If Foursquare and Gowalla didn’t appease your appetite for location-based applications, then you’ll enjoy the latest wave in the trend – shopping. Location-based shopping is a mobile service infusing geographical positioning with coupons or rewards to add incentive to in-store sales and enhance the individual’s (in-store) shopping experience.
Currently, applications such as Google Shopper, Amazon, and RedLaser pose as threats to retailers’ traditional operating model because they provide users with the ability to scan a product to find a cheaper price online. This convenience can be detrimental for a store because the application can effectively drive a customer out of the door. Nevertheless, it serves the user as an excellent tool to find savings. In short, such apps are great for shoppers and terrible for retailers.
However, new location-based shopping applications are striving to be a win-win-win service for all three parties: the retailer, the customer, AND the application developer. In offering a value-add to all parties involved, usage can be promoted from both sides of the consumer-retailer relationship. The ultimate goal of these services is to build a level of consumer dependence on the application. If a consumer’s instinct is to consult the application before spending, then the absence of available application usage within a store will send shoppers elsewhere. The question is: How are applications executing this?
There are currently three major players in this space: Shopkick with 100 million check-ins, Retailigence as one of the top ten mobile trends for 2011, and of-course Facebook Deals – no introduction necessary.
Shopkick rewards walk-ins with in-store “Kickbucks” and other related discounts that can be redeemed at checkout. In order to ensure that users are actually in the store, retailers install $100 sensors that send a high-frequency signal to the iPhone confirming the user’s position. Shopkick users receive Kickbucks for scanning specific products, trying on clothes, and making purchases. Originally focused on a younger demographic, Shopkick partnered with Simon Malls, American Eagle, Macys, Best Buy, and Wet Seal. However, after passing 3 million scans, Shopkick now boasts partnerships with HP, Kraft, Uniliver, and Proctor & Gamble. Recently, a Best Buy rep told the Wall Street Journal that “’the return is really positive’ given the cost of implementing the system,” adding that many Shopkick users seem to be redeeming their Kickbucks for Best Buy gift credits — a win-win situation all-around. In terms of monetization, Shopkick gets paid when it brings people into the store and when a Shopkick deal is used at checkout. For the retailer, this is the most specific method of customer acquisition available and at a ROI that can be easily measured. Ultimately, Shopkick hopes to be a lead generator in offering its users real presents, and not just pixels.
In comparison, Retailigence has taken a different approach to location-based shopping. Instead of developing a single application, they’ve launched an Application Programming Interface (API) for such services. Their API allows developers to build apps that search for numeric barcodes and keywords. The barcode will find a particular product as the keyword search function identifies the product by name or description. The true power behind the API is its ability to accurately identify the nearest local business with the product in stock. The API has mixed effects: it drives users out of one retail store and into another. A line-up of location based shopping applications who use Retailigence’s API include:
Price pad: “PricePad users find the best deals by quickly and easily scanning product bar codes with the iPhone camera, and comparing retail-store prices against the best deals online”
DoTogether: “DoTogether is a hosted social media marketing platform that lets retail businesses expand the reach of their products on Facebook and capture the social interaction analytics.”
Complete list here
While the API is free for program developers, Retailigence plans to make money from the retailers themselves – similar to Shopkick – by taking a commission fee from retailers who participate with applications using the Retailigence API. Big box discount retailers will likely use this technology to attract more price sensitive customers, leaving smaller retailers and boutiques at odds.
Max Levchin (PayPal founder & current Google VP of Engineering) recently described Facebook as having the potential to become one of the world’s most valuable companies if it can “successfully replace core messaging.” Meaning, the more Facebook becomes the preferred point of communication between people, the more users will utilize the site as a reference beyond people and onto products. By the same token, a recent Wall Street Journal article summed up the nature of Facebook as a double-edged sword:
“[It] is both a great competitor and a benefactor here in Silicon Valley,” said David Cowan, a venture capitalist at Bessemer Venture Partners in Menlo Park, Calif. “Anyone who’s trying to get the attention of the young Internet user now has to compete with the dominant position that Facebook has there. On the other hand, they have opened up a lot of opportunities.”
Essentially, Facebook can move into any field and threaten major competitors. What does this mean in terms of location based shopping applications? Assuming Levchin’s belief is valid, a shopper assigns greater value to product reviews by his/her Facebook friends, as opposed to those reviews written by a random internet user. Also, many Facebook members already use the social network’s mobile application, with more ‘check-ins’ for discounts than Shopkick or the other applications have attained. Retailers can set up a company page on Facebook, utilize ‘Places’, and set ‘Deals’ as advertisements. Businesses ultimately gain more ‘Likes’, and are charged nothing for the set up. Facebook Canada’s head of strategy, Elmer Sotto says the company monetizes their mode by not taking “any percentage or back-end revenue from the deal …any deal creator can use our advertising product — which is available to everybody — to create advertising about that particular deal, so [advertising’s] one source of revenue for us.” In addition to American Eagle, Gap, and Subway, many local businesses currently implement location based Facebook Deals.
Of course, all of these services are just getting started. It will be interesting to see how this new technology plays out. Ultimately, it will come down to tailoring such location-based technology to customer behavior.