A Merchant’s Argument For Mobile Contactless Technology

Jul 5th, 2010 | Posted by
Bookmark and Share

A couple of weeks ago, while in Japan, I took a break from studying banks and payment solutions and met with an unlikely research subject — McDonald’s.

I met with McDonald’s because during my latest mobile payments research, the fast food chain was frequently mentioned by payments industry players as a merchant to watch. Being an analyst, I decided to check out McDonald’s for myself. The focus of our discussion was McDonald’s use of mobile technology for sales lift purposes — i.e., as a channel to distribute coupons and special offers, to entice customers into McDonald’s restaurants.

In a nutshell, here’s how the McDonald’s program works. Customers (now about 18 million of them) register as members of McDonald’s “Toku” promotional program. On a weekly basis (in time for the weekend), McDonald’s sends program members a mobile e-mail, with a list of coupons and promotions available that week. Customers then have two choices. One is to use their mobile browser to open mobile coupons, which are shown to McDonald’s cashiers (a promotional code is clearly visible). The other, if customers have already downloaded the McDonald’s app (which 8 million have already done), is to download the coupons to their contactless mobile wallet.

Either way, the customer gains the benefit of the coupon. However, with the contactless version, there is a special advantage. Namely, McDonald’s is able to close the loop between coupon distribution and redemption. By associating redemption patterns with a customer’s “Toku” membership ID number, McDonald’s begins to develop intelligence about that customer’s preferences. Based on this, McDonald’s is able to configure and send out highly personalized promotions (by menu item, specific restaurant, time of day/week, etc.) to the customer’s mobile phone, which the customer is more likely to redeem. This increasingly tightening marketing loop cannot be achieved with plastic membership cards, nor with mobile browser-based coupons.

And there’s one more thing that contactless technology does for McDonald’s. Once customers tap their contactless coupons, the data is leveraged to immediately send orders back to the kitchen. Quite amazing (and quite Japanese…). This just goes to show that contactless is not just about payments. In fact, it often isn’t about payments at all — although McDonald’s accepts contactless payments with these coupons, it happily accepts cash too.

Tags:
  1. Jim Schlegel
    Aug 4th, 2010 at 04:45
    Reply | Quote | #3

    I agree that the marketing potential for mobile contactless technology is intriguing, but I believe that the payments aspect of contactless technology is a part of this marketing mix. Retail today is not defined by how retailers want to sell, but how consumers want to buy – and that applies to payments too. Research shows that payment options, and how they are handled, are a strategic component of a retailer’s brand identity. And as this generation of tech-savvy, convenience oriented millenials join the workforce, they will start pushing for agile payment options such as mobile contactless. Currently, contactless technology is only found in niche applications in the U.S., but the more strategic retailers understand the need to update their payment systems to keep pace with innovations such as contactless payments. If not, they will lose their competitive edge, brand position and customer loyalty.