M&A Report: A Long, Hard Look at Loyalty Programs
I like beer. I’m from Colorado, where beer drinking is as much a social experience as it is a spiritual one. I share that with you only to say that when my Five Stars app pings me, offering me a free beer at one of my favorite brew houses here in Denver, they get my attention.
Why is my favorite brew house willing to spend the time and energy to ping my mobile with a free offer? Because it’s a tried and true marketing tactic. When paired with my purchase history and a deep understanding that my buying habits goes well beyond the brew house, the local merchant knows I am more likely to spend more with them on my next visit, and am more likely to stay loyal to their brand, not just their beer.
Personalization = Loyalty
Loyalty encompasses more than just promotions and punchcards. Tech companies that connect the data dots and create meaningful, accurate consumer personas that explain why we as consumers are loyal to a brand (not a promotion) should be able to parlay that information into new revenue per customer. Either through putting the right promotion in front of us, when we want it, or by tying other activities and purchases to our customer profile.
Forrester Research, in its 2015 Customer Loyalty Playbook, commented that “Understanding the ‘why’ behind consumer behavior is difficult, and measuring its success is harder.” Investors and acquirers in this space see consumer intelligence as a key differentiator for loyalty companies. In that same report, Forrester goes further to describe this sentiment, “A crowded loyalty program marketplace makes for homogeneous reward programs, and customers end up developing program loyalty rather than brand loyalty.”
Square has been back in the headlines this month with new functionality that allows customers and small business that are already using Square for transactions to also set and manage appointments with that local business. Pair that with marketing automation, and Square users could create a mobile-first end-to-end loyalty platform.
VC-Endorsed Business Models
Punchcards are nice, but who wants to carry around a pocket full of them, even if they are digital cards in my digital wallet? And, how much does a punchcard play into my decision of where to drink my next beer?
The most frequently touted business models in this space fall into three main camps: rewards cards, offers/promotions, and marketing automation. Investors and consumers are endorsing models that are building toward an end-to-end solution for local businesses, by tying in transactions and POS.
Five Stars, a 2011 Y Combinator graduate, has raised $42.7M, plus $26M in a Series B round one year ago. The attraction to Five Stars, from an investment point of view is certainly its install base, but also a successful execution on loyalty rewards, outbound marketing to keep consumers engaged with local businesses in the Five Stars app, and POS capabilities. DCM has led every funding round, banking on this technology and this team’s ability to dominate in the loyalty space.
Belly has also attracted market attention, raising $25M since its inception in 2011. Endorsing this business model, Apple announced a partnership with Belly just last month, naming it the sole loyalty rewards program in its list of “mobility partners.” What makes Belly “hot” is its 11,000 merchants, 6M users, and a technology stack that TechCrunch described as a “cohesive suite of loyalty, email, social media, mobile and customer acquisition tools.”
Innovation in Mashups
Looking across the horizon, I see a mashup of personalized loyalty, marketing automation, social and POS. Layer in location services like iBeacon used by Adored’s customized promotions platform and we’ll see loyalty become a must-do tactic for most local businesses. The Boston start-up, successfully funded its $2.3M seed round with support from Boston Seed Capital, Kepha Partners and Matrix Partners.
This is a space where core-marketing tactics still work, and local execution makes or breaks a business’ loyalty efforts. Tech companies that can weave in customer intelligence and help a business design, build, execute, and maintain a relationship with its existing customers will be the long-term winners.
Loyalty Bay is doing just that, converting loyalty in to new sales by incenting repeat customers to take new actions and engage with a local business more deeply than they have historical done. This London based start-up has honed its consumer intelligence to offer the right promotion to each customer, and have learned how the right offer increases the POS value with the existing customers. Co-founder William Roberts claims they increase the conversion rate by more than 100 percent for national brands.
I Want What I Want
When I’m in the mood for a good Colorado craft beer, local restaurants and brew houses want me to think of them as my best option. They’ve got the local piece covered, but as a loyal consumer, I want my relationship with local merchants to be easily accessible, giving me exactly what I want in the palm of my hand. Don’t offer me two-for-one on well drinks if you know I prefer beer.
Taking loyalty programs from generic buy-one-get-one, to local buy-one-at-your-favorite-brewery-get-one and then to buy-your-favorite-beer-get-one is attainable. Personalization coupled with deep consumer and SMB usage analytics is where loyalty needs to evolve. Understanding what is driving loyal behavior and using that information to better target customers is a key sticking point for SMBs. VCs will invest in technology companies that leverage loyalty data to drive both consumer and SMB adoption of their platform.
VC attention will be focused on those who shift loyalty marketing from a creative endeavor to a scientific one managing the convergence of what is most desired by consumers, investors and us as tech entrepreneurs. It’s there we’ll find the best loyalty solutions, and a good beer.
Loyalty’s Most Recent Funding Events
|Company||Total Raise||Last Round||Investors|
|Loyalty Bay||$1M seed funding||August 2015||PE: Talis Capital,
VC: Howzat Partners, NEON Adventures
Angel: Chris Mairs, Richard Verney
|Adorded||$2.3M seed funding||July 2015||Angel: Kayak co-founder Paul English, Twitter executive Wayne Chang
VC: Blade, Boston Seed Capital, Kepha Partners, Matrix Partners
|ShopKeep||$97.2M in 4 rounds||Series D: $60M in July 2015||VC: Activant Capital, Tribeca Venture Partners, TTV Capital, Contour Venture Partners, Canaan Partners
PE: Thayer Street Partners
Angel: Matt Coffin, Tom Glocer
|500 Friends||$12.9M in 6 rounds||Acquired by Merkle in November 2014||PE: Crosslink Capital, Intel Capital, Fung Captial,
VC: Y Combinator, Quest Venture Partners
|Thanx||$6M in 2 rounds||Series A: $4.7 in November 2014||VC: Sequoia Capital, SoftTech VC, Floodgate|
|Perkville||$3.4M in 3 rounds||Series A: $2.4 in October 2014||Angel: Sand Hill Angels, Band of Angels
VC: Moneta Ventures
|Stellar Loyalty||$5M Series A||October 2014||VC: IntraWest Partners, Garnett Ventures, TDF Ventures|
|Five Stars||$42.7M in 4 rounds||Series B: $26 in September 2014||VC: DCM, Lightspeed Venture Partners, Menlo Ventures, Mayfield Fund, Y Combinator, Start Fund
Strategic: Rogers Communications Inc
Angel: Ali Partovi, Hadi Partovi, Chamath Palihapitiya, Eric Stein, Jake Winebaum, , Vince Monical
Charity Huff is an active member of the local media industry, contributing in an advisory capacity through public speaking and her entrepreneurial ventures, including Tru Measure, a metrics-driven, technology services company that captures consumer engagement generated from media and advertising. She can be reached on Twitter @charityhuff