The rash of loyalty startups that mushroomed over the past two years appear to have finally thinned out. Series A funding dried up for some, while a handful of others — companies like FiveStars, Belly, and LevelUp — found double digit series B rounds to create some distance in the market.
With the product set, and money in the bank, the next question is scale. More and more, these firms are looking beyond the SMB market to larger brands as a potentially lucrative market with substantially lower sales costs. But, the outcome could be more complicated than it first appears.
It’s a world that Dawn Maire, chief strategy officer at Rockfish Interactive, knows well. The agency, which was acquired by marketing giant WPP in 2011, has worked with major brands like Walmart, Sam’s Club, and Cisco, and has developed its own lineup of marketing products as well.
In a recent conversation with Street Fight, Maire broke down the complicated relationships large brands have with their loyalty programs, highlighted some of the holes in the existing market, and suggested that retailers might be better acquirers than partners for these companies.
It’s been a tough few years for retail. Where are retail marketers looking to invest today?
One of the bigger shifts in spending that retailers are considering is in loyalty programs, which have been a staple of retail establishments since American Airlines launched their program in 1980. We’re seeing a lot of companies rethinking those strategies. If a mobile device is something I spend time with, how can a brand migrate from card-based programs to more mobile-centric products? We’ve already sunsetted a lot of traditional card-based strategies.
What’s driving brands to rethink their loyalty strategy? What’s holding them back from making the transition to mobile?
That’s a very expensive proposition for retailers. They’ve spent billions of dollars getting loyalty right, and now they’re struggling to rethink how they do it it on a mobile device. There’s a lot of conversation about how e-commerce transitions to ‘everywhere commerce.’ Yes, I’m driving my customers to my e-commerce destination, but how do I take my offers and democratize that so you can shop digitally anywhere.
Are there certain startups that are piquing the interest of bigger retailers?
There isn’t any one that really comes to the forefront. At the end of the day, whichever company gives the retailer the greatest utility with speed-to-market that’s palpable from a cost perspective will win. It’s as basic as that. I don’t think there’s a clear winner or loser; I think it’s emerging so rapidly so it’s too soon to say.
So what are startups doing wrong?
From a loyalty perspective, there are a lot of startups that claim to have a plug-and-play platform that you can customize. But once you peel back the onion, there aren’t a lot of platforms out there that can actually provide that level of customization at scale. There’s definitely some white space for a startup that can deliver a loyalty platform which can scale and be used across a number of retailers and business models.
Startups often claim that they work with a major brand like Subway even though they’re only working with a single franchisee. Would the fact that a few franchisees use a product influence the decisions about a loyalty program at the corporate level?
Getting [Franchisees] to evangelize on your behalf and getting some sort of enterprise-wide adoption is very difficult task. But at the same time it’s also quite difficult to sell from an enterprise level. Is it something that will become adopted enterprise-wide? Will the franchise owners, each of whom is essentially their president, make the effort to promote it throughout their organization? Likely no.
So in the end, can you imagine a big retailer relying on external platform to run their loyalty program?
If I’m a major retailer and I bet on one of these startups for a loyalty program, and it doesn’t work out, that’s a big risk. So much so that I would rather not move on it at all. It’s this interesting dynamic that the innovation is coming from startups, but the trust goes back to traditional proven companies. So you have to test, minimize your risk, and then make an assessment. Is this someone going to be here for the long haul? Which is why retailers are buying so many little startups. They know they won’t go under if they own them.
Retailers have always liked to build it and do it themselves. I think they would prefer to have it in-house, but they need to look externally for innovation. Mobile development, for instance, was traditionally 100% external, but now we’re seeing retailers start to build muscle in mobile development internally, because they don’t want to have to rely on mobile partners. That’s always a tough choice. Are they going to rely on and trust and external partner or would they rather build it themselves and can they build it fast enough to be competitive.
Steven Jacobs is Street Fight’s deputy editor.