This blog is about the business development of Stamply, as opposed to the even higher level conceptual development I previously spoke about or the lower level software development.
Below is a bunch of links to websites of similar services to what I envision Stamply to be and also a few articles collected over the past few months. Skip to the bottom of this post if you want to just browse some similar businesses and articles. This post is for people interested in understanding the background of Stamply and all of the different routes to market and software solutions that I have considered.
At first, what we were thinking about was a mobile payment app that allowed people to order their lunch on their phone before before they arrived so they wouldn't waste time in a queue. The idea was that cashiers would get the orders on a tablet or phone and be preparing the order for the time specified by the consumer. Here is a business in Australia that does this, which is integrated into the POS. This was not really serious as a potential business, it was more of an exercise for me to get out and start talking to people about potential services, a way for me to gather information about the market as a whole.
Then we found that you could set up a mobile payment solution with existing infrastucture: Here and here are examples of this being tried. These businesses themselves won't take off because it requires additional hardware and they are too small to ship out the hardware to enough merchants, but it is interesting on an academic level because this kind of model will exist in the near future.
The point of this was to figure out how to get a consumer to take out their phone at point-of-sale, because my belief is that 'mobile payments' is a gimic until it actually does something fundamentally more than cash. The idea that mobile payments is more convenient that cash is a myth produced by Telcoms and large tech companies because they will benefit so much from it, not merchants or consumers. This article sums up my view on mobile payments*. I still believe that in a few years we will all be paying with our phones, just in a different way than normal cash.
So far all of this is academic. I was walking around businesses for one or two days a week asking for a sit-down and a chat about some of these ideas. The types of businesses I was speaking to were small independent retailers or those with small chains of between 2 -`10 shops. I also talked to the managers in many franchisees, but not the franchises or chains with more centralised control. I counted 80 businesses and marked the 30 businesses I thought gave us the most feedback to target for any testing phase we might have in the future.
Overwhelmingly, loyalty and customer retention is the biggest problem. There are not enough customers on the high-street to maintain the number of retail outlets we have, many of whom are stuck in upward-only rent agreements.
Every time I speak about this concept to people the first comment is: "Go for the chains, one sale there and you're sorted!" But for me, the opportunity has always been in the small independents. That is where you can improve customer retention and increase a merchants ability to discount effectively by identifying the particular consumer and how many times they have returned to the store over a long period and bought something*.
The
chains will introduce their own systems, but independents don't have
this ability. In a few years, though, this type of system will be ubiquitous,
and therefore it will be necessary for independents to copy the chains
in order to compete in terms of discounts. They will also have to join
each other, or other businesses not directly competing with each other,
in order to increase the value of their loyalty offerings against the
chains and franchises.
When we began trying to work out how the system might work it was an enormous struggle to figure out how to secure the system without the need to put a tablet computer beside the cash register or a smartphone in the waiter's hand. Only a few places said that another device behind the till was actually an issue, but their feedback, and that from other successful entrepreneurs, was enough dissuade us from fully moving in this route.
That problem leads me to the problem of customer acquisition. It has to be easy to set up, otherwise we won't attract the merchants in enough numbers to grow. Forgetting about the technology for a while, this market is too fragmented if you take away the larger chains and franchises, which was not my target when during market research (although I have not discounted them, I just don't believe that is where the real opportunity is).
The assumption here is that it impossible to get these merchants onto the same system, and therefore it impossible to make consumers download the same app, so loyalty among independent merchants will always be fragmented and local unless one of the big tech/web marketing companies like Google or Apple, Groupon or Living Social or Paypal takes up the challenge.
But if we can develop a system that the merchants can set up and implement for free in 15 minutes, then we can upsell them the secure paid version with deeper analysis of their customers' buying habits.
Looking at the market for a minute, everyone is trying to discount and there is underlying pressure from rent and costs that prevents retailers from discounting too much. But the main problem with discounting, as is evidenced by people's experience of Group deal websites, is the fact that when you discount you can't guarantee return custom. Retailers hate discount hunters! But, in theory, if the retailer can guarantee that you'll return, by encouraging you to pay in bulk in advance (as I do with my dinner every day) or recording the sale in some fashion, then they can offer deep discounts. As I said before, I get my meal for €3.30 in Temple Bar because I pay in advance for 30 meals, which is an up front €100.
So let us say that I walked into a random independent coffee shop and said "will you give me a discount if I come to your shop every day I get a coffee for the next year?" He would say "No!" but not because it is not in his interests to offer discounts, but because he has no guarantee that I am telling the truth.
Now, let us say the same thing but with a qualifier: "will you give me a discount if I come to your barber every time I get a haircut for the next year and there was a means of guaranteeing without doubt that I completed my side of the bargain?" In today's market the answer would invariably be "Yes!"
So (still forgetting about the technology) let us say that this coffee shop set up a system where in a two week period, buying 7 coffees gives you a free one, which is a 12.5% discount, but the consumer has no opportunity to shop around for other discounts on their coffee purchases based upon loyalty because of the time-frame of the deal. Our merchant gets all of their custom for that period, and potential further custom in the following weeks. Further, what if the discount increased for loyal custom over longer time-frames:, like two free coffees for buying 12 coffees over three weeks, which is a 14.3% discount.
Continuing on the same path:
within 1 month - buy 15 coffees and get 3 free - 16.7% discount
3 months - 45 for 15 free - 25% off
6 months - 90 for 45 free - 33.33% off
1 year - 180 for 120 free - 40% off
The merchant is cutting his/her margin but only offering the discount after the consumer has fulfilled his/her side of the bargain by becoming a loyal customer over a long period. Every time the consumer is eligible for a free product they are encouraged to defer to the next longest period in order to receive a greater discount. This is great for the merchant's cashflow as it is much cheaper credit than a bank overdraft or loan and is very unlikely that every consumer will come looking for their freebie at the same time (unless the euro collapses, in which case people will have bigger things to worry about than their free coffees).
Customer Acquisition:
The fact that the service is free and can be used in conjunction with the old stamp cards until enough of the merchants regular customers migrate for it to be worth investing in the secure paid version makes set up a lot more simple.
By allowing merchants to combine their loyalty offerings with other merchants that they are not directly competing with, i.e. a baker, a butcher and a barber on one high-street, we would be able to decrease sales costs in local areas and among businesses in the same grouping. This is done by backing the cost of stamp against the euro, i.e. the merchants giving the products and rewards a specific euro value.
This part I can elaborate upon later. We haven't really mapped out the technical details of allowing merchants to join their schemes, but it has potential.
Thank you for reading and here are many of the other businesses in this space and articles about them.
When we began trying to work out how the system might work it was an enormous struggle to figure out how to secure the system without the need to put a tablet computer beside the cash register or a smartphone in the waiter's hand. Only a few places said that another device behind the till was actually an issue, but their feedback, and that from other successful entrepreneurs, was enough dissuade us from fully moving in this route.
That problem leads me to the problem of customer acquisition. It has to be easy to set up, otherwise we won't attract the merchants in enough numbers to grow. Forgetting about the technology for a while, this market is too fragmented if you take away the larger chains and franchises, which was not my target when during market research (although I have not discounted them, I just don't believe that is where the real opportunity is).
The assumption here is that it impossible to get these merchants onto the same system, and therefore it impossible to make consumers download the same app, so loyalty among independent merchants will always be fragmented and local unless one of the big tech/web marketing companies like Google or Apple, Groupon or Living Social or Paypal takes up the challenge.
But if we can develop a system that the merchants can set up and implement for free in 15 minutes, then we can upsell them the secure paid version with deeper analysis of their customers' buying habits.
Looking at the market for a minute, everyone is trying to discount and there is underlying pressure from rent and costs that prevents retailers from discounting too much. But the main problem with discounting, as is evidenced by people's experience of Group deal websites, is the fact that when you discount you can't guarantee return custom. Retailers hate discount hunters! But, in theory, if the retailer can guarantee that you'll return, by encouraging you to pay in bulk in advance (as I do with my dinner every day) or recording the sale in some fashion, then they can offer deep discounts. As I said before, I get my meal for €3.30 in Temple Bar because I pay in advance for 30 meals, which is an up front €100.
So let us say that I walked into a random independent coffee shop and said "will you give me a discount if I come to your shop every day I get a coffee for the next year?" He would say "No!" but not because it is not in his interests to offer discounts, but because he has no guarantee that I am telling the truth.
Now, let us say the same thing but with a qualifier: "will you give me a discount if I come to your barber every time I get a haircut for the next year and there was a means of guaranteeing without doubt that I completed my side of the bargain?" In today's market the answer would invariably be "Yes!"
So (still forgetting about the technology) let us say that this coffee shop set up a system where in a two week period, buying 7 coffees gives you a free one, which is a 12.5% discount, but the consumer has no opportunity to shop around for other discounts on their coffee purchases based upon loyalty because of the time-frame of the deal. Our merchant gets all of their custom for that period, and potential further custom in the following weeks. Further, what if the discount increased for loyal custom over longer time-frames:, like two free coffees for buying 12 coffees over three weeks, which is a 14.3% discount.
Continuing on the same path:
within 1 month - buy 15 coffees and get 3 free - 16.7% discount
3 months - 45 for 15 free - 25% off
6 months - 90 for 45 free - 33.33% off
1 year - 180 for 120 free - 40% off
The merchant is cutting his/her margin but only offering the discount after the consumer has fulfilled his/her side of the bargain by becoming a loyal customer over a long period. Every time the consumer is eligible for a free product they are encouraged to defer to the next longest period in order to receive a greater discount. This is great for the merchant's cashflow as it is much cheaper credit than a bank overdraft or loan and is very unlikely that every consumer will come looking for their freebie at the same time (unless the euro collapses, in which case people will have bigger things to worry about than their free coffees).
Customer Acquisition:
The fact that the service is free and can be used in conjunction with the old stamp cards until enough of the merchants regular customers migrate for it to be worth investing in the secure paid version makes set up a lot more simple.
By allowing merchants to combine their loyalty offerings with other merchants that they are not directly competing with, i.e. a baker, a butcher and a barber on one high-street, we would be able to decrease sales costs in local areas and among businesses in the same grouping. This is done by backing the cost of stamp against the euro, i.e. the merchants giving the products and rewards a specific euro value.
This part I can elaborate upon later. We haven't really mapped out the technical details of allowing merchants to join their schemes, but it has potential.
Thank you for reading and here are many of the other businesses in this space and articles about them.
http:// www.entrepreneur.com/ article/220547 and
http://www.tagtile.com/
http://www.badgein.com/
http://www.getpunchd.com/
https://www.perkville.com/
* Apple's new loyalty product on the iPhone is evidence that this is correct. They have not copied Google Wallet (which has struggled to take off), because they realise that getting a person to take out their phone at point-of-sale is a behavioural problem, not a technical one, and a basic payment app won't get people to do this. Siri was a gimic in the same sense. People think they want it but their actual behaviour when they have it tells the true story.
* I have to stress now that this has nothing to do with check-ins or social media. From the beginning, these have been peripheral to what we are trying to do, additional attractive potential features, not part of the core functionality. We are concentrating on getting a consumer to take his phone out at point of sale in order to record the sale, not the fact that (s)he was in the store. That is why this is only vaguely similar to FourSquare, which does something completely different as part of its core functionality.
* A product can mean a 'hot drink', a 'sandwiche with three fillings' or 'any purchase over €10'
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