September 19, 2017

American Express and Foursquare on the path to justifying location based marketing

In June, AMEX announced it was going to partner with Foursquare nationwide to do some cool discount deals tied to check-ins at some national chains. Then they decided to help out small businesses with a Black Saturday deal. Consumers could:

  • Link their Foursquare account to their AMEX card
  • Go to a small business with the AMEX deal ($25 off if you purchase $25 or more with your linked card)
  • Checkin on Forsquare
  • Pay with their AMEX
  • Get a $25 credit on their AMEX bill

This was pretty clever and I used the deal at a local pub, Edgewood Tavern. I didn’t have to show my phone to the server or anything, it  just happened behind the scenes at AMEX.

However, last night I was at Pure Taqueria in Inman Park (Atlanta) and saw there was a $10 off deal from AMEX if I checked in on Foursquare. I’m in pretty tight with the folks over there, so I asked the GM how he set up the deal with AMEX – were they splitting the discount cost a la Groupon or what.

Here’s the thing. He had no idea the AMEX deal existed. Apparently, it was all on AMEX. What? (inflection should go from low note to high note)

I opened up Foursquare again and started scrolling through all of the local businesses around me. It was like an Oprah moment – everybody had an AMEX deal! After leaving Pure, I went to Savi Urban Market and got a $10 discount on a bottle of wine to celebrate (they had no idea the deal existed either).

What’s going on and why?

So, in it’s simplest form, I’m buying $10 worth of stuff, the business is getting $10 (minus AMEX transaction fees), and I get $10 back. Who’s paying for this and why?

Word on the street is that the program doesn’t drive any revenue to Foursquare, but it represents an initial foray into going “beyond checkins,” an effort that might soon roll in deals from Living Social and Groupon. That will be interesting, but who is paying for the AMEX deal? It seems like AMEX.

I found some insights here and there, but I thought I would add my own.

The arrangement in its current form doesn’t make sense. Foursquare doesn’t generate revenue and AMEX is having to cover the cost of all the discounts. Currently, it only would work for AMEX if the effort increased the number of AMEX users (driving revenue from annual membership fees), increased the frequency users chose their AMEX card over their Visa card (driving revenue from increased transaction fees), and/or dramatically increased the average transaction size for an AMEX user (again, increased transaction fees). Even if the deal included Foursquare sharing user check-in information with AMEX, what would it tell them that they couldn’t already get by tracking other card charges… except maybe if the user checked in at non-businesses like parks and transit stations.

Foursquare gets closer to being able to claim that its online marketing drives consumer behavior and leads to local business revenue. If they gain access to transaction amount data, they get some awesome insights on the value of this marketing. Of course, in my case, I was at two of the businesses uninfluenced by Foursquare… but my new bottle of wine was effective marketing. Also, Foursquare needs to generate some revenue from all of this.

The Future of Foursquare

Here is my prediction about where all of this is going. Foursquare is striving to be the clearinghouse of location based deals. It will remain focused on doing everything it can to gain adoption by users and then aggregate local business deals from whomever can make them – AMEX, Groupon, Living Social, local news papers, etc. Foursquare gets to focus on technology and lets all of these other guys field the sales force.

AMEX (and potentially other credit cards) will move away from eating the cost for their local deals and begin generating revenue from local businesses paying for these promotions – similar to the daily deals sites. This will be a marketing cost for the local business, but with Foursquare in the loop, they will gain more insight to user behavior, such as:

  • Was the deal redeemed by a new visitor or returning visitor (in Foursquare terms, a Newbie checkin) – works regardless of who sold the deal to the business
  • Did new customers redeeming the deal ever return (tracked through subsequent checkins) – works regardless of who sold the deal to the local business
  • Automated tracking of average customer spend, lifetime value, etc tied to the credit card (in AMEX’s case), regardless of what POS they use – only works if a credit card company sold the deal to the local business

That is pretty Rock and Roll!

The Hype of Location Based Services (LBS)

Ruud HeinA great article was posted by Ruud Hein about the second coming of LBS (Foursquare, Gowalla, Yelp, ScoutMob, etc.). The underlying message is: don’t get too carried away with the hype, we’ve seen this before. You should read the article for yourself, but one of the striking metrics provided was that 96% of people in the US do not use location based services. This is not to say that there won’t be more adoption, possibly even rapid adoption, but businesses should not get swept away with overly exuberant enthusiasm. They should make sure to closely scrutinize any initiatives they plan on taking and especially consider their own patron-base.

Scoutmob, GroupOn and other Flash Mob Promotions

First, I want to make sure to emphasis that the term Flash Mob is not negative. My very loose definition for this post is “getting a large number of people to act in a certain way, usually through social media.”

There are a number of emerging (or emerged) solutions that follow a basic recipe for what I call Flash Mob Promotions:

  1. Offer a ridiculously amazing special offer for a local business
  2. Promote the crap out of it to people that love these deals
  3. (Optional) Require that a certain number of people take advantage of the offer before it becomes “active”

The motivation for local organizations is to get a boat load of people to visit them in the hopes of turning them into patrons and possibly spend money beyond the terms of the offer. To help you better understand what these solutions are all about, below is a description of a few companies active in this area. The hope is that it helps explain what they are offering so you’re better informed when they come a’knocking.

Restaurant.com

Restaurant.com is what I consider the predecessor of this movement and I don’t technically consider them to be Flash Mob Promotions, but they are worth understanding. From what I’ve heard, patrons love the deals, but restaurants aren’t the biggest fans.

  • Offer and Restrictions – Local restaurants sign up with Restaurant.com and configure their offer. This typically is in the form of a $25 gift certificate for $10, $50 gift certificate for $20, etc. They post the offer on their website and promote in various ways to get people to buy these certificates. Typical restrictions on these certificates are conditions like minimum purchase amounts, valid for dinner only, 18% gratuity automatically added to bill, excludes alcohol, expiration date, etc.
  • Taking Advantage of Offer - The process for patrons is pretty straightforward
    • Go to restaurant.com
    • Search for a restaurant
    • Buy a certificate
    • It gets emailed to you
  • Promotion Channels – mostly through their website and email promotions. They don’t seem to take much advantage of social media.
  • Revenue model - They keep all of the money paid for the certificates.

What they are selling is marketing. You give away $25 worth of food in exchange for new (hopefully) patrons and restaurant.com gets paid $10.

GroupOnGroup On Logo

Groupon has great buzz from both patrons and businesses. They have a video to explain it, too.

  • Offer and Restrictions - You create a “Deal of the Day” with GroupOn (they only have one per market). Typically, these are offers similar to the ones described in the Restaurants.com model, but they seem much more savvy at getting the word out. Also, the ability to buy the certificates only lasts for one day (although they can be redeemed anytime before the expiration date), which creates a sense of urgency. As a final condition, a minimum number of people have to take advantage of the deal before “The deal is on” – if you are offering a $25 gift certificate for $10, you can specify that 200 people must take advantage of it before any can be officially sold.
  • Taking advantage of Offer - The steps a patron follows to take advantage of an offer are:
    • They find out about the deal of the day through email, Facebook, twitter, mobile app,  etc.
    • They indicate how many they are interested in buying and provide credit card information
    • As soon as the minimum number of participants is reached, “the deal is on” and everyone’s credit cards are charged
    • Users can log in to their GroupOn account and print the offer.
    • At anytime before the expiration date, they can use the certificate – subject to the terms of use
  • Promotion Channels – GroupOn is much more savvy about using social media than Restaurant.com… they actually have a separate Twitter account and Facebook page for each city. They also use email alerts as well as their website and a mobile app.
    • Facebook – 7,600 for Atlanta (23,000 fans for Chicago)
    • Twitter – 3,000 for Atlanta (10,000 followers for Chicago)
  • Revenue model – Groupon keeps a portion of the purchase price and gives the rest to the business. I’ve heard this is typically 50%. Business receives their cut immediately after the Deal of the Day expires.

The big benefit I see for businesses is cash flow – you get paid up front for all of the purchased certificates. You also hope the deal will drive traffic, gain new patrons that have a significant life-long value, and that the average ticket price will exceed any offer’s limit.

The concerns I have are related to cost. How many new patrons will you get, what do your margins look like, what will be your average ticket amount? In short, does this make business sense? Unfortunately, you have to decide that. Also, some business have expressed concern about how offering such deep discounts may affect their brand image.

NOTE: There are a few other sites, like LivingSocial that use a similar model.

ScoutMobScoutMob Logo

Scoutmob is a newer entrant into the market and is based in Atlanta (yeah!).

  • Offer and Restrictions - ScoutMob doesn’t sell gift certificates/coupons, they market promotions of ridiculously great offers. You make a deal with ScoutMob to be their deal of the day (generally 40% to 60% discount) and tell them how many people have to subscribe to the offer before the “deal is on” (similar to GroupOn). They then promote the crap out of you and hope the minimum number of people sign up. Another difference compared to GroupOn is that GroupOn only makes the deal available for one day, but purchased certificates have an expiration date. ScoutMob makes their offers available over a period of time (seems like about 3 months), but promote you heavily on the day the deal is announced. On the day your deal launches, people can have the coupon texted or emailed to them, after that they can only redeem the offer through the mobile app and have to be at your location (determined through GPS) to access the coupon.
  • Taking Advantage of Offer – Scoutmob uses a slightly different model than GroupOn for deals. This is divided into how they handle Deals of the Day versus how they handle the offer through their mobile App.
    • Mobile App
      • A person launches the app and can browse all of the deals that are still active – including the deals close to them (determined by their GPS location)
      • If they find a deal they want, they go to the business and “Redeem” the offer.
      • ScoutMob checks their GPS location to see if they are actually at the business and, if so, displays the offer.
      • The offer is shown to the business and marked as “used”
      • Patron gets the discount
    • Deal of the Day – from the ScoutMob website. This only works for the deal of the day, not for deals that launched on previous days.
      • People find out about the deal of the day through email, Facebook, Twitter, etc.
      • They specify they want the deal and receive a text message to their cell phone (you can have it emailed if you want a physical coupon)
      • The patron shows the offer at the business and gets the deal. Both the text message and email have an expiration date associated with them.
  • Promotion Channels – ScoutMob uses similar promotion methods to GroupOn, however, because patrons can opt into offers over a longer time, ScoutMob has added functionality on their mobile apps that allow people to redeem on the go…  based on where they are (this is called Location Based Service or LBS).
  • Revenue model – ScoutMob’s pricing model has 2 parts:
    • Deal of the Day texts and emails – they charge a small fee for each message sent
    • Mobile App Redemption – they charge a few dollars for each offer redeemed through their app. This is more because the business knows that the patron was actually at their location (GPS confirmed in order for the patron to gain access to the offer).

One of the benefits that I really like about ScoutMob is the mobile app redemption… you actually know the number of people that were in your business (or really close by). Similar to GroupOn, the big goal is trying to drive traffic and, since ScoutMob doesn’t require people to pay anything up front, there is an argument to be made that more patrons will take advantage of their offers.

The concern is still cost. Does ScoutMob actually drive traffic, gain new patrons, and lead to ticket amounts that exceed offer limits? Maybe. They might even do it better than GroupOn, but with GroupOn you get the up front cash benefit, although with ScoutMob it seems like you get to keep more of each transaction.

* Special thanks to David Payne from ScoutMob for giving me the 411!

Conclusion

All of this is really, really cool stuff and is only going to get cooler. The biggest problem I see is tying the business decision to ROI… I smell a future blog post!

I would love to hear about people’s experiences using these or similar offerings as well as from the providers themselves!

Class action lawsuit against Yelp

Over the past year or so, there have been a lot of complaints about Yelp using questionable business tactics when soliciting businesses for advertising dollars. It looks like some businesses have decided that these tactics go to far. TechCrunch announced that two law firms – Beck Lee from Miami and The Westin Firm in San Diego have filed a class action lawsuit against Yelp for unfair business practices.

Quick Yelp Overview

For people that don’t know, Yelp is a “local search” site that allows users to review businesses. Kinda like a yellow pages where people post comments on their experiences. Users can search for a business – like an Italian restaurant in Atlanta – find results and see the business’ profile along with all of the reviews that business has received. Each review is tied to a registered user with their picture and a little bit of personal information about them, which gives business owners a way to better understand who the reviewers are. Users of Yelp build credibility in the system through these reviews that are rated by other users as funny, cool, useful, etc.

Why businesses like Yelp

Businesses seem to like Yelp because there are a ton of people using it, it provides them with feedback, but mostly Yelp lets them advertise. In that search for Italian restaurants mentioned above, at the top of the list will appear a restaurant that is paying Yelp for sponsored ads. As a user browses the site, additional sponsored ads appear on the right side of the page. Yelp provides businesses with information on the number of people that visit their Yelp profile which presumably translates into “butts in seats.”

Why businesses don’t like Yelp

The biggest reason businesses don’t like Yelp is because they sometimes get bad reviews and these are visible to anyone that visits the site. One can convincingly argue that people are entitled to their opinion and Yelp is simply providing a venue for those opinions to be expressed so that other people might make better informed decisions.

For a long time, businesses just had to take the negative reviews. Then Yelp allowed businesses to respond directly to a reviewer to try to address complaints in private. This led to some abuses as users posted negative comments in hopes that business owners would bribe them into changing the review. Last summer, however, Yelp started letting business owners respond in public to reviews. This was a little better, but businesses still don’t like negative comments (obviously). Rooz Cafe in Oakland even created a “No Yelper” policies.

Why are businesses accusing Yelp of “Extortion”?

There are a couple of reasons for this. A minor one that is frequently mentioned is that Yelp will show ads from your competitor’s business (who are paying) on your non-paying business’ profile. This practice isn’t that egregious, though and I think is up for debate.

The biggest reason stems from complaints from multiple businesses, the accusation that Yelp offers to squash bad reviews if they pay for ads (see the comments section on the TechCrunch article to get a feel for this). The business story generally goes something like this:

I had some negative reviews on Yelp and was contacted by a Yelp sales person that said if I paid $300 per month for advertising, those reviews would disappear.

That’s what all of the hullabaloo is about … these alleged sales calls.

Is all of this just business owners that are so upset about bad reviews they are making wild accusations or errant sales people within Yelp offering benefits off script? Maybe, but a quick search of Yelp extortion turns up a lot of results, dating back to 2008:

http://www.switched.com/2010/02/25/yelp-embroiled-in-bribery-extortion-and-defamation-dispute/

http://www.eastbayexpress.com/eastbay/yelp-extortion-allegations-stack-up/Content?oid=1176984

http://consumerist.com/2009/03/more-business-owners-accuse-yelp-of-review-extortion.html

http://blogs.sfweekly.com/thesnitch/2008/11/is_yelp_extorting_san_fran_bus.php

http://www.theregister.co.uk/2008/08/13/yelp_sales_pitch/

There is even a website dedicated to the topic:

http://www.yelpscam.com/press.html

Community Question

Yelp tries hard to present itself as a place to get quality reviews – their tagline is “Real People. Real Reviews.” Although, I guess that is still true, even if some of those reviews are removed. But the community question is: If these allegations are true, even if Yelp is not what we might want it to be, are they guilty of extortion?

Let me know what you think and tell me about your experiences with Yelp – good, bad or neutral.