Published: June 26, 2006
SAN FRANCISCO (AdAge.com) -- You've heard the example before: You're walking past a Starbucks on a steamy afternoon when a $1-off coupon for the retailer's iced Frappuccino hits your cellphone. But after years of being a hypothetical, mobile place-based couponing is here.

Mobile suppliers said Target, Best Buy and other mass marketers are likely to use cellphone-targeted coupons in for the 2006 holiday season.

Many consider couponing via cellphone the ultimate scenario for tapping into the estimated $15 billion retail-promotion market. And in the next few weeks, a number of major marketers and retailers -- including Hollywood Video, 1-800-Flowers.com, TGI Friday's and Bath & Body Works -- will try it for the first time.

"Mobile couponing has arrived," said Brent Dusing, CEO of Moonstorm, a mobile-marketing-solution provider.

Downloading a coupon wallet
Mr. Dusing said the marketers are using Moonstone's Cellfire program, in which a consumer downloads a virtual coupon "wallet" to a mobile phone and shows the phone with the coupon code to a store clerk. The coupons may be worth a free movie rental or $5 off dinner and are being promoted through shelf-talkers, click-to-call offers on web pages and through other advertising offers.

Mobile suppliers said Target, Best Buy and other mass marketers are likely to jump in for the 2006 holiday season.

Mr. Dusing said Cellfire's coupon redemption rates are in the "mid-teens to 23%" and others in the mobile-marketing space report similarly high conversion rates. Nihal Mehta, founder of Ipsh, now part of Omnicom Group, said a mobile-coupon promotion involving Capitol Records artist Chingy and retailer Sam Goody resulted in a 10% redemption rate -- more than 10 times the industry average for paper coupons.

In 2005, 278 billion conventional coupons were distributed and only 3 billion of them were redeemed, according to coupon clearing agent Valassis' NCH Marketing Services unit. The value of those redeemed coupons was less than $3 billion, and that total has been dropping by about 5% per year, said Charles Brown, VP-marketing at NCH.

That's in part because consumers balk at higher-value coupons that require them to purchase multiple products and may not, all things considered, provide the best value to the consumer. Last year the average coupon face value was $1.09, while the average redemption is 83 cents, he said.

Retailers training sales force
A number of the nation's top retailers are training their sales forces to work with the new cellphone-based coupons, Ipsh's Mr. Mehta said. Pharmaceutical marketers are also beginning to look at the mobile phone as a vehicle for discounts, loyalty marketing programs and free-trial offers.

The ability to deliver coupons at the right moment -- just as someone's nearing a particular retailer or restaurant -- is key and requires a marketer to detect the location of a person's phone at any given time. Some 200 million Americans have mobile phones with locating devices; Sprint, for one, has a searchable local directory that can recommend nearby restaurants, clubs or bars, and almost all Verizon Wireless phones soon will have similar capabilities.

But as that technology emerges, so do privacy concerns. Beth Givens, director of Privacy Rights Clearinghouse, a nonprofit consumer-advocacy group in San Diego, said mobile coupons must be something the individual opts into. For marketers, it would be a "terrible mistake to transmit location-targeted advertising to someone who has not consented" to receiving the message. She said her phone has the ability to turn off functions that reveal her location.

Privacy invasion
Jay Stanley, public education director, technology, for the American Civil Liberties Union, said cellphone location data is a "honey pot for privacy invasion" and new laws are needed to make sure information gathered for one reason is not used for another. He said mobile phone location information for emergency 911 purposes, for example, should not be not used for marketing. "Our technology is 2006 and our laws are 1936," he said.

Other obstacles exist, especially the need to train sales forces; a perhaps bigger expense would include purchasing new point-of-sale registers and equipment.

Mr. Mehta, however, said mobile coupons are a "killer application. The reason it hasn't taken off is that brands don't know how to capitalize on it. It's just a matter of time."

Not all mobile-marketing experts agree coupons are the holy grail of mobile marketing, especially right now. For one thing, the coupon offered "better be pretty valuable or it's going to be perceived as spam," said David LaPlante, CEO of Twelve Horses, a relationship-marketing and messaging-management company. "As soon as people complain, it's bad news for everyone."

And as for the oft-repeated Starbucks example? Well, said Mark Donovan, VP-senior analyst at M:Metrics, "if you've noticed, coupons are not part of Starbucks' brand strategy." At least not yet.