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09.17.14

Viewpoint: The One Who Enrolls Is the One Who Controls

Genius moves by retailers leverage their own apps for customer service, greater security and tender steering.

liebenguth_heidicrone_richardBy Richard Crone and Heidi Liebenguth, Crone Consulting

The most effective strategy for retailers to thrive in an omnichannel age is to enroll customers for payment in their own mobile shopping apps. This is the key for retailers to build the core customer relationships, and it provides new revenue opportunities beyond traditional product and service sales.

Consumers love their mobile phones … and the mobile apps that help them shop. Because the experience of a mobile app is so much richer than the mobile browser (i.e., the Internet accessed by a smartphone), consumers spend 82 percent of their mobile minutes in apps, compared to 18 percent in mobile browsers. [1] And consumers show loyalty to their favorite retailers: Studies indicate that consumer time spent in retailer apps skyrocketed 525 percent from December 2011 to December 2012 and exceeds total shopping app growth of 274 percent, as well as overall app growth of 132 percent.[2]

The most dramatic cases of the quick uptake of mobile payments aren’t the specific phone-based solutions offered by technology companies or wireless carriers, but at retailers like Starbucks, Subway and Dunkin’ Donuts.

Retailers are responding to this demand with apps that locate stores and feature the week’s specials or sale items, product information and reviews. But sophisticated retailers are aware of the strategic importance of including mobile payment—at the point of sale—as a key function of their shopping apps.

CRM and Customer Connection

Mobile payment at the physical POS is more than just payment. The right mobile payment platform enables the retailer to increase its overall franchise value through a customer relationship management (CRM) database, where customers are known and reachable before, during and after each payment. Armed with this, mobile payment can be further leveraged to:

• Collect the big data that will help retailers serve customers in a more personalized way, responding to their histories, preferences, location and more;

• Steer sales to the lowest cost/ preferred payment tenders: private-label credit, gift, PIN debit, etc.;

• Develop new sources of revenue from actionable offers and advertising from sourcing brands and complementary businesses;

• Lower overall costs by negotiating direct clearing relationships with partnering banks;

• Consummate prepaid promotional sales from traditional advertisements displaying QR codes, such as television, print, outdoor, etc., closing prepaid sales with a mobile wallet when customers scan an ad;

• Incent customers to purchase one more item for a larger average basket size;

• Entice customers to make one more visit, boosting store sales volumes;

• Implement cardless loyalty programs without POS disruptions;

• Protect proprietary customer and sales data from third-party intermediaries 
seeking to commandeer the customer relationship.

Beyond these CRM benefits, the right mobile payment solution keeps customer payment credentials safe in the cloud and takes the POS out of PCI scope, preventing the mag stripe card-skimming and store system hacking dangers that have plagued many major retailers.

Because mobile is the cross-channel enabler, present and used in every other channel, it offers retailers a unique opportunity to deepen the customer relationship and value across every interaction, online and especially inside the store. Mobile already drives about a third of Walmart.com traffic, spiking to more than 40 percent during the 2012 holiday season, according to Gibu Thomas, Walmart’s global head of mobile, who delivered a CTIA Wireless keynote address on May 22, 2013. But more importantly, he said the store’s smartphone app also boosts in-store buying. Customers who have the app make more trips to Walmart and spend as much as 40 percent more there.

The strategic issue is whether a retailer wants this new customer touch point as part of its own seamless, brand-centric shopping experience, or under the control of unauthorized third-party intermediaries and free-riders whose business models are based on customer churn and competitive advertising, not on building the retailer’s brand.

Enroll and Control

When retailers enroll customers for mobile payment as part of their own shopping apps, consumers have the ability to make payments and to access personalized shopping lists and history, loyalty information, actionable digital coupons and other functionality—all in a single, convenient location. The mobile device provides a handy, easy-to-use and compelling real-time link to their favorite stores, eliminating the need to carry multiple cards. Consumers are welcoming the opportunity to use mobile payments, with the advanced functionality and other benefits they bring.

The most dramatic cases of the quick uptake of mobile payments aren’t the specific phone-based solutions offered by technology companies or wireless carriers, but at retailers like Starbucks, Subway and Dunkin’ Donuts.

Since rolling out mobile payments in 2011, Starbucks has enrolled more than 10 million customers in its mobile payments

Retailers have only begun to explore the possibilities offered by integrating payment, focusing first on their private-label tenders, in their own shopping apps.

program, which now accounts for more than 11 percent of total sales. It’s the most successful launch of a new payment type in history. Starbucks is doing more than 5 million mobile payment transactions per week.

Starbucks transformed a seasonal, single-load gift card into a reloadable, ongoing spending account by building a loyalty program around it. Then, Starbucks introduced its mobile app with the Starbucks Card as the payment mechanism. With this combination, Starbucks has moved more than 25 percent of its sales onto its prepaid accounts, which saves interchange costs on each transaction. It implemented a compelling loyalty program without having to distribute special loyalty cards or issue statements or emails with points balances or updates. And it actually sells advertising space inside its app to complementary businesses—an entirely new revenue stream.

The Starbucks app displays a barcode on the phone screen that represents the customer’s account—much like a traditional gift card. It does not require near field communications (NFC) on the phone or at the POS, but it does require special scanners at the POS. Retailers should look for newer payment technologies that eliminate the need not just for NFC, but for any new hardware. For example, technologies that use the phone’s unique “fingerprint” and camera to scan a dynamic code displayed at the POS. FIS, Vantiv, PULSE and NYCE networks, as well as the Merchant Customer Exchange with the Paydiant platform provide such solutions, which enable a retailer to implement payment through its own shopping app with complete security, and only a POS software upgrade.

Retailers have only begun to explore the possibilities offered by integrating payment, focusing first on their private-label tenders, in their own shopping apps. Using the big data enabled by customers providing their preferences and shopping behavior, now truly personalized messaging and promotions are possible. Loyal customers can gain benefits more valuable than price discounts and instantly share their enthusiasm through social media. Savvy retailers are realizing this deep customer relationship is a brand asset to cultivate and protect, something too valuable to forfeit to third-party intermediaries.

Richard Crone and Heidi Liebenguth lead Crone Consulting LLC, an independent advisory firm specializing in mobile strategy and payments. Crone Consulting has helped define the mobile commerce and payments strategies for all types of large merchants and specialty retailers, restaurants, financial institutions, recurring billers, core processors, payment networks, telcos, consortia and investors. Richard can be reached at rcrone@croneconsulting.com and Heidi at heidi@croneconsulting.com.


[1] “comScore Introduced Mobile Media Metrix 2.0, Revealing that Social Media Brands Experience Heavy Engagement on Smartphones,” press release, May 7, 2012. 

[2] “The Rise of the App & Mortar Economy,” by Simon Khalaf, Flurry Analytics, Jan. 25, 2013.

 This Viewpoint appeared in the Spring 2014 edition of Pay Magazine.

This entry was posted on Wednesday, September 17th, 2014 at 12:29 pm and is filed under Op-Ed.

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