Carmel tech firm takes coupons into digital era

Somewhere out there, a pimply teenager is texting away on her phone and working up an appetite for a Brownie Batter Blizzard.

The 11-store Dairy Queen franchise owned by
Dave Reasner knows this kid has shunned burger and chili-dog offers in the past. But on certain days
of the week, she craves Blizzards more than the latest gossip about who has a crush on whom.

So when it’s time for the next round of discounts for customers in the restaurant’s loyalty program,
Reasner’s chain sends the teen a text message offering a deal on her favorite Blizzard. Chances are good
she’ll levitate up to the counter of his Rochester restaurant and swipe her phone—affixed with a
decal emitting an identifying radio frequency—over a scanner to redeem the discount.

"We’re seeing off-the-chart redemption
rates," said Reasner, owner of Tipton-based JD Restaurants.

Such intelligence on a teen’s buying habits, which back in the day would’ve sent consumer crusader
Ralph Nader crowing for congressional hearings, comes courtesy of clever technology deployed by Carmel-based
Tetherball LLC.

Last month,
Tetherball claimed to be the first mobile loyalty and rewards marketer in the nation to deploy a program using
a radio frequency identification device that can measure in detail to what extent customers redeem offers.

"The biggest deterrent for mass adoption
[of mobile loyalty programs] has been the issue, ‘I can’t measure it,’" said Jay Highley, president
and chief operating officer of Tetherball. Highley is perhaps better known here as former chief marketing
officer of ChaCha Search, the search service for mobile phones launched by prolific tech entrepreneur Scott Jones.

Such detailed and predictive data is a gold
mine if it helps retailers lure their regulars back more frequently.

Though the RFID tag could be stuck to the back of a belt, watchband or wallet, for that matter,
it’s the pairing with a mobile phone that could have marketers salivating.

Unlike a paper coupon one often leaves at home,
the wireless phone has practically become a bodily appendage.

Not only do teen shoppers go everywhere with their phones, but retailers can reach them immediately
with a text message about a special deal. Spam them and your brand is toast. But if they’ve signed up
for your customer loyalty program, there’s a decent chance they’ll look at the offer you’ve texted.

Better than that, Tetherball claims a 24-percent
redemption rate on loyalty coupons for its clients—several times the norm of other formats.

"In the market we’re in, it’s too expensive
to try to spend money to gather new customers. It’s much more cost-effective to market to your existing
customer base," Reasner said.

The trial he’s running with Tetherball at the Rochester store is more than just a convenient way for customers to redeem their
offers via the RFID decals.

Every time a phone is swiped across the scanner, details about the purchase are uploaded to software, known as Mobiquitous,
that Tetherball developed. The software analyzes what they’ve redeemed and when, among other things.

"You know what offers are being used and
which ones are not so you can fine-tune your [marketing] approach," Reasner said.

The Dairy Queen trial is the culmination of
nearly two years of development work by Tetherball since it was founded by local marketing executive
and entrepreneur Scott Yancey. The company has done mobile marketing work for a number of companies, from
McDonald’s Corp. to Indiana-based Hot Box Pizza.

Yancey and Highley think they have the formula about right based on the DQ trial. It’s pretty straightforward:
Customers can sign up for the loyalty program at the store, where they receive a quarter-size decal they
can stick on their cell phone.

The RFID decal sourced from California-based ViVOtech Inc. is a low-profile version of what’s
affixed to merchandise in stores or to crates in warehouses. It emits a radio frequency with a unique
identification code.

When
customers receive a text message about a special offer, they merely swipe the phone at a scanner Tetherball has placed
in the store. The scanner is relatively cheap, at about $500. It can be wired to a store’s point-of-sale computer system,
or stand alone at a kiosk that spits out paper coupons that can be taken to the cash register.

RFID is a departure from newer mobile marketing programs, most notably one being tried by consumer
products maker Unilever at retail stores in New Jersey.

Participants download into their phones coupons for Unilever products, such as Breyer’s ice cream,
from the Web site of Chicago vendor Samplesaint.

At the cash register, the customer pulls out the wireless phone and calls up on its video display
a picture of the coupon, which includes a bar code the cashier scans.

Highley said Tetherball tinkered with such technology but encountered problems, such as when the
bar code scanner couldn’t read the code on the phone’s video display. That’s a big turnoff for the consumer
and for fellow shoppers standing in a long line, Highley said. And he contends that a big part of the
population doesn’t have the time or patience to download something into their phone.

"I’m here to tell you those [technologies]
don’t work," he said.

Tetherball’s RFID approach eliminates such problems, although it raises other issues, said Evan Schuman, editor of StorefrontBacktalk.com.

"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?" Schuman wonders in a recent column.

Highley responded that one RFID tag technically could work with multiple vendors’ loyalty programs
in that essentially all the tag does is emit an ID code.

"One Tetherball tag could replace all the tags hanging on your keychain," he said.

Schuman told IBJ his point was that
the mobile marketing industry "is in essentially an early, almost prenatal" state. "Most
retailers are going to sit back and allow the pioneers to get the bruises."

Schuman sees a bit of a parallel to the early days of credit cards, when many retailers had their
own proprietary card platforms before the days of Visa or MasterCard.

"If [mobile redemption] works, there’s going to have to be standardization," he added.

Of course, it’s yet to be proven whether a sufficient
number of consumers would want to respond to loyalty marketing offers this way.

Clearly, mobile marketing has huge potential.
Mobile advertising spending in the United States this year is expected to hit $760 million, from $648
million in 2008, according to eMarketer.

Despite the modest rise, the research firm projects those numbers to soar to $2.4 billion in 2012 and $3.3 billion in 2013.

Highley said Tetherball is on the cusp of a
handful of deals with retailers, though he declined to identify them. Nor will he say how much revenue
the 2-year-old company has generated.

Funding, he said, has come from friends and family.

It remains to be seen whether other retailers would see similar rates of participation as has
Dairy Queen, which naturally skews toward younger, phone-toting customers.

Nearly 25 percent of those in DQ’s loyalty program
redeemed an initial offer, with less than half that percentage responding to offers thereafter. But,
according to Tetherball, a healthy 94 percent remain enrolled in the program. What’s clear is, "in
these economic times," Highley said, "retailers want to drive traffic."