Evan Schuman's StorefrontBacktalk

Phones that can ring with coupons, beam payments and deliver true multimedia interactive experiences are already in the pockets of most consumers. How far will?and should–retailers go?

A free product coupon is a free product coupon, right? If it’s for the same product at the same merchant and the pricing and timing are roughly the same, it shouldn’t matter how that coupon is given to the merchant. Andrew Kamps, the VP of operations at a New York restaurant chain, recently learned otherwise.

Kamps? chain of 12 Subway restaurants in Buffalo and four in Rochester have a long history of using free-food coupons to entice customers to try a specific location or a particular sandwich. When sent through direct mail??it?s our primary means of advertising??he?s used to seeing a 10-15 percent response rate when the offer is a free sandwich and 2-4 percent when it?s a discount. When Kamps recently tried the same coupon (a free six-inch hoagie) being beamed into 3,000 people?s cellphones, he saw a startling 50 percent response rate.

?I was very surprised. It?s a great number,? Kamps said, adding that he?s been using MobileLime 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 smartphone capabilities soaring almost as quickly as the percentage of consumers who will likely have a cellphone on them when shopping, retailers are trying to figure out how best to integrate the technology.

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

Kamps said he finds the potential for full customer communication to be the biggest attraction, although it?s 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.

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 I?m not in a turkey mood. If you turn that into a 40-percent-off offer on a tuna hoagie, I?ll do it right now. Deal??), the system won?t support it.

Other next steps include more sophisticated integration with existing CRM 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 cellphone carriers go out of their way to not advertise it, almost all cellphones today can be easily tracked even if the phone is not being used to make phonecalls. 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 didn?t know exactly where they were. Law enforcement worked with the cellphone carrier and they had to hope that the stranded hikers did not choose to save their battery power by turning the phone off. The fact that they kept the phone turned on was how law enforcement was able to find and eventually rescue them.

But the same market forces that made that cellular carrier to refrain from boasting how it saved its customers? lives will impact retailers: 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 XX blocks away from another one of his chain?s locations, especially if it?s an area of town far from that customer?s home and work. ?The opportunities are endless,? he said.

In an attempt to compromise 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.

A few years down the road, the potential of the smartphone integration could be quite powerful when other not-yet-ready-for-aisletime-technologies are deployed, such as item-level RFID tagging, smartshelves and smartcarts.

When that happens, the smartphone becomes the representative of both the consumer and the retailer, storing both 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 get brand-switching through coupons.

But it could also use situational data. An example of that might be where the smartcart using item-level RFID sees that the customer has purchased lettuce, tomato, cheese, anchovies and garlic and?using its recipe database?assumes 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).

MobilLime CEO Bob Wesley said the direction technology is taking today is going to morph the smartphone?the merging of a cellphone and a PDA?into more of a portable computer than a small phone.

?The mobile pjone will become the logical extension of the PC,? Wesley said. ?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 smartphones is much more advanced in parts of Europe and Asia than in the U.S.. Consider SMS communications. Of the 200 million American cellphone subscribers, barely 24 percent use SMS, compared with 76 percent for European cellphone subscribers, according to Forrester Research.

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

But increased ability to handle SMS communications does not necessarily translate to increased willingness among consumers to do so. Forrester’s 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 cellphone 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 US consumers wouldn?t 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, agrees that the marketing potential with cellphones 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,” but 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 don?t 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, they?ll 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 they?re 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 doesn?t [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.”

Smartphones already are being integrated into promotional displays, both connecting with visible barcodes 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, they 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.