Given Fewer Coupons, Shoppers Snub Macy’s (NYTimes, 09/29/07)

September 29, 2007
Given Fewer Coupons, Shoppers Snub Macy’s
By MICHAEL BARBARO
It was the boldest stroke in American retailing in decades. The Macy’s chain completed its takeover of 410 department stores around the country a year ago and renamed them all Macy’s, vowing to lure shoppers with innovations like price scanners in the aisles and exclusive fashions from the likes of Oscar de la Renta.
So far, the grand plan is not working.
A big reason? Macy’s forgot a basic law of human nature: Shoppers love a deal.
For years, the department stores that Macy’s acquired, like Marshall Field’s and Filene’s, had relied on 15- and 20-percent-off coupons to alert people, like a Pavlovian bell, that it was time to shop. As part of its reinvention, Macy’s tried to wean shoppers off them.
But the tactic backfired. With fewer coupons to clip, thousands of people from Washington to Los Angeles turned their backs on Macy’s.
Now the company’s chief executive, Terry J. Lundgren, one of the brightest stars in American retailing, is pleading mea culpa — and backtracking. Macy’s pledges to issue plenty of coupons for the holiday shopping season.
It’s a lesson that other companies have also learned the hard way. Since the first coupon was issued for the Coca-Cola Company in 1894, companies have occasionally tried to take them away — and suffered. Cuts by the Ruby Tuesday chain in 2004 hurt sales. Procter & Gamble’s effort in 1996 led to boycotts.
Even in this era of Internet shopping, it seems, Americans are wedded to a low-tech form of marketing: the dotted-line clip-out coupon.
For years, Karen Gundling, 41, a communications consultant in Parma, Ohio, relied on 20-percent-off coupons from Kaufmann’s in Cleveland to buy shoes. Then Macy’s took over. “Now that Macy’s doesn’t do coupons, I don’t buy shoes there,” Ms. Gundling said.
Curbing coupons was not the only change that upset shoppers.
In 2005, Macy’s, then known as Federated Department Stores, acquired May Department Stores, which owned 11 storied chains around the country, like Foley’s in Houston and Robinsons-May in Los Angeles. Last year, Macy’s changed all the store names, a move that upset loyal shoppers. Mr. Lundgren said the new chain, with 800 stores and $27 billion in sales, would be big enough to secure exclusive product lines from big names — as it did, with Elie Tahari and Martha Stewart — then blanket the country with advertisements to let shoppers know about it. To complete the makeover, Macy’s reduced its reliance on midprice clothing brands like Levi’s and Dockers.
Mr. Lundgren tried to create a new kind of national department store that would no longer compete head-to-head with lower-priced competitors like J. C. Penney and Kohl’s. But the changes amounted to “too much, too fast,” Mr. Lundgren acknowledged in an interview. It turns out that men, in particular, are creatures of shopping habit. They want to go to the local department store and find the Dockers where they have always been.
Mr. Lundgren said that abruptly curtailing discounts like coupons was Macy’s biggest misstep, contributing to four consecutive months of falling store sales this spring. Macy’s stock has dropped more than 40 percent since it bought the May stores. Mr. Lundgren said his plan “will take longer than we had planned or expected,” adding that “the strategy is crystal clear, and I know we are on the right track.”
Despite their dowdy image, coupons remain a huge business. In 2006, companies issued 279 billion of them, or roughly 1,000 per person, up 13 percent in four years, according to NCH Marketing Services in Deerfield, Ill.
They remain, above all, a psychological tool, granting shoppers the seemingly illicit — and gratifying — right to snag a bargain. (Never mind that stores typically set prices high and budget for the “discounts.”)
“If you have ever watched a person at a cash register with a handful of coupons, you can see they are so proud,” said Jan S. Slater, a professor of advertising at the University of Illinois. “They love taking their coupons out, counting them, showing them off, watching as the tab on the cash register falls.”
But retailers dislike coupons, which train shoppers to wait for deep discounts, making it harder to sell full-price merchandise. Moreover, Mr. Lundgren said, “in our research, customers told us, ‘It’s complicated and confusing and I don’t what the exact price is.’”
So Macy’s, which still sends coupons by mail to loyal charge card users, said it issued about 30 percent fewer coupons for the general public at the former May stores in spring 2007 than in the previous spring.
An analysis by a professor at Stetson University College of Law in Florida, Mark D. Bauer, suggests the pullback may have been more extensive; he counted a 63 percent drop in Washington, at the former Hecht’s chain, and 59 percent in Cleveland, at the former Kaufmann’s.
Macy’s had reason to think it could pull off the cuts. Before the merger, it had trimmed coupons at its own stores by about 25 percent. But that reduction was gradual, taking five years. After the sudden cuts at former May stores, customers did not congratulate the chain for simplifying their shopping; they groused about seemingly higher prices.
Nancy Lauffenberger, 39, a medical administrator outside Chicago, said she counted on the 20-percent-off coupons from Marshall Field’s, which allowed her, a working mother, to splurge on luxuries like a $625 leather coat.
“For me, it was a very expensive coat,” she said, “but with the coupon, it was a great price.” These days, Ms. Lauffenberger shops more at stores like Kohl’s.
Macy’s tried to head off the problem. In Chicago, sales clerks explained to customers that they would save more using their new Macy’s charge cards, which can be programmed for discounts. “The shoppers didn’t believe it,” said Frank J. Guzzetta, who runs the former Marshall Field’s stores. “They wanted their coupons back.”
So Macy’s is dropping plans for deeper coupon cuts this fall, though executives will still hand out fewer than chains like Marshall Field’s did before the merger. And Macy’s is undoing some other changes — ordering more Levi’s and Dockers, for instance.
Lisa Ellis, 41, a bank employee in Euclid, Ohio, said she largely gave up on Macy’s after it bought Kaufmann’s. “But if Macy’s used more coupons,” she said, “I’d go back.”
Karen Ann Cullotta and Christopher Maag contributed reporting for this article.

Software That Fills a Cellphone Gap (NYTimes, 09/23/07)

September 23, 2007
Prototype
Software That Fills a Cellphone Gap
By MICHAEL FITZGERALD
VANU BOSE is the son of a fabled engineer, but he garnered no mercy when he presented his big idea at a technical conference in 1996. Mr. Bose’s graduate work at M.I.T. involved using software to handle the radio function in a cellular phone. He remembers that after he successfully demonstrated his technology, an audience member stood up and dismissed it with: “Congratulations! You’ve just invented the world’s most expensive cellphone.”
Mr. Bose, a personable man, shrugged off the criticism. He expected that over time, the increasing processing speed of chips would make such phones much cheaper.
But he didn’t want to make the phones. He wanted to remake the wireless base station, the guts of the world’s cellular networks, by changing them from complex systems that incorporate hardware, software and the electronics needed for wireless communications into systems run primarily with software.
Most of us don’t think of our cellphones as radios, but they are. Any wireless device uses a radio. Figuring out a way to operate the radio with software has obvious potential advantages: for one, it’s easier and cheaper to upgrade software than it is to send field technicians to cellular towers to add components. And a software-based radio — the industry calls it software-defined radio — could handle multiple cellular signals at the same time, the way a computer can run a browser, a word processor and a spreadsheet all at once.
So, in theory, letting cellular companies accommodate new spectrum or technologies by doing software upgrades could expand coverage and services while possibly reducing what we pay for them.
That promise prompted Mr. Bose to start a company in 1998, while he was still in graduate school. He called it Vanu Inc. (The family surname was already in use: his father, Amar, had founded the Bose Corporation in 1964.)
The company bumped along primarily on military contracts for developing software-based radio devices. (The armed forces typically use different kinds of radios but need them all to talk to one another, which has prompted two large research projects, Speakeasy and the current Joint Tactical Radio System.) Then, as cheap semiconductor technology caught up with the needs of his software, he was able to pursue commercial markets. He now has several customers for the company’s AnyWave wireless base stations for cellphone networks.
Mr. Bose is not the first to pursue converting radios to software. The idea had been developed in the late 1980s, and Joseph Mitola, an engineer now at the Mitre Corporation, a research organization, is credited with being the first to discuss an effective software radio architecture, at a conference in 1991.
Well-established companies like Motorola and Ericsson now use elements of software-defined radio for their base stations. But Mr. Bose was the first to come to market with software that could handle multiple networks with the same equipment.
Software radio appears to offer an elegant solution to what has been a vexing problem: how to have a single handset, like a cellphone, communicate across multiple networks.
For instance, the G.S.M. standard, for global system for mobile communications, is used broadly in Europe, and most notably in the United States by AT&T. But it does not work with phones built for the C.D.M.A. standard, for code division multiple access, that is used in the United States by Verizon and others and is popular in South Korea.
So, as a Verizon cellphone user, when I spent several weeks in England this summer, I was instructed to rent a phone from Vodafone. It took several attempts over several days to get my calls to forward from my Verizon number, and I paid for two phones for the better part of a month.
Mr. Bose’s software makes it possible for the network to switch modes automatically. While the AnyWave Base Station still includes components like wireless transmitters and receivers, the company ultimately would like to focus on selling its software to other businesses that build base stations.
That would position Vanu to become “the Microsoft of the wireless base station industry,” said Bruce Sachs, a general partner at Charles River Ventures, which recently put money into an $8 million funding round for Vanu.
Mr. Sachs says that the market for base stations is worth billions of dollars by itself and that as cellular operators upgrade over time to technologies like WiMax or H.S.D.P.A., for high-speed downlink packet access, wireless markets worldwide will be open to Vanu.
There is also potential for markets that are just emerging, like that for “femto cells.” (In mathematics, a femto is a quadrillionth.) The cells will plug into a power outlet and bolster cellular coverage for a home or business. But that is in the future: Ian Cox, an analyst at ABI Research, projects that the market for software-based radio won’t start to boom until 2012.
THE present is more modest, and it rests in rural markets like De Leon, Tex., home of Mid-Tex Cellular, Vanu’s first commercial customer. Toney Prather, the chief executive of Mid-Tex, said he was intrigued by the technology because the company makes a good deal of its money from roaming charges for people who aren’t already its customers, and Vanu would give him a way to add more networks without having to add expensive base stations.
He first used Vanu’s software to upgrade his existing network to G.S.M., and in the next few weeks he intends to add C.D.M.A.
Rural cellularization may not sound like much, but Mr. Bose is a follower of Clayton M. Christensen, the management guru, who also happens to serve on Vanu’s board. Mr. Christensen told him that the best place to start a new business is where there isn’t yet an established market. So Vanu is starting a project, its largest yet, in Alaska, and is involved with I.B.M, on a demonstration for a project to bring villages in India onto the cellular network.
No longer, then, is Vanu Bose building the world’s most expensive cellphone. In fact, he may help make the cellphone possible everywhere.
Michael Fitzgerald is a Boston-area writer on business, technology and culture. E-mail: mfitz@nytimes.com.

Company Will Monitor Phone Calls to Tailor Ads (NYTimes, 09/24/07)

September 24, 2007
Advertising
Company Will Monitor Phone Calls to Tailor Ads
By LOUISE STORY
Companies like Google scan their e-mail users’ in-boxes to deliver ads related to those messages. Will people be as willing to let a company listen in on their phone conversations to do the same?
Pudding Media, a start-up based in San Jose, Calif., is introducing an Internet phone service today that will be supported by advertising related to what people are talking about in their calls. The Web-based phone service is similar to Skype’s online service — consumers plug a headset and a microphone into their computers, dial any phone number and chat away. But unlike Internet phone services that charge by the length of the calls, Pudding Media offers calling without any toll charges.
The trade-off is that Pudding Media is eavesdropping on phone calls in order to display ads on the screen that are related to the conversation. Voice recognition software monitors the calls, selects ads based on what it hears and pushes the ads to the subscriber’s computer screen while he or she is still talking.
A conversation about movies, for example, will elicit movie reviews and ads for new films that the caller will see during the conversation. Pudding Media is working on a way to e-mail the ads and other content to the person on the other end of the call, or to show it on that person’s cellphone screen.
“We saw that when people are speaking on the phone, typically they were doing something else,” said Ariel Maislos, chief executive of Pudding Media. “They had a lot of other action, either doodling or surfing or something else like that. So we said, ‘Let’s use that’ and actually present them with things that are relevant to the conversation while it’s happening.”
The company’s model, of course, raises questions about the line between target advertising and violation of privacy. Consumer-brand companies are increasingly trying to use data about people to deliver different ads to them based on their demographics and behavior online.
Pudding Media executives said that scanning the words used in phone calls was not substantially different from what Google does with e-mail.
Still, even some advertising executives were wary of the concept.
“We can never obtain too much information from the targets, and I would love to get my hands on that information,” said Jonathan Sackett, chief digital officer for Arnold Worldwide, a unit of the advertising company Havas. “Still, it makes me caution myself and caution all of us as marketers. We really have to look at the situation, because we’re getting more intrusive with each passing technology.”
Mr. Maislos said that Pudding Media had considered the privacy question carefully. The company is not keeping recordings or logs of the content of any phone calls, he said, so advertisements only relate to current calls, not past ones, and will only arrive during the call itself.
Besides, Mr. Maislos said, he thought that young people, the group his company is focusing on with the call service, are less concerned with maintaining privacy than older people are.
“The trade-off of getting personalized content versus privacy is a concept that is accepted in the world,” he said.
Mr. Maislos founded Pudding Media with his brother, Ruben. Each had spent several years doing intelligence work for the Israeli military. Before Pudding Media, Ariel Maislos ran a broadband company called Passave, which he sold in May 2006 to PMC-Sierra, a maker of computer chips for telecommunications equipment, for $300 million. Richard Purcell, a former chief privacy officer at Microsoft, is an adviser to Pudding Media, Ariel Maislos said.
To give the ads greater accuracy, Pudding Media asks users for their sex, age range, native language and ZIP code when they sign up. For now, the company is running ads that are sold by a third-party network, but Pudding Media plans to also sell its own ads in a few months.
Advertisers pay based on how often a user click on their ads, and a spokeswoman said the rates were similar to the cost-per-click prices in Google’s AdSense network. Pudding Media plans to add other payment models, like charging for each ad impression or by the number of calls an ad generates to the advertiser.
As the company’s software listens in on conversations, it filters out explicit words in determining which ads to select, so that content and ads will not be shown with those inappropriate words. Pudding Media would not elaborate, beyond saying that these were “keywords with profanity and things you wouldn’t want a 13-year-old to hear.”
While the calling service only works through computers for now, Mr. Maislos said he saw the potential to use it with cellphones. The company is offering the technology to cellphone carriers to allow their customers to enjoy free calls in exchange for simultaneously watching contextually relevant ads on their screens. Callers can try Pudding Media at www.thepudding.com, dialing any number in North America. Because the service has so far been in a quiet beta test, the company would not say how many people have tried it so far.
Pudding Media is also trying to sell the technology to Web publishers and media companies that would like to offer readers free calls and content related to those calls. A news site, for example, could show only its own articles and ads to people as they talked to friends.
Mr. Maislos said that during tests he noticed that the content had a tendency to determine conversations.
“The conversation was actually changing based on what was on the screen,” he said. “Our ability to influence the conversation was remarkable.”