For LocalBonus CEO Derek Webster, a self-proclaimed frequent-flyer-mile addict, the decision to enter the loyalty space was easy. Local, small-to-medium-sized businesses have long offered punchcards or their own way of encouraging return customers — but from a consumer’s perspective, carrying around a dozen punchcards just isn’t feasible. So in 2011, Webster created LocalBonus, which links a consumer’s credit or debit cards to their purchases and spreads rewards among over 800 merchants in New York City, Sacramento, Portland, Denver and Seattle.
The company recently closed a $900,000 round of financing, led by Payment Ventures, as well as Actinic Ventures and other angels to compete in a loyalty space in which BIA/Kelsey counts more than 20 competitors. Street Fight caught up with Webster recently to discuss LocalBonus’s place in the loyalty fray, and to see what the company was planning to do with its new funding.
Where do you see opportunity in the loyalty space?
I’ve seen that loyalty programs have an ability to change consumer behavior. It’s one thing if you’re a major airline or a frequent flyer program or a large supermarket chain, and it’s a totally different thing if you’re a local business. And so, really the opportunity we see is that local businesses need and want the same benefits of a powerful loyalty program, but they don’t necessarily have the resources to do that themselves, and we really think that’s where we can provide a unique product to local businesses.
What sets LocalBonus apart from the many other loyalty startups out there?
It’s that we actually can help drive new business to a merchant because we use a universal currency. It’s LocalBonus points that the consumer earns across all the businesses in our network, and so it means that consumers have an incentive to try a new business that’s in the network because they can earn points and rewards in a currency that they’re already accumulating rewards in.
There’s a huge problem with fragmentation; not just of competitors running low, but also merchants at the individual level. With any given merchant, you may only go there one, two or three times a month — and that’s going to make it difficult to ever get to a meaningful reward.
[With LocalBonus], a person doesn’t have to go to a specific place so often to get a reward. People get buy-ten, get-one free punch cards, and every startup says they want to replace them and make them obsolete. But one of the biggest pain points of those punch cards is that you know that merchant can’t give you a reward anywhere — you have one stamp at one place, two stamps at another. We think we’re one of the few competitors that’s actually solving that problem.
A universal currency means people are likely to accrue rewards more quickly. How important is that element of it?
It sets us apart, but we also think it just gives us a much more powerful business as we build it out and expand to additional merchants. The average consumer is in 18 loyalty programs and active in eight of them — so I don’t think it’s explicitly that a consumer has to pick one program to be a part of. But one of things that keeps a consumer from not being as engaged as they could be is when they’re not getting to meaningful rewards quickly enough.
LocalBonus relies on card-linked rewards. Why did you decide to go this route?
We think it’s easier for consumers. [A credit or debit card] is something they always carry and something they always use. So, actually talking to normal, average consumers, they don’t think that the credit card is broken today — they actually think that it’s works feasibly well. If you’re paying with a credit card, it’s not necessary to carry around a loyalty card, [and] it’s not required to carry around a mobile phone and check-in every time. All they have to do is pay the way they pay today.
We see that as a convenient [method] for customers. There’s just so many people who don’t have smartphones, [and] a majority of smartphone owners have never used a check-in application. Tying into the network makes it much easier for the consumer, and another advantage, from the merchant side, is it ties into the purchase. So, obviously someone who spends $100 will be getting a bigger reward than someone who spends $10. With check-in based loyalty programs, you really can’t do that.
What are your plans for the new funding?
Some of it will definitely go toward product development. We have a mobile app that will launch pretty soon. We will continue to promote our product and feed back into it. The trade-off that we have is: “Do we want to go deeper into our existing markets or expand into new markets?” We internally debate that among ourselves a lot. The focus around the funding is to help us grow, for users and for businesses. We’ve got a few different things we’re pursuing in that regard, but nothing to announce yet.
Can you give us more of an idea as to what we’ll see with the mobile app?
The mobile app is your way of connecting cards, and it can be a way to find [LocalBonus] merchants nearby. The thing we’re trying to get consumers conditioned to is, when they’re trying to find out where to have lunch, to fire up the app and find a LocalBonus merchant near them where they can earn a reward. Really, we’re trying to promote the element of discovery in our loyalty program. We’re not just a CRM platform for merchants, we’re not just about retention — we think we can deliver more.
Patrick Duprey is an intern at Street Fight.
This interview has been edited for length and clarity.