Evan Schuman's StorefrontBacktalk

In what one executive of the $9 billion 26,000-restaurant Subway chain dubbed “the single largest integrated cash card program in the world,” the new card handles payment, instant loyalty rewards and highly-targeted promotions that can be tracked by customer.

The program takes a very basic mag-striped giftcard and, through a unique 16-digit identification number, takes the card through Point Of Sale (POS) through to CRM.

Marina O’Rourke, Subway’s director of retail technology, said the system is groundbreaking because of the wide range of capabilities but also because of the scope of the deployment. “We have rolled out the single largest integrated cash card program in the world. We have almost 20,000 stores on this program and our program is integrated into our POS software,” O’Rourke said. “It’s a very sophisticated CRM program. It has the ability to target consumer behavior and reward and entice that behavior. It can look at cardholders in a geographic area. We can drill down to the store level. We want to understand if we can change behavior by offering, let’s say, a free cookie.”

The way the cookie promotion might work is the chain might want to identify all customers who make purchases once-a-month or less frequently, she said. The next time one of those customers showed up and made a purchase, their receipt would offer them a free cookie if they returned within a week.

Although O’Rourke wouldn’t reveal specific discoveries the chain made, she did say that the program was working in changing customer behavior. “During our pilot, the stores have been many many more times more successful than traditional couponing. It is extremely compelling, It’s a big number,” she said.

Subway has been experimenting in other areas as well, including a Subway franchisee trial with issuing coupons via cellphones, which delivered a staggering 50 percent response rate.

The chain is also experimenting with online ordering in about 300 stores with a group of stores in Florida trying to integrate delivery services.

The technologically challenging part of the online ordering project is the chain’s tendency to encourage creative use of local ingredients.

“Each one of our stores has some unique characteristics. In Maine, you might see a local lobster sub special while in Texas, it might be a special barbecue sub,” O’Rourke said. The problem? “It’s the logistics of keeping the menus uptodate. It’s the gathering and programming of all of that information and keeping it current so that customers will be able to order all of that online as well.”

Subway’s IT challenges are somewhat different than a typical global retailer of its size because all of its stores are owned by franchisees. In many instances, IT can merely recommend, beg and plead for the stores to follow a particular technological approach. This cashcard program, which started slowly in July 2003 and is just now being fully deployed to all locations, is mandatory for all Subway locations in North America. Without getting specific, O’Rourke said that corporate and the franchisees are sharing the costs of the deployment.

By making this rollout required, not only does Subway management receive far more data to analyze, but it also took the opportunity to standardize a lot of the stores. “We now have a common software platform. That’s a big achievement,” O’Rourke said, adding that the new requirements?such as supporting Windows98 or better, with at least 256-Mbytes RAM?were merely “highly recommended before.”

“The most difficult part was that we had to address the lack of standardization at the store level in terms of hardware and software. We had to set a minimum requirement for hardware and software,” she said, adding that some stores needed to purchase new hardware. “These are some fairly mild requirements, but there were still some folks who had some Windows98 machines without enough RAM. We actually had some folks with Windows95 machines who had to upgrade them,” she said.

The loyalty part of the program is not fully-deployed yet, with only about 1,000 stores in roughly 14 states?mostly in upstate New York and the Pacific Northwest?using the loyalty piece.

When customers register on the Subway Web site, the program can match the individual’s name with the card’s number and can then E-mail specific promotions to specific customers. For most customers, though, they are literally just a number, but that’s fine with Subway.

“We don?t need to know who you are specifically to target you. We can target you by the unique identifier of the card,” O’Rourke said. “We may or may not know that you?re Joe Smith of 123 York St., Brookyn, NY, but we know that there is a unique identifier and you are a consumer who does this behavior. If you register your card online, then we would know exactly who you are.”

The software behind this program is owned and managed remotely by a Portland, Oregon, company called ChockStone. ChockStone’s CEO, Jeffrey Lipp, agreed that the cardholder’s name is not that valuable a piece of information, other than for E-mail campaigns.

“From a figuring out the transaction pattern and history perspective, we don’t really need the name in order to decide what that person may do in the future,” Lipp said.

Lipp said that it’s the tight integration with Subway’s POS network that makes this deployment intriguing. “We grab all of the information that is rung up in that sale. It could be the six-inch turkey, the 21-ounce soda, the Frito-Lay chips, all of that information with the timestamp, it’s all sent to us,” he said. “There?s then analytics on our system. It?s taking data from the POS in realtime and it’s into our systems and into our logic. We’re trying to figure out if it triggers a specialized offer to be printed on the back of the receipt.”

For the most part, all of the data is crunched and analyzed on ChockStone’s servers and then reviewed online by various Subway managers. But the data is also sent back to Subway so that it can also be merged with lots of other data, Lipp said. Subway “gets nightly data feeds to feed into other packages that they might want to use to compliment the tools that we have. There’s virtually no data on that magstripe on the card. All of the data, all of the history, everything that is related to that profile resides on our system.”

Chockstone is working with various retailers and vendors, including the Tully’s coffee chain and movie firm TicketMaster. The cost of the program various with the customer, Lipp said, but it usually involves a flat transaction fee ranging from five cents to 15 cents per transaction, along with the cost of the cards themselves.

RFID-enabled contactless cards?such as ones being used by Tully’s?cost a lot more than the magstriped versions that Subway deployed. “The cost of a dumb basic mag stripe card is significantly lower than a card with an RFID chip in it. For a program with tens of millions of cards, that adds up, especially for a system like Subway’s where the franchisees have to pay for everything,” Lipp said. “It’s in the 10-20 cent range for magstripe and a $1-plus for the RFID cards, so it’s quite a jump.”

Although stored value and giftcards have been popular since the mid-1990s, Lipp said that he expects to see a sharp increase in not just the quantity of retail usage, but the sophistication of them as well.

“We’re seeing most major retailers who have gone through the first cycle or two on giftcards, penetrating maybe 2-4 percent of their base. It’s become a big item and yet it’s still kind of a niche item when it’s only hitting a couple percent of your customers,” Lipp said. “Now most large retailers are saying, ‘What’s next? What else can I do with this card? Hey, how about turning this payment card into really a marketing card?’ They need to figure out how they go from 4 percent of customers using it to 40 percent? Man, if you use the data, you can really get a good payout.”

Lipp cited a deal between coffee chain Tully’s and Yahoo as an example of the kind of creative arrangements that are possible. “In Santa Monica, California, Yahoo resides in a building where there is a Tully’s on the ground floor. Yahoo, instead of building their own coffee shop, they said, “OK. Why don’t we have a program where we make Tully’s our corporate coffee shop?'”

All Yahoo employees associated with the program have special coding that signals that they get 20 percent more benefits than other customers. “When they go online and load up another $20, they get a 20 percent (bonus) so they’ll get $24. That’s subsidized in a deal between Yahoo and Tullys.”