Dairy Queen's Mobile Coupon Experiment: "Look, Ma. No Phone!"

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 CRM/loyalty programs.

The 69-year-old $2.6 billion dessert merchant has about 5,700 locations in Canada and 49 states in the U.S. (their store in Vermont shut down), billing itself as the "treat industry leader," beating out rivals Baskin-Robbins, Cold Stone Creamery and Maggie Moos, said Dean Peters, PR director for chain owner American Dairy Queen Corporation, which itself is owned by Warren Buffet's Berkshire Hathaway.

(Related Story: Burger King, Victoria’s Secret, Unilever, ShopRite Go Mobile Coupon)
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, the chain'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.

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.