U.S., is the latest in a lengthy list of retailers that are toying with how to make coupons somehow more relevant, more meaningful to today's consumer, especially younger consumers. Beyond Dairy Queen, the last couple of weeks has seen quite a few major retailers dialing into the mobile coupon space including Burger King, Victoria's Secret and Unilever (through ShopRite). But what is most interesting is that all four of those multi-billion-dollar merchants have chosen to offer these coupons in very different ways.

Burger King's approach is to offer a dedicated application for Apple's iPhone, which is designed to allow customers to locate Burger Kings and make pre-orders through their phones, as well as receive discounts based on purchase histories.

Victoria's Secret's new mobile experiment is more of an adjunct to its catalogue (paper and online), with the mobile application needing a catalogue number before an item can be purchased and tracked. Once a consumer accesses the little list of Limited's lecherous lithe lingerie, discounts are also offered. Unlike Burger King's discounts that are tied to a consumer's purchase history, the initial Victoria's Secret offerings are generic, such as giving any shopper spending more than $100 on the mobile site free shipping.

And in Hillsborough, N.J., consumer goods giant Uniliver-owner of Knorr, Lipton, Wishbone, Hellman's, Breyers, SlimFast, Dove, Vaseline, Lux and Knorr, among others-is running a trial at a ShopRite store that involves cashiers scanning the consumer's cellphone screen, which will display a digital coupon. Unlike Burger King and Victoria's Secret, the Unilever mobile trial only works in-store, but the coupons must first be downloaded from the Web site of Samplesaint, a Chicago vendor that is handling the Unilever New Jersey trial.

All of these approaches have their drawbacks, such as the possibility of the consumer's phone being damaged by a cashier or a dirty screen obscuring a scan. The Dairy Queen approach, which doesn't even need a phone, sidesteps most of those concerns but raises its own issues. For example, if this approach becomes popular, are consumers supposed to placard every millimeter of their phone, wallet, key chain and potentially even their forehead with lots of little RFID tags? The "go it alone" approach clearly has potential pitfalls, although it's the fastest, cheapest and easiest approach to get started quickly.

Even so, the most intriguing of these trials is from Dairy Queen, which bills itself as the largest of the ice cream chains, beating out rivals Baskin-Robbins, Cold Stone Creamery and Maggie Moos.

The RFID tag trial, which is expected to last through the end of the year, is certainly not the chain's first CRM program nor its first attempt at digital coupons. That would be the chain's E-mail-based 2.2-million-member "fan club," which also distributes discount coupons.

But the chain is seeing the same drawbacks with coupons-digital as well as dead-tree versions-that all chains are seeing: Customers see the coupons when they're opening their snailmail or on their computer. And yet, when those consumers are in a position to use those coupons-such as when they drive past a Dairy Queen on their way home-they invariably don't have the coupons with them.

The RFID tag trial "is much more spontaneous," said Jamie Guse, Dairy Queen's Web site manager. The consumer attaches the tiny tag to something they always have with them-a cellphone is suggested but hardly required-and can use it when they happen to be near a Dairy Queen. For the duration of the trial, though, it's only available at that single location in Rochester.

Here's how the system is supposed to work. After the consumer picks up a tag, they need to activate it by texting the number on the tag (the letters DQ followed by about 5 digits). That text message goes to systems controlled by an Indianapolis RFID vendor called Tetherball, which associates that tag with that customer's identification. Tetherball is working with Vivotech. As purchases are made, the CRM database expands and coupon recommendations get customized.

Short-duration offers are then messaged to that consumer. "It might be a dollar off a small sundae. The offers are only for one time, such as today between 2-4 o'clock," Guse said.

When the customer walks into the store, he/she waives the tag by a contactless reader, which communicates with both Tetherball and the chain's payments processor, First Data.

As is typical, the retailer is paying only the smallest percent of the costs of the trial, with Tetherball handling all of the technology costs, including wiring the store. The only Dairy Queen costs were some marketing dollars to let customers know about the program, making signs and sending the text messages, Guse said.

The program is intended to deliver the benefit of a mobile payment system (the ever-present nature of the cellphone) without the hardware and software integration challenges of having to deal with multiple phone manufacturers and competing carriers.

"Mass adoption of mobile marketing using barcoded coupons just hasn't happened because it's far too complicated with a plethora of technical and user issues at the point of redemption," said Tetherball President Jay Highley. The knock against contactless payment has been that consumers are rarely if ever given a financial incentive to try it, as in "this bread will cost you 10 percent less if you pay for it using mobile.

In the Dairy Queen trial, the phone is little more than a prop, a piece of plastic that can house the RFID tag.

The tags in this trial contain hardly any information beyond a unique identifier. All of the customized purchase history data-along with the various offers being made and which one is available for that particular target at this particular time-is stored on a Tetherball server. In theory, this could later be expanded-with the help of First Data-to also be a payment device.

Much of retail is struggling with finding a way to make contactless payment, mobile payment and RFID tag coupons work. The technology issues are not the hurdle, as the systems generally work well, but can consumers be motivated to use them? The upsell potential of coupons only works to the extent the coupons are redeemed and redeemed in a trackable manner. Subway has started toying with a contactless system in Canada only, but Subway is showing something less than unbridled enthusiasm. And the convenience claim of contactless payment hasn't worked well in many consumer trials.

But the Dairy Queen trial could prove to be much more successful as it's leveraging the only element that consistently has proven effective at changing consumer behavior: money. The knock against contactless payment (and, for that matter, self-checkout) has been that consumers are rarely if ever given a financial incentive to try it, as in "this bread will cost you 10 percent less if you pay for it using self-checkout (or contactless)." The Dairy Queen trial does precisely that, offering customized discounts only available through the RFID tag.

By Evan Schuman
Special to CBSNews.com