Mobile channels such as advertising (search and display), apps and mobile Web sites will rake in the most in spend for brands and retailers. The exponential raise in smartphone uptake is indicative of the importance mobile will soon play in the marketing mix.
“It starts with consumer behavior. Every indicator says mobile activity considerably increased in 2011,” said Jeff Hasen, chief marketing officer of Hipcricket, Kirkland, WA. “The latest was the IBM report that said sales from mobile devices doubled in December 2011 versus December 2010.
“Even the most stubborn of marketers has had to take note,” he said. “The smartest ones know that consumers expect brands to have a significant mobile presence – and they are punishing companies that don’t.
“Many mobile channels will benefit from increased spending. Mobile Web will be one of the winners driven by consumer demand. Another will be SMS because it provides reach to all, including the 50 percent who won’t have smartphones and, when used wisely, leads to permission-based, monetizable databases.”
Retailers and brands will focus heavily on incorporating check-ins and deals into their mobile apps. The next generation of retail apps will be extremely sophisticated, focusing on loyalty and driving sales among loyalists.
Will the majority of big box retailers having built their mobile database and built a relationship with the consumers that have opted-in for communications, companies will now focus on way of making the marketing messages more personalized to more effectively drive sales.
For example, instead of getting a message for a mobile coupon with 10 percent off of the next purchase, imagine getting a message that says Macy’s just got a pair of peep-toe shoes that match perfectly with the cocktail dress you bought last week.
In order for personalization like this to be possible, data mining and segmentation of lists is an absolute must. Brands and retailers will be spending a lot of time and money on understanding their database and breaking it up into segmented lists.
“Similar to social media, mobile marketing spend as a whole will impressively increase in 2012 not so much in terms of greater budget allocations by a few enterprises but in terms of volume due to more SMBs and consumer affinity groups getting in the mobile marketing game,” said Angelo Biasi, adjunct professor for mobile marketing at New York University’s School of Continuing and Professional Studies and general manager of SMART Marketing Solutions LLC, New York.
“Easy to use do-it-yourself SMS campaign, mobile Web sites and especially mobile app creation tools that remove traditional barriers to entry, will become more attractive and consolidated service offerings by organizations that cater to these segments,” he said.
The fact that the big guys get mobile, has been driving mobile marketing spend. But, in 2012, the smaller guys will invest more heavily in mobile as well.
Mobile has become more mainstream for a few reasons. Faster network speeds, function-rich smartphones and tablets, a burgeoning portfolio of applications and more engaging ad formats like screen takeovers and expandable ads enable mobile to compete with more established media.
Mobile will account for 15.2 percent of global online ad spend in 2016, according to Berg Insight. According to the Berg, the total value of the global mobile marketing and advertising market will grow from $3.4 billion in 2010 at a compound annual growth rate of 37 percent to $22.4 billion in 2016.
HTML5 is already changing consumers’ perception of the mobile Web. HTML5 will play a prominent role in mobile development in 2012 and will be used to try to overcome fragmentation issues that the industry has consistently battled.
Adobe’s decision to give up on Flash was abrupt but also signals how HTML5 will have to play a role in the future because it was one of the most successful Web add-ins.
HTML5 is helping companies create rich content and bypass the App Store and we will see this trend increase dramatically throughout 2012.
“Mobile is growing rapidly and is quickly becoming the norm for many consumers,” said Graham Jones, general manager of PriceGrabber. “PriceGrabber predicts an increase in mobile budgets, both in the development of new mobile features and mobile options, as well as a raise in marketing funds assigned to the mobile category.
“Merchants are investing heavily in the development of mobile capability as far as mobile check out goes,” he said. “They want to ensure a smooth process and experience for the consumer.”
Positive economic indicators along with the recent buzz about loyalty marketing are setting up the assumption that 2012 will not only be a recovery year for the economy, but also a growth year for loyalty marketing.
Current economic factors have reduced the size of our wallets, forcing individual consumers and businesses to think hard about how and where they spend their money.
Frugal consumers are one of the most important factors affecting America’s uphill battle of breaking out of the recession, according to International Business Times. Many Americans are increasing their savings, consuming less, and are carefully determining the right places to spend their precious dollars.
However, things may be looking up. BlackRock Inc. said the U.S. economy may grow as much as 2.5 percent this year. In addition, Consumer confidence in the U.S. rose last week to the highest level in over five months, according to BusinessWeek. With growth in consumer confidence and many other economic indicators, the end of the recession may be near, but individuals and businesses are still cautious about their spending. Marketing budgets are still relatively conservative and thus some marketers are putting loyalty on the back burner.
This won’t be for long.
2012 may likely be the breakout year for loyalty marketing, as its value is finally being recognized. Loyalty marketing has proven its success in many markets as a way to drive incremental revenue from existing customers and create a competitive advantage for brands.
Loyalty marketing programs provide incentives that drive repeat business and help build relationships with customers—something that is helping many businesses survive as the economy fights to spring back.
More individuals are accepting the concept of building and mining customer databases. Loyalty marketing program provides business with a wealth of information about their customers. All businesses can better reach and motivate their customers by collecting insights on buying behavior, trends, etc.
Ultimately, consumers want relationships with their favorite brands. Just like when we shop at our neighborhood market and appreciate when the owner greets us by name.
Some of the biggest obstacles to loyalty marketing success in the past were lack of understanding and lack of funding. Now, businesses realize the value that loyalty marketing holds. 2012 may be the year to watch out for it.
Via the My Starbucks Rewards program, consumers can earn rewards when they pay with their Starbucks Card. Free drinks and refills are one of the perks of the program.
“Starbucks is wise to include SMS in its broad mobile portfolio,” said Jeff Hasen, chief marketing officer at HipCricket.
“While its augmented reality app got, pardon the pun, all the buzz this season, it’s text messaging product is inclusive of nearly all patrons.”
Mr. Hasen is not affiliated with Starbucks, but agreed to comment as a third-party expert.
Starbucks did not respond to press inquiries.
The SMS call to action is featured in a small framed poster.
The call to action is positioned near the drink counter so that when consumers wait for their drinks they can text-in to be part of the My Starbucks Rewards program.
The poster reads “Your next drink could be free.”
Consumers are then encouraged to register with any Starbucks Card and they’ll be on their way to getting free drinks and refills, no membership fee and free balance protection.
Users can either register by going to http://www.starbucks.com/register or by texting the keyword GOLD to the short code 697289 (MYSBUX).
When consumers text-in, they receive a message from Starbucks that thanks them for their interest in the program and includes a link to the My Starbucks Rewards page.
When consumers tap on the link, they are redirected to a mobile-optimized page where they can register their Starbucks card.
Consumers can sign-in or create and account to complete the registration process.
When users register their card they can protect their balance incase their card is stolen, earn rewards with each transaction, set up Auto-Reload for their card, view transaction history and transfer balances between their cards.
Consumers can also download the My Rewards iPhone and Android application to keep up with their account.
Using a mobile call to action such as this an effective way for Starbucks to builds its My Starbucks Rewards program.
Additionally, place the SMS call to action in a location where many consumers are daily is smart.
SMS is a great medium to engage consumers and helps marketers build their database.
Consumers do not need a smartphone to participate and can use their feature phone to text-in.
“Much like Macy’s is doing with Backstage Pass, Starbucks is giving customers choice on how to engage via mobile,” Mr. Hasen said.
Square, an app that allows businesses to accept credit card payments, has released an update that adds several new features. The app now lets businesses define what makes a regular or loyal customer, and then allows them to add a discount on certain transactions to reward their most loyal customers.
We’ve all got our local haunts. There’s the places we frequent for coffee, the go-to joint for a good haircut, or our favorite dive for a quick beer on the way home from work. Like any good standby, the shop owners know who we are, recognizing us on sight. Perhaps they’ll float the occasional tab, or comp a free drink now and then. It’s the classic way for a small business to grow, getting to know their customer base and cultivating loyalty.
Square knows how this works. Square wants to know you.
Square-adopting merchants can now define their own “regulars” with a new application update announced Tuesday, allowing merchants the ability to recognize their most loyal repeat customers and reward them accordingly.
The update incorporates Square’s most recent refresh of its Card Case app, relying on the new “geofencing” technology included in Apple’s recent iOS 5 release. Once a Card Case-carrying customer enters the shop, the merchant’s Square software recognizes the customer by his or her existing “tab,” a profile created specifically to track that customer’s purchase history at the store. In other words, I walk into the store, my tab pops up on the store’s screen, and the cashier greets me with an enthusiastic “Hi Mike! Welcome back!”
From there, the merchant can see how many times the customer has visited and how much money they’ve spent. The merchant can then use that info to define a “regular.” So if I break the set threshold of visiting a cafe, say, 10 times, a merchant can deem me a regular and start offering me freebies.
Essentially, it’s the antithesis of a Groupon. The daily deals approach pioneered by the Chicago-based Groupon is more like a shotgun, attracting customers with a daily e-mail blast. The participating business then hopes any of those new visitors can be converted into repeat customers. Square’s approach flips the Groupon philosophy on its head; the business targets an existing customer base, those walk-ins who choose to come in without the incentive of a coupon.
“There is no one-size fits all loyalty program,” Quinn said. “Meaningful customer loyalty happens organically.”
Though Groupon may not even be Square’s biggest worry. Google’s Wallet app — despite being far from a complete and finished payment system — incorporates its own type of loyalty program, tailored to automatically apply rewards when a customer spends money at participating businesses. Google also ties in its Groupon Clone — Google Offers — applying any discounts to the purchase with a simple wave of the NFC-enabled device. That said, there aren’t many NFC-enabled devices, and ramping up that ecosystem would require lots of hardware changes anc cooperation from lots of device manufacturers — unlike the approach Square is taking.
And of course, despite any financial scrutiny it faced in the days leading up to its IPO, Groupon is still going strong. As is Groupon’s main competitor, LivingSocial.
Square’s main criticism of its competition, however, involve the level of complication on the infrastructure side. Google Wallet terminal installation is time consuming and potentially pricey, and lacks the human element that Square’s so-called “organic” transactions entail. Daily deals programs are also problematic in that while they may attract initial waves of customers, profiling repeat business isn’t as readily possible — which is where Square’s Card Case “tab” profiles come into play.
“Just as we’ve removed the mechanics of the transaction, we’ve removed all the friction of loyalty programs,” Quinn said.
Groupon and LivingSocial also lack the plan of attack taken by Square and Google: Point-of-sale payments integrated with loyalty-based programs. While daily deals may have the customer base, Square and Google could disrupt in a big way if they can truly scale. Google obviously has the scale advantage here, though Square claims 800,000 customers have used its product in the past year, so it’s well on its way to market penetration.
Further, Square’s update integrates the app into existing brick-and-mortar infrastructure. Merchants can now use the Square Register app in conjunction with their cash register (provided they’re using the properly supported hardware, of course). So now, instead of only providing digital receipts, businesses can also print out physical receipts.
The updated app is freely available for both Android and iOS, and can be found in the Android Market and Apple’s App Store.
The flaw in Groupon’s business model is a big one–loyalty. The daily deals juggernaut has made a few changes to amend its issues, but who knows whether those changes will suffice.
I needed sunglasses, the prescription kind. I hadn’t owned a pair in years, but this past summer I finally became fed up with squinting and wincing while daytime driving. Lo and behold, a few days after I decided to invest in some new shades, a Groupon for a local optical shop appeared. Pay $75 now for $175 off frames and lenses later. Serendipity.
That was in July, and a couple of weeks ago, I finally found some free time to head downtown and cash in my coupon. I found some nice frames, haggled a little on the price ($312 was hard to justify for sunglasses when I spend half my time in front of a computer screen), then I pulled out my Groupon. “Ugh,” groaned the sales clerk, eying the piece of paper in my hand. “You have one of those.” And a little twinge of guilt set in.
It turned out that the Groupon promotion had been much more popular than the tiny shop had anticipated. They’d been inundated with Groupon wielding customers and had a hard time keeping up. More salesperson hours plus deep discounts for a luxury item that most people only buy once every couple of years. Was it worth it? The clerk shrugged his shoulders noncommittally. Maybe. Would you use Groupon again? A blank stare that seemed to ask, “Are you daft?”
Sometimes Good, Sometimes Bad
That’s long been a popular refrain from small businesses who have tried Groupon. On the one hand, it’s a virtually guaranteed way to reach large numbers of new customers. On the other, unless you can turn those customers into repeat business or up-sell them, the deep 40-60% discounts Groupon demands can be damaging. Plus, if you can’t keep up with demand or the influx of new customers annoys regulars, your business could suffer a hit on reputation.
Yet, Groupon reports in its IPO prospectus that it featured on its site over 45,000 merchants in North America in the first two quarters of 2011 compared to just over 27,000 in 2010 — small businesses keep signing up. Why, in spite of well-publicized horror stories, would businesses jump into such a risky marketing strategy?
For some businesses, Groupon makes sense. For large corporations, like Gap, which ran an extremely popular promotion on the site last year, Groupon provides a great way to reach millions of potential customers. A business that large can eat the cost out of their already sizable advertising budget. For businesses that provide oft-repeated or critical services, such as auto mechanics or hair salons, a Groupon might be able to convert more repeat business, and thus be beneficial (note: that’s idle, but logical, speculation on my part).
But why did a boutique optical shop run a promotion? I suspect they thought they had to, and I suspect many other small businesses feel the same.
A down economy and low consumer spending numbers that refuse to rise out of the doldrums have forced business owners to do whatever they can to get people in the front door. Groupon’s millions of potential customers are just too attractive to pass up, even at a high-risk. In other words, small business owners feel compelled to gamble because the economy has forced their hands. When the economy turns back around — whether that’s in a few months or a few years — business owners won’t need sites like Groupon, and certainly not on Groupon’s terms.
A June study from Rice University that looked at deals across five major daily deal sites found that 48.1% of businesses would run another deal — a number that closely mirrors Groupon’s own internal data, as well as that of another recent study. Almost one in five say they would not run another deal and just about a third are on the fence. Half isn’t a terrible merchant retention number. According to the study’s author, Professor Utpal Dholakia, however, it is indicative of flaws in the daily deal model.
“Over the next few years,” writes Dholakia, “it is likely that daily deal sites will have to settle for lower shares of revenues from businesses compared to their current levels, and it will be harder and more expensive for them to find viable candidates to fill their pipelines of daily deals.”
Businesses Won’t Always Need Groupon
In an online presentation about the upcoming IPO, Groupon CEO Andrew Mason runs through what he says is a typical deal on the service. His example is Seviche Restaurant in Louisville, KY, a seafood restaurant that is, according to Mason, already very successful. Seviche wasn’t happy with traditional advertising, and ran a Groupon as a way to attract new customers. The details of the deal are as follows: $25 for $60 worth of food. Groupon keeps $12.50 of that price. Mason says that Seviche’s average bill is $100 and its cost of goods is 33%, which means that each Groupon customer should be worth, on average, $19.50 to the restaurant. His point was the prove that, when properly structured, Groupons are indeed profitable for the businesses that run them.
But let’s take that math a bit further. We’re getting into the land of hypotheticals here, but bear with me. Let’s say that the Groupon brings in 100 new customers. 100 x $19.50 = $1,950 in profit. Let’s also say that a traditional ad would perform only 40% as effectively at bringing in new customers, so it brings in just 40. Those 40 customers are paying full price, so they’re worth $67 in profit. 40 x $67 = $2,680 in profit.
How many of each become repeat diners? The Rice University study found that only about 1 in 5 daily deal users become repeat customers. If 20 customers from the original 100 that bought the Seviche Groupon come back, say, twice in the next year and spend the full $100, that’s worth another $2,680 in profit. I’d argue that the traditional ad customers probably convert to repeat visitors at a higher rate simply because they spent $100 on a dinner from the get-go (that is, they were all definitely customers willing to fork over full price), unlike the Groupon-wielding customers, who are getting a big discount . But for simplicity, let’s use the same metric as the daily deals for repeat customers. That’s another $1,072 over a year.
So who wins? In our hypothetical situation, the Groupon nets the restaurant $4,630 over the year while the traditional ad gets us just $3,752 — and there were probably some upfront costs that still need to be deducted. So Groupon is the clear winner, right? It’s actually trickier than that. According to the Rice study, just 35.9% of daily deal customers spend beyond the face value of the deal. Or, in other words, a large chunk of those initial Groupon users might get to the $100 average bill, so the profits from the Groupon might be much lower. (In our example, Groupon customers would be worth negative $7.30 if they only spend the Groupon price. That means they’re worth about $235 the first time through, assuming 64 of them only spent the coupon amount and the rest spend the full $100 average, and about $2,915 over the year.)
Of course, I can make the numbers say whatever I want — it’s all hypothetical (changing the numbers this way can make Groupon look great or look terrible) and I’ve made plenty of assumptions about customer value. The point is this: Other forms of advertising don’t have to be that much more effective (and can still be less effective from a pure purchaser standpoint) to create similar revenue and offer similar customer acquisition costs.
When consumer spending is low, it makes sense that fewer people are spending on things like expensive dinners out. A discount Groupon is an attractive incentive to get them out to the restaurant, and it is more effective at driving new business, even for successful restaurants like Seviche. But that likely won’t always be the case. If and when the economy rebounds, businesses might have an easier time getting customers in the door to spend at full price. They may no longer require the high-cost marketing that Groupon offers.
Can Groupon Keep Growing?
Groupon’s growth relies heavily on marketing. When the company cuts its marketing expenditures, revenue growth slows dramatically. That’s in a poor economy that is friendly to Groupon. What happens to that growth when businesses with desirable products and services can afford to refuse offering such attractive discounts? What if merchants refuse to play at all? Just 29.5 million of its nearly 143 million subscribers have ever purchased a Groupon (again, according to the company’s IPO prospectus). What will that conversion ratio look like if deals cease being as attractive to buyers as they are now?
As the company nears its IPO, investor confidence appears to be waning. In a piece in VentureBeat Monday, analyst Rocky Agrawal, who thinks Groupon is bound to fail unless it significantly reinvents itself, painted a bleak picture of who loses if the company goes under. Spoiler alert: it’s not just Groupon’s executive team and investors who would feel the pain.
Customer Retention Over Acquisition
So is Groupon destined for collapse? I’m not ready to say that just yet. Any economic turnaround in the U.S. won’t happen overnight — and could take years — and Groupon has aggressively expanded into international markets over the past year, whose economic climates I can’t and won’t comment on. They’ve also launched some new programs in an attempt to diversify their offerings, such as Groupon Now, which allows businesses to target deals to specific times and sell excess inventory during slow periods (though some reports indicate that Now is not gaining Groupon-like traction), as well as a travel deals service.
However, I do believe that Groupon will be forced to significantly alter its existing business model to survive long-term.
More than decreasing customer acquisition costs, Groupon needs to find new ways to add value for merchants to keep them offering deals. I predict that once the economy rebounds, small businesses will need to risk less to get potential buyers in the door and will be more interested in ways to retain and reward customers. This is something that Groupon only just recently began to address with Groupon Rewards, a clever program that allows merchants to reward customers for repeat business with exclusive deals. Groupon isn’t alone in this space — they’ll face stiff competition from companies like Swipely and Google’s yet-to-launch Punchd, which incentivize full-price purchasing through discount rewards, and Foursquare, which drives repeat foot traffic at a low cost.
This is the future. Customers will always buy deep discount deals, but fewer merchants will need them. What they’ll need are ways to turn existing business into repeat business.
A new study by Hipcricket points to the fact that mobile’s role in holiday shopping will be different and more important than past years, making it key for brands and retailers to have a sophisticated presence in the space.
Mobile retail Web sites have emerged as an in-store shopping companion. Consumers are relying on their devices to locate the products they want, search for coupons and special discounts, and compare prices at competitors’ stores.
“Increasingly, shoppers are using their mobile devices – in particular, mobile retail Web sites – when they shop,” said Eric Harber, chief operating officer of Hipcricket, Kirkland, WA. “This is true for retailers, but it also in the bricks-and-mortar retail world.
“Retailers need to remember that consumers always have these devices at arms’ length, and aren’t afraid to check to see if a competitor has better inventory or lower prices,” he said. “But this is an opportunity, too – retailers should embrace this.
“A great example is the Macy’s Backstage program that Hipcricket powers – there are QR codes and SMS calls-to-action to connect shoppers in the store with relevant content and offers as they shop. Shoppers are ready to interact.”
The 2011 Hipcricket Mobile Marketing Survey is a national survey designed to provide insight into consumer behavior and attitudes towards mobile marketing. The survey was conducted in October via email and is based on 607 respondents.
Sixty-three percent of smartphone users have visited a retailer’s Web site from their mobile device, compared to 53 percent in 2010. Additionally, 41 percent have done so while in the retail store.
Interestingly, 50 percent have checked a competitor’s mobile Web site while in another store.
Historically, mobile retail sites were lightweight versions of retailers’ PC Web sites. They were mostly relied on for information such as store locations, directions and hours.
All of that has changed. Today, consumers expect mobile-specific retail sites to provide significant benefits to them. And, retailers need to be using their mobile Web sites as a tool to move consumers through the purchase funnel.
Seventy percent of all smartphone users use their device regularly to access the mobile Web.
Smartphone users are accessing mobile retail Web sites to research prices (46 percent), search for coupons and offers (36 percent), research products (28 percent) and purchase products (13 percent).
“Remember, you’re a guest on your customers’ mobile device,” Mr. Harber said. “Be respectful of the opt-in nature of mobile marketing but don’t overstay your welcome.
“Give them useful, compelling content – tips to save time at the holidays, special recipes – and special offers on things you know they want to buy,” he said.
“Whenever possible, use the data in your CRM systems in combination with mobile in order to stay relevant.”
Only 9 percent of survey respondents reported they are being marketed to by their favorite brands on mobile.
However, respondents showed a willingness to join mobile customer relationship management or loyalty programs for their favorite brands. In fact, 33 percent would be interested in joining such a program, but only 12 percent currently participate in one.
Additionally, 75 percent of consumers found value from participating in mobile loyalty clubs.
During the holidays, 61 percent of consumers will likely use their mobile device as a shopping companion.
Overall, 31 percent of all mobile phone users have interacted with a brand through their mobile device and 59 percent of smartphone users have done so.
Also notable, 33 percent of mobile phones users are interested in receiving offers based on time and location. For example, a coupon delivered at noon for $5 off a pizza at a local shop.
“Mobile’s got a seat at the table now – it’s a critical, cross-channel marketing element, rather than a discrete, siloed activity,” Mr. Harber said.
“Increasingly, our customers are seeing the benefits of connecting customer-facing mobile marketing technologies such as mobile retail sites or ongoing SMS campaigns with back-end CRM and enterprise marketing automation solutions,” he said.
“It’s not just about single campaigns any more. Savvy marketers are often beginning with mobile advertising and tying it into a post-click engagement strategy to build an ongoing relationship with customers and prospects.”
It never ceases to amaze me when I hear a businessperson completely undermine their existing customer base and insist on spending their time and money exclusively to search for new ones. This is a common mistake made by many, leaving a hard earned relationship underutilized and money on the table.
Think, for a second, if right at this moment you had a database of everyone you ever came into meaningful contact with. Every business card you collected at a chamber of commerce event, everyone who you did business with, everyone who said they liked what you do…would that be a large list?
A better question: do you currently have that list?
Continuing on that train of thought: do you think it would be easier to sell something to someone on that list, or a complete stranger?
Loyalty programs are nothing new. We sign up for them all the time; at the grocery store, gas station, golf course, you name it. There is value in getting a consumer to carry around an affiliation with your organization. It is designed to engender trust, respect, and exactly as the moniker suggests…loyalty. There’s an implied understanding that a consumer will frequent one of their loyalty destinations, before going with someone else. A very powerful relationship for any marketing professional.
Yes, we must continue to fill our businesses with new patrons, giving us a renewed revenue source as some of our clients inevitably go away. However, consider where this new base of clients should come from. A billboard? A radio ad? What about one of your “loyal” clients asking one of THEIR friends to give your business a try?
Invest in your existing clients, show them you appreciate their business, and they will take good care of you. Consumers have choices, and a little loyalty goes a long way.