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Texting Success
Subway's mobile marketing is paying off in Seattle and Buffalo.
Subway franchisees reach customers on cell phones.

Tired of freestanding insert advertisements that just got thrown in the trash, Mike Lewkowicz, president of Subway franchisee group QSR Brands, was looking for a new, innovative way to bring customers into his 12 Buffalo, New York-area restaurants. To that end, he partnered with Modiv Media, a retail interactive media delivery provider, to connect with customers via their preferred communication medium: the cell phone.

"Your mobile is like your car keys and your wallet, you never leave home without it," says Modiv Media CEO Bob Wesley. "Just like you'd call a friend on your mobile phone, Subway wanted to create a connection with their friends, which are their customers."

Modiv Media helped Lewkowicz set up a mobile-based promotion to send real-time coupons and alerts to customers' cell phones. The first mobile offer, launched in August 2006, brought a 50-percent direct-response rate to the 12 initial locations. Lewkowicz, who is also chairman of the Buffalo Subway Franchisee Advertising Fund Trust, was so impressed that he pitched the idea to other area franchisees.

107 restaurants in Buffalo now use the program, which was also adopted by more than 300 Subways in the Seattle-Tacoma market in October. They, too, are experiencing compelling results. The response rate is currently running around 8.7 percent, Lewkowicz says. By comparison, he reports only a 1- to 2-percent response from freestanding insert (FSI) ads. "And the monthly fee we're paying is similar to an FSI draft," Lewkowicz adds.

The program also helps the restaurants get more out of the traditional marketing they're already doing. In-store signage, print, and radio ads instruct users on how to opt in to the promotion. All they have to do is send an offer code from their mobile device to join and they're eligible to receive coupons from their chosen Subway location.

To kick off the Seattle launch, the opt-in offer code was displayed on the jumbotron at a Seattle Seahawks home football game. About 70,000 spectators were invited to join the program for a chance to win a signed Seahawks helmet.

"Sandwich artists don't have a lot of time to get people to join loyalty programs," Wesley says. "This uses self-service to help with sign up."

Once they're signed up, restaurants can use real-time coupons to entice customers to frequent their locations. A typical SMS coupon might advertise a free six-inch sub with the purchase of a drink. Others might be tied to everything from holidays to the weather. For instance, during a slow night due to a snowstorm, a restaurant could offer an aggressive deal to bring customers in out of the cold.

"The challenge that Subway restaurants have is that there are a lot of other alternatives in the area where people can choose to eat," Wesley explains. "What we found was that people didn't know at 10:30 [a.m.] and at 4:30 [p.m.] where they were going to go. If you can reach them at the right moment—when they're making that decision—you can influence that decision."

With about three or four text offers each month, that's exactly what the Buffalo-area Subways are trying to do. For their part, customers seem to like the convenience. Along with the featured offer, each text also includes an "opt-out" option allowing customers to quickly and easily stop receiving promotions. But not many are taking that route, Lewkowicz and Wesley agree.

"Our opt-out rate is less than 1 percent," Lewkowicz says. "Most people who are using it are liking it."

But if so many customers enjoy the convenience of real-time offers sent right to their phones, why aren't more quick-serves jumping on board? McDonald's and a handful of other chains have experimented with the technology, but no widespread rollouts have yet been reported.

People didn't know at 10:30 [a.m.] and at 4:30 [p.m.] where they were going to go. If you can reach them at the right moment—when they're making that decision—you can influence that decision.”

"I think they don't know enough about it," says Vic Berggren, an IT director who runs Mobile Marketing Watch, a blog about the industry. "A lot of people just don't understand how it works. Mobile is a little different, and most people aren't equipped to send it out on their own."

He also cites a fairly small number of providers and cell phone bandwidth limitations as other barriers to widespread adoption of mobile marketing technology.

"I think you'll see it more predominantly when more people are armed with smart phones," Berggren says. "That's going to be a few years away."

But companies like Subway that are getting in early will have an advantage when that time comes, he says.

"They're probably already building their marketing database, and that's not an easy thing to build," he says. "They've got a chance to grab market share initially, before other people even catch on."

And that might happen sooner rather than later. A July 2007 survey of 50 leading brands conducted on behalf of Airwide Solutions, a provider of mobile messaging infrastructure and applications, found that mobile marketing is starting to gain a share of marketing budgets. While only 14 percent of the companies surveyed planned to spend between 6 and 15 percent of their budgets on mobile marketing this year, that number will reach 32 percent in 2009 and 58 percent by 2012.