© Copyright January 2013, All Rights Reserved, BIA/Kelsey

Leading in Local

‘The New Marketplaces’:

Loyalty & Transaction Marketing

January 2013

Leading in Local | Loyalty & Transaction Marketing

Copyright © BIA/Kelsey 2013 i

Contents

Executive Summary ................................................................................................................................... 1

Introduction.............................................................................................................................................. 2

Defining Advertising, Loyalty and Transaction Marketing ............................................................................. 2

Roots of Transaction Marketing: Daily Deals and the Closed Loop ................................................................ 3

Are “Stand Alone” Deals Doomed to Limited Growth? .................................................................................. 5

Loyalty: The New Digital Frontier ............................................................................................................... 6

Transaction Marketing Builds on Loyalty ..................................................................................................... 8

More than Offers and Transactions .......................................................................................................... 10

Applying Transaction Marketing ............................................................................................................... 11

Transaction Marketing Targets: Merchants with Recurring Usage ............................................................... 12

Significant Investment in Loyalty and Transaction Marketing ..................................................................... 13

New Revenue Streams with Transaction Marketing ................................................................................... 14

The Importance of Big Data ..................................................................................................................... 15

The Power of Card Linking (or not) .......................................................................................................... 16

Looming Challenge for Industry: POS Integration ...................................................................................... 17

Possible Alternatives to Relying on POS .................................................................................................... 19

The Competitive Landscape for Transaction Marketing .............................................................................. 19

Existing Promotions Players ..................................................................................................................... 20

Independents ......................................................................................................................................... 20

Financial Institutions ............................................................................................................................... 20

Vertically Integrated Tech Players ............................................................................................................ 22

Media ..................................................................................................................................................... 23

A Piecemeal Approach to Transaction Marketing ....................................................................................... 24

Privacy and Pipeline Issues with Transaction Marketing ............................................................................. 25

Summary: Five Questions and Answers .................................................................................................... 26

Profiles of Select ‘Independent’ Transaction Marketing Companies ............................................................. 27

Belly .......................................................................................................................................................................27

Five Stars ..............................................................................................................................................................28

LocalBonus ..........................................................................................................................................................29

MOGL ...................................................................................................................................................................30

Perka .....................................................................................................................................................................31

Swipely .................................................................................................................................................................32

Leading in Local | Loyalty & Transaction Marketing

Copyright © BIA/Kelsey 2013 ii

Additional BIA/Kelsey Resources .............................................................................................................. 33

About the Author .................................................................................................................................... 35

Figures

Figure 1: From Advertising to Transaction Marketing ................................................................................... 2

Figure 2: SMBs and Deals .......................................................................................................................... 4

Figure 3: BIA/Kelsey's Deals Forecast ......................................................................................................... 5

Figure 4: Groupon Real Estate R.I.P. .......................................................................................................... 6

Figure 5: SMB Interest in Loyalty Programs ................................................................................................ 7

Figure 6: Customer Acquisition vs. Retention .............................................................................................. 8

Figure 7: Remember These? ...................................................................................................................... 9

Figure 8: The BIA/Kelsey Marketing Circles Model ..................................................................................... 10

Figure 9: Elements of Transaction Marketing ............................................................................................ 11

Figure 10: A MOGL Promotion .................................................................................................................. 12

Figure 11: Big Data –Integration of Third Party Cloud Databases for Dynamic Individualized Marketing ....... 16

Figure 12: A POS System Using FiveStars ................................................................................................. 18

Figure 13: Bank AmeriDeals ..................................................................................................................... 21

Figure 14: Gannett Digital's Key Ring ....................................................................................................... 24

Tables

Table 1: Key Targets for Transaction Marketing ........................................................................................ 13

Table 2: Key Investments in Transaction Marketing................................................................................... 14

Table 3: Transaction Marketing Revenue Streams ..................................................................................... 15

Table 4: Loyalty Tech Acquisitions............................................................................................................ 22

Leading in Local | Loyalty & Transaction Marketing

Copyright © BIA/Kelsey 2013 1

Executive Summary

The market acceptance of daily deals and the emergence of new programs to track

and act on consumer loyalty have triggered a rapid evolution of the promotions space.

Consumers are increasingly engaged by promotions based on their individual

spending, behavior and location. BIA/Kelsey calls this “transaction marketing.” It

represents a step up from traditional loyalty marketing efforts.

Loyalty and transaction marketing represent new marketing opportunities for local

merchants. These work alongside traditional advertising; presence management/social

media; and mobile (geo-location).

Interest in loyalty and transaction marketing solutions is demonstrably high. We

expect there to be increasingly apparent, direct competition between deals and loyalty

vendors in certain categories, such as restaurants and salons.

Investors have poured more than $222 million into the loyalty and transaction

marketing space since 2008, with expectations for significant revenue growth from

merchant services, loyalty incentives, commissions, transaction processing and other

areas.

In this environment, transaction marketing and related “non-advertising” promotional

solutions, including deals, coupons, gift cards and gift certificates, are likely to achieve

parity with paid media advertising, such as display ads and contextual search ads.

We answer five key questions in this report:

1. Will non-advertising solutions be a major factor in merchant marketing

planning and spending?

2. Will non-advertising solutions be money saving substitutes for traditional

advertising, or will they complement it?

3. What channels are best positioned to anchor these new solutions?

4. What will be the impact of technology changes on the rate of acceptance?

5. Are non-advertising programs effective for local merchants and how will they

assess return on investment?

Leading in Local | Loyalty & Transaction Marketing

Copyright © BIA/Kelsey 2013 2

Introduction

The parameters of local marketing are changing rapidly. While the end goal remains a

constant – to engage customers and sell more – the evolution of technology and data

analysis has increasingly moved marketing beyond advertising.

Some of the key change factors include:

Cloud-based databases that can be integrated on a “big data” basis with

sales and marketing analytics and dashboards for campaign planning, execution and evaluation.

Mobile web and applications with geo-location technology.

Performance-based search and related solutions (e.g., click through rates;

cost per action).

Social media, recommendations and referrals (e.g., “earned media”)

This marketing activity isn’t all “advertising.” Nor it is always “media.” Instead, we are

beginning a partial reallocation of spending from advertising-based marketing to a

new paradigm that we refer to as “loyalty and transaction marketing.”

Defining Advertising, Loyalty and Transaction Marketing

Loyalty and transaction marketing is applied widely to customer acquisition, customer

loyalty, email marketing and the promotion of specific brands/products. What we have

is a sequential ladder of three core marketing concepts for acquiring and engaging

consumers. These include advertising; loyalty marketing; and transaction marketing.

Figure 1: From Advertising to Transaction Marketing

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“Advertising” is defined as paid placement of sales or branding messages in media,

listings or search. It can be placed directly with publishers or via advertising networks.

Advertising is generally thought of as being media driven, where success is measured

in reach and engagement. Promotions such as coupons and deals are in a subset

known as “directional media,” where success is measured in incremental leads.

Advertising

Display

Classifieds

Search

Coupons

Loyalty Marketing

Frequent User Clubs

Newsletters

Social Media "likes"

Rewards

Transaction Marketing

Deals

Geo-based Mobile Offers

Big Data

Card Linked Offers

Leading in Local | Loyalty & Transaction Marketing

Copyright © BIA/Kelsey 2013 3

“Loyalty marketing” is defined as specific efforts to acquire, engage and retain

customers. It can target specific customer groups based on their search interests and

purchase patterns. Loyalty marketing utilizes techniques that include frequent shopper

clubs and memberships, email and print newsletters, social media programs, special

events, discounts and coupons, custom content, gift cards, and gift certificates.

“Transaction marketing” is defined as the dynamic linking and analysis of credit- and

debit-card purchases with other consumer and marketing databases. Transaction

marketing was developed on the principles of “big data.” Marketers can profile and

target consumers for specific offers based on such measures as open rates, page

views, frequency of visits, shopping carts, and the size and makeup of orders.

Transaction marketing generally incorporates loyalty marketing, and is sometimes

referred to as “card-linked offers” (although card-linked offers are really a sub-

segment of transaction marketing).

Roots of Transaction Marketing: Daily Deals and the Closed Loop

The transaction marketing era arguably began in 2008 with the emergence of daily

deal companies, led by Groupon and Living Social. Prior to deals, promotions were

mostly limited to random advertising messages, contextual search ads, and

promotional media such as coupons and sweepstakes.

Coinciding with technology developments, deals ushered in a new era, showcasing

promotions that lead directly to transactions. They proved to be true pay for

performance vehicles. The deals providers closed the loop from awareness to

purchase by tying promotional spending to credit- and debit-card transactions.

At this point, almost five years into it, deals have carved out an important role in the

promotions mix. Awareness of deals as a shopping option, and use among consumers

and merchants continues to climb.

Groupon and Living Social – the industry’s leaders -- have 35 million U.S. consumers

combined, including some consumers using both services. Moreover, half of U.S. small

and medium-sized businesses (SMBs) surveyed in BIA/Kelsey’s 2012 Local Commerce

Monitor study indicate they are likely to run a deal during the next six months. This

trend is likely to be reinforced by the growing efforts of new players, such as Google

and Amazon, in the deals space.