Will Cell Phones, PDAs Become Retailers’ Promo Tools?

Written by Evan Schuman
August 25th, 2004

With PDAs and cell phones getting more advanced, one retail transaction vendor wants to turn those consumer gadgets into two-way, advertisement-friendly checkout devices.

A major roadblock for razor-thin-margin retailers adopting new checkout and loyalty programs is the cost of buying the many new pieces of hardware, plus the cost of integrating the software into legacy POS (point-of-sale) systems.

The approach being advocated by Vivotech is to leverage the hardware that consumers already own. After all, the fundamental display and communications capabilities of today’s latest RF (radio frequency) cell phones and infrared PDAs is not that different from entry-level checkout pads.

On top of the consumer PDA or cell phone, said Vivotech CEO Jorge Fernandes, would be a small application that would take up about 100KB of RAM and cost between $1 and $2. Company officials speculated retailers would typically pay for the consumers’ software, and they’d also fund “minimal changes” for their own POS systems.

Jupiter Research analyst Bruce Cundiff questioned how easy or cheap these changes would be for the typical retailer.

“The merchant infrastructure is key,” Cundiff said. “At $100 per lane?which is what Vivotech has quoted me?a large chain is talking about a multimillion-dollar investment. Is there going to be a return on that investment?”

Many retailers are likely to pressure vendors such as Vivotech to pay a lot more of the cost of the transition than they’ll want to, Cundiff said. “The early adopters are really going to push for investments on the part of the payment networks.”

Although the cost and the ROI (return on investment) are being debated, there are clearly benefits for both sides.

Consumers, for example, would benefit from being able to use their own devices to accelerate their shopping. The retailer would benefit because of the increased loyalty and the potential to display customized advertising and promotions. Some consumers might regard those electronic promotion coupons as an incentive and a bonus, while others would regard them as an intrusion and a price to pay for convenience.

Fernandes estimated that there are as many as 40 million compatible cell phones today and many more PDAs. “It’s quite exciting because it’s a very large and well-established market,” he said. “You’d be literally carrying your token within your cell phone” or PDA.

There is nothing new about doing a quick analysis of the contents of a consumer’s purchase and then rewarding that consumer with a free item or a discount coupon.

But today’s typical options either present the coupon in a customer’s credit card bill?which could be as long as five weeks after the purchase was made?or in the checkout lane at the end of the purchase.

That approach is problematic, Fernandes said, because the coupon can only be used on a future shopping trip, and the customer is just as likely to lose that coupon by then.

Vivotech’s approach allows the retailer to deliver the incentive both instantly and before payment, so the customer has the chance to use the incentive right away. “The intent is to impact your [customer’s] behavior before they get to the checkout line,” he said.

A consumer would walk into a store and point his or her PDA to a kiosk. The palmtop would quickly identify the consumer and flash an alert that, for example, the customer’s favorite shoe vendor is having a 40 percent off sale for select customers and that the consumer’s particular shoe size and favorite color are in stock.

The next stage of the software will allow true, ongoing, two-way communication. When that happens, the customer will be able to message back, “Can you set aside one pair in black and one in red for me? I’ll pick them up in two hours,” or “Make that offer 50 percent, and I’ll buy four pairs right now.” The cell phone or PDA would facilitate a real-time messaging conversation.

Vivotech is working with Symbian?which makes an operating system for data-enabled cell phones?and Verifone, a POS vendor, among others, company officials said.

Jupiter’s Cundiff applauded the idea behind Vivotech’s efforts but questioned how successful it will be and, if it is successful, how quickly it will happen. “There is no doubt that the coolness factor is here,” he said. “But this is going to be a little more difficult than Vivotech would have you believe.”

From the perspective of how many devices are ready to handle such an application, it’s clear that PDAs are way ahead of cell phones. But Cundiff said he sees this being practical only with a cell phone because consumers?especially at night and on weekends, when a lot of purchases happen?do not carry around PDAs nearly as often as they carry their cell phones.

Most cell phones today do not support such capabilities, so for Vivotech’s strategy to work, a lot of consumers are going to have to upgrade, he said. Consumers won’t likely upgrade just for the privilege of making purchases easier and seeing ads, so the onus falls on the cell phone companies to get consumers to upgrade.

The telcos “have been salivating [about making purchases through cell phones] for years,” he said. “But it’s going to be tough to get consumers to buy those next-generation phones.”


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