pay by touch smart shop mrd

MARKETING REQUIREMENTS DOCUMENTProject Name: Personalized Marketing - SmartShop

MRD Version: 1.0

Date: 1/23/06

MRD Due Date: 1/23/06

Beta Release Date: 9/30/06

v1.0 Release Date: 12/31/06

Product Team:

Name Role Email address

Hutch Carpenter Senior Product Manager [email protected]

Authorizations

Product Marketing: Title: SVP Product Marketing

Signature: Date:

Product Engineering and Support: Title: VP Engineering

Signature: Date:

Program Management: Title VP Loyalty Solutions

Signature: Date:

Platform Management: Title VP Platform

Signature: Date:

Finance: Title VP Finance

Signature: Date:

Operations and Risk Management: Title VP Operations & Risk

Signature: Date:

Security: Title: VP Systems Security

Signature: Date:

Professional Services: Title VP Implementation

Signature: Date

FILE: PBT DOCUMENT.DOC VERSION: 1.0 PAGE 1 OF 44

NOTICE OF PROPRIETARY PROPERTY

THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.

mailto:[email protected]

DOCUMENT HISTORY AND CHANGE CONTROL

Version Date Description of Changes Initiator Initials

1.0 12/18/05 MRD initiated HC

1.0 1/23/06 Initial draft of MRD published HC




EXECUTIVE SUMMARY

Many retailers, especially grocery stores, are improving the way they track customers' purchases -- and how they reward those customers. Forget the old club card you must present with each purchase. "You're going to see retailers, particularly the grocery companies, do more with the data they gather from customers," says Mr. Fox, [professor of marketing at Southern Methodist University]. "They're going to give you a special discount or give you more information about what you bought or what's on sale."

“Trends (A Special Report): Retail --- Upscale Experience, Downscale Prices”Wall Street Journal, November 21, 2005

“Google is basically out to make every ad a targeted ad," said Safa Rashtchy, an analyst for Piper Jaffray & Co. "That started in search and that will go beyond search in display advertising and then offline.”

“Google explores radio ad sales; Search engine plans to buy dMarc of Newport Beach”San Francisco Chronicle, January 18, 2006

Deloitte believes there are four umbrella challenges in Trade & Consumer Management that are of highest priority to CPG manufacturers [including] Direct to Consumer Marketing: ‘How should we leverage information from retailer loyalty programs to jointly market to the consumer?’

“What is Trade Promotion?”Deloitte Consulting, August 5, 2004

The three quotes above exemplify an overall trend in consumer marketing. Companies have worked to get closer to the consumer in their marketing. Key to this effort has been cycles of improvement in data gathering and technologies for

delivering content to individuals. For example, a major innovation for magazine publishers was the ability to vary ads by subscribers’ locations, opening up channels for local advertisers. In recent years, Google has taken marketing to another level with its AdWords. These catch consumers’ self-identified interests right at a moment in which they are highly receptive to a message. Google’s recent announcement of its acquisition of dMarc highlights the Web giant’s view about other areas ripe for more targeted marketing.

SmartShop is a product designed to take marketing even further along this spectrum, toward true personalized marketing. Grocers and other retailers have established loyalty programs with an eye toward improving their information capture and fostering a relationship with customers. The reality is few Merchants have captured even a quarter of the potential of these programs. Consumer packaged goods manufacturers (CPGs) are also keenly interested in developing better ways to market directly to individuals. Currently, they have little ability to identify and reach individuals most interested in the products.

SmartShop will deliver a set of offers (i.e. discounts) based on consumers’ actual purchases. Both Merchants and CPGs will input the offers they want to distribute. SmartShop will handle the targeting and distribution of these offers. Consumers will receive their offers in an easy to access and use process, completing the loop for true personalized marketing.




Mass Marketing

Targeted MarketingTargeted Marketing

Personalized Marketing

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Pay By Touch will generate revenue on SmartShop primarily through fees received from the CPGs, with some revenues from Merchants as well.

The revenue model for SmartShop can be characterized as:

Merchants provide the customer data and distribution infrastructure

CPGs provide the revenue dollars

The revenue model acknowledges the critical role Merchants’ customer databases serve in delivering personalized marketing for CPGs.

The table to the right provides a sense of the Pay By Touch revenue opportunity in the U.S. grocery market. The $1.8 billion is based on a fully mature implementation of SmartShop in the top 25 grocers, in which it becomes a primary loyalty program for Merchants. The revenue model is defined more fully in §1.2.

The primary revenue generation for SmartShop is via CPGs. CPGs spend $75 billion annually in promotion-related funds, either paid through Merchants to run ads and discounts or directly to consumers, such as coupon distribution. Much of this money is wasted on expensive physical production and distribution of free standing inserts (CPG coupons) and Merchant ad flyers. Not only are these current mass marketing vehicles expensive, they have a very low readership. This combination leads to inefficient use of dollars and represents the opening for SmartShop to successfully penetrate the market.

SmartShop will leverage Pay By Touch’s differentiating strategic assets in realizing this revenue opportunity:

Pay By Touch Wallet: The Wallet is the centralized home for a consumer to manage and access her different financially-related accounts, including SmartShop offers. Members can also be linked to households for purposes of tracking spending.

Implementation at the POS: To track consumers’ purchasing, a company must have access to their transaction history. With in-store implementations across a variety of merchants, Pay By Touch has an incredibly valuable asset for the design and implementation of SmartShop. In addition to information access, PBT is positioned to deliver offers to consumers at transaction time.

Biometric credential: Biometrically identifying Members solves two issues that can bedevil loyalty programs. First, it takes the burden off the consumer to keep multiple cards in her wallet. Use of PBT for identification automatically captures her loyalty account. Second, it eliminates the practice of providing a false loyalty card ID, providing an immediate increase in the quality of data captured.

Multiple communication channels: Pay By Touch will have multiple touch points with Members. In-store kiosks provide a vehicle for communicating offers to Members. MyPBT will offer Members a comprehensive view of their loyalty programs and provide a venue for Merchants and CPGs to communicate offers to Members. Email communications will alert Members to new offers. Mobile devices can alert Members to relevant offers through a unique combination of identity, purchase history and location.




SmartShop Revenue Opportunity

Top 25 U.S. Pure Play General Grocers

Source: Supermarket News Top 75; SEC filings; company websites

General Food # General Estimated Merchant Merchant CPG CPGRevenues Food Revenue Activation Redemption Activation Ad Offer Loyalty

No. Grocer (billions) Stores Opportunity Fees Fees Fees Activation Program1 Kroger 51.1$ 2,532 345,618,000$ 19,749,600$ 9,874,800$ 197,496,000$ 118,497,600$ 2 Safeway 35.8$ 1,802 245,973,000$ 14,055,600$ 7,027,800$ 140,556,000$ 84,333,600$ 3 Albertsons (excl. drug stores) 34.7$ 1,797 245,290,500$ 14,016,600$ 7,008,300$ 140,166,000$ 84,099,600$ 4 Ahold USA (excl. Bi-Lo) 18.6$ 1,033 127,026,827$ 7,258,676$ 3,629,338$ 72,586,758$ 43,552,055$ 5 Publix 18.6$ 850 126,637,875$ 7,236,450$ 3,618,225$ 72,364,500$ 43,418,700$ 6 Delhaize America 15.8$ 1,523 108,148,950$ 6,179,940$ 3,089,970$ 61,799,400$ 37,079,640$ 7 Meijer 11.1$ 158 75,757,500$ 4,329,000$ 2,164,500$ 43,290,000$ 25,974,000$ 8 H.E. Butt 10.6$ 298 72,345,000$ 4,134,000$ 2,067,000$ 41,340,000$ 24,804,000$ 9 Winn-Dixie 9.9$ 587 67,710,825$ 3,869,190$ 1,934,595$ 38,691,900$ 23,215,140$ 10 A&P 7.8$ 638 53,235,000$ 3,042,000$ 1,521,000$ 30,420,000$ 18,252,000$ 11 Giant Eagle 5.1$ 222 34,807,500$ 1,989,000$ 994,500$ 19,890,000$ 11,934,000$ 12 SuperValu (excl. Save-A-Lot, Deals) 4.8$ 262 32,691,068$ 1,868,061$ 934,031$ 18,680,610$ 11,208,366$ 13 Pathmark 4.0$ 143 27,149,850$ 1,551,420$ 775,710$ 15,514,200$ 9,308,520$ 14 Hy-Vee 3.9$ 192 26,208,000$ 1,497,600$ 748,800$ 14,976,000$ 8,985,600$ 15 Stater Bros. 3.8$ 159 25,935,000$ 1,482,000$ 741,000$ 14,820,000$ 8,892,000$ 16 Aldi USA 3.5$ 630 23,887,500$ 1,365,000$ 682,500$ 13,650,000$ 8,190,000$ 17 Wegmans 3.3$ 65 22,522,500$ 1,287,000$ 643,500$ 12,870,000$ 7,722,000$ 18 Raley's 3.2$ 134 21,840,000$ 1,248,000$ 624,000$ 12,480,000$ 7,488,000$ 19 Roundys 3.0$ 125 20,550,075$ 1,174,290$ 587,145$ 11,742,900$ 7,045,740$ 20 Price Chopper 2.5$ 106 17,062,500$ 975,000$ 487,500$ 9,750,000$ 5,850,000$ 21 Harris Teeter 2.4$ 140 16,380,000$ 936,000$ 468,000$ 9,360,000$ 5,616,000$ 22 Save Mart 2.2$ 123 15,015,000$ 858,000$ 429,000$ 8,580,000$ 5,148,000$ 23 Schnuck Markets 2.2$ 101 15,015,000$ 858,000$ 429,000$ 8,580,000$ 5,148,000$ 24 Ingles Markets 2.2$ 197 14,774,760$ 844,272$ 422,136$ 8,442,720$ 5,065,632$ 25 Weis Markets 2.0$ 157 13,854,750$ 791,700$ 395,850$ 7,917,000$ 4,750,200$

T O T A L S 262.0$ 13,974 1,795,436,980$ 102,596,399$ 51,298,199$ 1,025,963,988$ 615,578,393$

TABLE OF CONTENTS

1 INTRODUCTION................................................................................................................................. 8

1.1 PURPOSE OF THIS DOCUMENT.......................................................................................................8

1.2 OPPORTUNITY DESCRIPTION..........................................................................................................8

1.3 OVERVIEW OF PROPOSED PRODUCT............................................................................................12

1.4 CUSTOMER VALUE PROPOSITION.................................................................................................13

2 PRODUCT STRATEGY AND OVERVIEW........................................................................................13

2.1 GOALS AND OBJECTIVES.............................................................................................................13

2.2 STRATEGIC ROADMAP.................................................................................................................14

2.3 COMPETITIVE ANALYSIS...............................................................................................................15

2.3.1 Direct and Indirect Competitors.............................................................................................15

2.3.2 Strengths, Weaknesses, Opportunities and Threats.............................................................20

2.3.3 Differentiators........................................................................................................................ 20

3 BUSINESS MODEL........................................................................................................................... 21

3.1 MARKET SEGMENTATION AND VALUE PROPOSITION......................................................................21

3.1.1 Merchants............................................................................................................................. 21

3.1.2 CPGs.................................................................................................................................... 24

3.1.3 Members............................................................................................................................... 25

3.2 VALUE CHAIN STRUCTURE...........................................................................................................26

3.2.1 Members............................................................................................................................... 26

3.2.2 Merchants............................................................................................................................. 26

3.2.3 CPGs.................................................................................................................................... 26

3.3 COST STRUCTURE....................................................................................................................... 27

4 USE CASES AND IMPLEMENTATION SCENARIOS......................................................................28

4.1 INTRODUCTION............................................................................................................................ 28

4.1.1 Use Case 1: Establish Member Household ID......................................................................28

4.1.1.1 Description................................................................................................................... 28

4.1.1.2 Justification for Use Case.............................................................................................28

4.1.2 Use Case 2: In-store SmartShop enrollment.........................................................................28

4.1.2.1 Description................................................................................................................... 28


4.1.3 Use Case 3: Web-based SmartShop enrollment..................................................................29

4.1.3.1 Description................................................................................................................... 29

4.1.3.2 Justification for Use Case.............................................................................................29FILE: PBT DOCUMENT.DOC VERSION: 1.0 PAGE 5 OF 44



4.1.4 Use Case 4: Offer Activation.................................................................................................29

4.1.4.1 Description................................................................................................................... 29


4.1.5 Use Case 5: Offer redemption..............................................................................................29

4.1.5.1 Description................................................................................................................... 29


4.1.6 Use Case 6: Offer limit management....................................................................................30

4.1.6.1 Description................................................................................................................... 30


4.1.7 Use Case 7: Biometric auth fails - kiosk................................................................................30

4.1.7.1 Description................................................................................................................... 30


4.1.8 Use Case 8: Biometric auth fails – In Lane...........................................................................31

4.1.8.1 Description................................................................................................................... 31


4.1.9 Use Case 9: Offer reminder alerts.........................................................................................31

4.1.9.1 Description................................................................................................................... 31


4.1.10 Use Case 10: View SmartShop offer history.....................................................................32

4.1.10.1 Description...............................................................................................................32

4.1.10.2 Justification for Use Case.........................................................................................32

4.1.11 Use Case 11: Export t-log, customer data and product hierarchy.....................................32

4.1.11.1 Description...............................................................................................................32


4.1.12 Use Case 12: Merchant selects and implements customer database marketing application.......................................................................................................................................... 33

4.1.12.1 Description...............................................................................................................33


4.1.13 Use Case 13: Merchant creates offer...............................................................................33

4.1.13.1 Description...............................................................................................................33


4.1.14 Use Case 14: CPG creates offer......................................................................................35

4.1.14.1 Description...............................................................................................................35


4.1.15 Use Case 15: Merchant creates Offer Pool......................................................................36

4.1.15.1 Description...............................................................................................................36





4.1.16 Use Case 16: Offer Pool is distributed to customers........................................................37

4.1.16.1 Description...............................................................................................................37


4.1.17 Use Case 17: Targeted Offer Pool is published................................................................38

4.1.17.1 Description...............................................................................................................38


4.1.18 Use Case 18: Merchant is paid for CPG fees and discounts............................................38

4.1.18.1 Description...............................................................................................................38


4.1.19 Use Case 19: Merchants and CPGs use results of prior offers to set new offers for the future .......................................................................................................................................... 39

4.1.19.1 Description...............................................................................................................39


5 REQUIREMENTS DEFINITION.........................................................................................................40

5.1 INTRODUCTION............................................................................................................................ 40

5.2 MARKETING REQUIREMENTS........................................................................................................40

5.2.1 PBT Wallet............................................................................................................................ 41

5.2.2 In-Store................................................................................................................................. 41

5.2.3 Merchant MIS........................................................................................................................ 42

5.2.4 SmartShop Application..........................................................................................................42

5.2.5 Professional Services............................................................................................................43

5.2.6 PBT Financial........................................................................................................................ 43




1 INTRODUCTION

1.1 PURPOSE OF THIS DOCUMENT

This Marketing Requirements Document (MRD) is intended for internal distribution only. The MRD describes how SmartShop aligns with the corporate goals of Pay By Touch and will meet the demands of existing and future customers. It explains the value that SmartShop would bring to our various customer categories and how it would help differentiate Pay By Touch from our competition. Marketing Requirements are specified; these describe the functionality that is required in order to realize the goals.

1.2 OPPORTUNITY DESCRIPTION

Consumer Packaged Goods Manufacturers (CPGs) spend $100 billion annually in advertising, marketing and promotion efforts with grocers. $25 billion is spent on advertising. Another $17 billion goes toward direct consumer promotions, which include free standing inserts (FSI). FSIs are the coupons provided by manufacturers in consumers’ Sunday newspapers. $10 billion is budgeted as “account specific” promotional dollars. These are dollars that the CPG uses to run consumer promotions through specific Merchants. The remaining $48 billion represent trade promotion allowances provided by CPGs to grocers. Because grocers are the critical distribution channels to consumers, they hold considerable sway over CPGs. CPGs provide grocers significant dollars to ensure their products are placed in weekly ad flyers, displayed in-store and promoted via discounts, or temporary price reductions (TPRs).

Two problems plague the current industry promotional structure, one a more recent phenomenon, the other a longtime issue.

Over the past decade, the efficacy of CPG FSIs and Merchant ad flyers has steadily diminished. FSI redemption rates are now below 1% (see chart) and ad flyer readership is typically under 10%. Whether the cause is increasingly harried households, promotion saturation or shopping at alternative outlets, the result is less bang-per-buck for these vehicles, raising the effective cost of advertising that does “make it through” to consumers.

The other problem for Merchants and CPGs is that promotional programs follow an indiscriminate one-to-many distribution model. All shoppers are treated the same when it comes to in-store discounts. According to Accenture research, consumers are unaware of 51% of items bought on sale. This translates to a loss of margin with zero marketing value to the Merchant and CPG. A second issue is that “cherry picker” customers only purchase items on sale from different Merchants, meaning the gross margins on their average basket are significantly lower than those of loyal customers.

Both CPGs and Merchants are unhappy with current promotional models. To address shortcomings, the approach has been to throw money at the problem. In 1999, manufacturers spent 14.0% of their sales on trade promotion; by 2003 that figure had risen to 17.4%. Unsurprisingly, Cannondale Associates reports that 84% of CPGs are dissatisfied with the return on their trade promotion dollars.




CPG CouponsTotal Distributed and Redeemed: 2002-2004

300

305

310

315

320

325

330

335

340

345

2002 2003 2004

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3.5

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CPG Coupon Distribution Coupon Redemption

1.1%

1.1%

0.9%

Source: CMS, Inc.

billions

CPG $100 Billion Annual SpendGrocer Advertising and Promotions

Advertising, 25%

Account Specific, 10%

Consumer Promotion,

17%

Trade Promotion,

48%

Source: Cannondale Associates

Pay By Touch Market Opportunity

By leveraging its strategic assets, Pay By Touch has an opportunity to provide a solution that solves several issues. SmartShop reverses the trend of increasing costs in FSI and ad flyer production and distribution by providing relevant offers that consumers want and can easily access. TPRs can be targeted to loyal, higher margin customers while CPG coupons can find the most interested consumers. The end state is more CPG trade promotion and consumer dollars applied toward driving profitable customer visits.

The basics of SmartShop that address the opportunity are:

Targeting engine that distributes offers to Members based on their shopping history

Weekly offer sheet that presents up to 20 offers to the customer

Multiple low-cost communication modes that deliver offers right before Members initiate shopping as well as earlier in the week

Members will receive weekly offer sheets with up to 20 different individual discounts. The first ten offers will be those funded by the Merchant (trade promotion dollars). The second ten offers will be those funded by individual CPGs (consumer promotion dollars). In the example above, there are two offers (Coca-Cola, Haagen Dazs) that are set up as offer ads. These offers receive more real estate on the offer sheet and allow larger, more dynamic graphics.




CouponProduction & Distribution

TPR Dis-playsUnaware of TPRAware of TPR

Coupon Prod. & Distr.

Dis-playsUnawareAware of TPR

Current

End State

Trade/Consumer AllowanceDistribution of Spending

CouponProduction & Distribution

TPR Dis-

Unaware of TPRAware of TPR

OfferProduction & Distribution

TPR/Coupon Dis-playsUnaware Aware

Offer Prod. & Distr.

TPR/Coupon Dis-playsUnawareAware

Merchant Funded Offers

CPG

Funded Offers

SmartShop Offer Sheet

Example Structure

Offer Ads Regular Offers

Pay By Touch Revenue Opportunity

Pay By Touch will charge Merchants a fee for every offer sheet activated by a Member, and a second fee for every offer sheet for which a Member redeems at least one Merchant-funded offer. This revenue approach can be described as a “pay for performance” model. Activation fee revenue requires SmartShop to deliver offers in an easily accessible, timely manner. Redemption fee revenue requires SmartShop to have a targeting model that consistently distributes relevant offers to Members.

Pay By Touch will charge CPGs a fee for each CPG-funded offer activated by a Member. It should be emphasized that the CPG activation fee is per offer, whereas the Merchant fee is per offer sheet. This model establishes CPGs as the primary source of revenue for SmartShop. In addition, Pay By Touch will earn a fee for each offer ad upon activation.

The SmartShop revenue opportunity is measured on a store-by-store basis. The key revenue drivers are:

Number of households served in a geographic area

Percentage of households joining SmartShop

Percentage of households activating their offers every week

Percentage of households redeeming their offers every week

The table to the right is an example of the revenue opportunity available in a single store location. In this scenario, the activation fee and redemption fee are set at 2.5¢ for both Merchants and CPGs. The CPG ad fee is set at a ratio of three times the offer activation fee, or 7.5¢. With reasonable assumptions and full CPG participation, a single store implementation of SmartShop could generate $136,500 annually.

As the table shows, the revenue model for SmartShop can essentially be described as:

Merchants provide the customer data and distribution infrastructure

CPGs provide the revenue dollars

The table to the left provides sensitivity analysis on the fees charged to the Merchant and the CPGs. The ad fee is assumed to maintain a 3-to-1 ratio to the CPG offer activation fee. Based on the revenue model, changes in CPG fees have a significant effect on the revenue potential per store.




SourceDescriptionMerchant Activation FeeMerchant fee for

every offer sheet activated by a MemberMerchant Redemption FeeMerchant fee for every offer sheet in which at least one offer was redeemed by a MemberCPG Activation FeeCPG fee for

every offer activated by a MemberCPG Ad FeeCPG fee for

every premium placement ad offer activated by a Member

Pay By Touch SmartShop Opportunity

Sources of Revenue

Activation Fee Ad Fee 2.5¢ 5.0¢ 7.5¢ 10.0¢CPG 2.5¢ 7.5¢ 136,500$ 148,200$ 159,900$ 171,600$ Fee 5.0¢ 15.0¢ 261,300$ 273,000$ 284,700$ 296,400$

Per Offer 7.5¢ 22.5¢ 386,100$ 397,800$ 409,500$ 421,200$ 10.0¢ 30.0¢ 510,900$ 522,600$ 534,300$ 546,000$

Per Offer SheetMerchant Activation & Redemption Fee


Fee Sensitivity Analysis


Single StoreSingle Store

Households/Week 10,000

SmartShop Membership 80%SmartShop Households 8,000

Percent Receiving Offer Sheet 100%Weekly Distributed Offer Sheets 8,000

Percent Activated 75%Weekly Activated Sheets 6,000

Merchant Fee per Activation 0.025$ CPG Fees per Activation (2.5¢ x 10) 0.250$ CPG Ad Fees per Activation (7.5¢ x 2) 0.150$ 0.425$

Activation Fees 2,550$

Percent of Activated Sheets Redeemed 50%Weekly Redeemed Sheets 3,000

Merchant Fee per Redemption 0.025$ Redemption Fees 75$

Total Weekly Fees per Store 2,625$ Revenue per Year 136,500$

Grocer Market Analysis

The table to the right lists the top 25 grocers by Estimated Revenue Opportunity. The table includes only pure play general grocers. Discount mass merchandisers, such as Wal-Mart, Costco and Sam’s Clubs, are excluded.

The Estimated Revenue Opportunity is based on the activation fee and redemption fee at 2.5¢ for both Merchants and CPGs. The CPG ad fee is set at 7.5¢

The top six grocers represent 67% of the listed revenue opportunity. Each grocer’s potential revenue is based on its number of stores and its average revenue per store. Average revenue per store is used as a proxy for the number of households.

SmartShop offers Pay By Touch the potential for significant revenue. In the near term, landing two of the top six grocers would represent significant market penetration. Alternatively, lining up a number of the smaller players is another path toward penetrating the market.

The table to the left provides a sensitivity analysis for the market revenue sizing. This table carries forward the fee sensitivity analysis from the per store revenue model. Again, CPG fee changes provide the largest swings in revenue.

CPG Market Analysis

The table to the right lists the top 25 CPG companies, ranked by North American revenue. These companies represent the targets for participation in SmartShop. Each company is a provider of trade and consumer promotion allowances. According to a 2002 Cannondale study, Manufacturers spend 16.9% of their revenues on trade promotion dollars. They spend an estimated 7.4% of revenues on consumer promotions.

Larger CPGs offer multiple consumer brands sold by grocers. For example, in North America, PepsiCo sells 118 different products across its Pepsi Cola, Frito Lay, Gatorade, Tropicana and Quaker brands. Procter & Gamble sells 75 different product brands in five broad categories. Landing larger CPGs provides access to (i) more promotional dollars; and (ii) more products to target to Members’ varied tastes. In lieu of landing large CPGs initially, a




Consumer Packaged Goods

Top 25 by N. American RevenueN. America Total

No. CPG Company Revenues Revenues1 PepsiCo 25.5$ 43.5$ 2 Procter & Gamble 25.3$ 56.7$ 3 Kraft 22.1$ 32.2$ 4 Coca-Cola 20.8$ 41.4$ 5 Conagra Foods 13.3$ 14.6$ 6 Nestle 12.5$ 76.4$ 7 Unilever 11.4$ 51.3$ 8 Sara Lee 10.8$ 19.3$ 9 Dean Foods 10.5$ 10.8$ 10 General Mills 9.6$ 11.2$ 11 Kimberly Clark 9.0$ 15.1$ 12 MasterFoods USA 8.0$ 8.0$ 13 Land O' Lakes 7.7$ 7.7$ 14 Kellogg Co. 6.4$ 9.6$ 15 Dole Food 5.3$ 5.3$ 16 Campbell Soup 4.8$ 7.5$ 17 Hormel Foods 4.6$ 4.8$ 18 Cadbury Schweppes 4.5$ 12.8$ 19 Hershey Foods 4.4$ 4.4$ 20 H.J. Heinz 3.8$ 8.9$ 21 Clorox 3.7$ 4.4$ 22 Colgate-Palmolive 3.2$ 10.6$ 23 Del Monte Foods 3.1$ 3.2$ 24 J.M. Smuckers 1.4$ 2.0$ 25 Wm. Wrigley 1.3$ 3.6$

Source: Hawkins Strategic; SEC filings; Yahoo Finance

SmartShop Market Revenue Potential

Fee Sensitivity Analysis

Activation Fee Ad Fee 2.5¢ 5.0¢ 7.5¢ 10.0¢CPG 2.5¢ 7.5¢ 1,795,436,980$ 1,949,331,578$ 2,103,226,176$ 2,257,120,774$ Fee 5.0¢ 15.0¢ 3,436,979,361$ 3,590,873,959$ 3,744,768,557$ 3,898,663,156$

Per Offer 7.5¢ 22.5¢ 5,078,521,742$ 5,232,416,341$ 5,386,310,939$ 5,540,205,537$ 10.0¢ 30.0¢ 6,720,064,124$ 6,873,958,722$ 7,027,853,320$ 7,181,747,918$

Merchant Activation & Redemption FeePer Offer Sheet


Top 25 U.S. Pure Play General Grocers

Source: Supermarket News Top 75; SEC filings; company websites

General Food # General Estimated Merchant Merchant CPG CPGRevenues Food Revenue Activation Redemption Activation Ad Offer Loyalty

No. Grocer (billions) Stores Opportunity Fees Fees Fees Activation Program1 Kroger 51.1$ 2,532 345,618,000$ 19,749,600$ 9,874,800$ 197,496,000$ 118,497,600$ 2 Safeway 35.8$ 1,802 245,973,000$ 14,055,600$ 7,027,800$ 140,556,000$ 84,333,600$ 3 Albertsons (excl. drug stores) 34.7$ 1,797 245,290,500$ 14,016,600$ 7,008,300$ 140,166,000$ 84,099,600$ 4 Ahold USA (excl. Bi-Lo) 18.6$ 1,033 127,026,827$ 7,258,676$ 3,629,338$ 72,586,758$ 43,552,055$ 5 Publix 18.6$ 850 126,637,875$ 7,236,450$ 3,618,225$ 72,364,500$ 43,418,700$ 6 Delhaize America 15.8$ 1,523 108,148,950$ 6,179,940$ 3,089,970$ 61,799,400$ 37,079,640$ 7 Meijer 11.1$ 158 75,757,500$ 4,329,000$ 2,164,500$ 43,290,000$ 25,974,000$ 8 H.E. Butt 10.6$ 298 72,345,000$ 4,134,000$ 2,067,000$ 41,340,000$ 24,804,000$ 9 Winn-Dixie 9.9$ 587 67,710,825$ 3,869,190$ 1,934,595$ 38,691,900$ 23,215,140$ 10 A&P 7.8$ 638 53,235,000$ 3,042,000$ 1,521,000$ 30,420,000$ 18,252,000$ 11 Giant Eagle 5.1$ 222 34,807,500$ 1,989,000$ 994,500$ 19,890,000$ 11,934,000$ 12 SuperValu (excl. Save-A-Lot, Deals) 4.8$ 262 32,691,068$ 1,868,061$ 934,031$ 18,680,610$ 11,208,366$ 13 Pathmark 4.0$ 143 27,149,850$ 1,551,420$ 775,710$ 15,514,200$ 9,308,520$ 14 Hy-Vee 3.9$ 192 26,208,000$ 1,497,600$ 748,800$ 14,976,000$ 8,985,600$ 15 Stater Bros. 3.8$ 159 25,935,000$ 1,482,000$ 741,000$ 14,820,000$ 8,892,000$ 16 Aldi USA 3.5$ 630 23,887,500$ 1,365,000$ 682,500$ 13,650,000$ 8,190,000$ 17 Wegmans 3.3$ 65 22,522,500$ 1,287,000$ 643,500$ 12,870,000$ 7,722,000$ 18 Raley's 3.2$ 134 21,840,000$ 1,248,000$ 624,000$ 12,480,000$ 7,488,000$ 19 Roundys 3.0$ 125 20,550,075$ 1,174,290$ 587,145$ 11,742,900$ 7,045,740$ 20 Price Chopper 2.5$ 106 17,062,500$ 975,000$ 487,500$ 9,750,000$ 5,850,000$ 21 Harris Teeter 2.4$ 140 16,380,000$ 936,000$ 468,000$ 9,360,000$ 5,616,000$ 22 Save Mart 2.2$ 123 15,015,000$ 858,000$ 429,000$ 8,580,000$ 5,148,000$ 23 Schnuck Markets 2.2$ 101 15,015,000$ 858,000$ 429,000$ 8,580,000$ 5,148,000$ 24 Ingles Markets 2.2$ 197 14,774,760$ 844,272$ 422,136$ 8,442,720$ 5,065,632$ 25 Weis Markets 2.0$ 157 13,854,750$ 791,700$ 395,850$ 7,917,000$ 4,750,200$

T O T A L S 262.0$ 13,974 1,795,436,980$ 102,596,399$ 51,298,199$ 1,025,963,988$ 615,578,393$

series of smaller CPGs can achieve the desired outcome of significant promotional dollars and a large number of products for the Member database.




1.3 OVERVIEW OF PROPOSED PRODUCT

SmartShop will deliver highly relevant, personalized discounts to Merchants’ customers. For example, if a Member regularly purchases baby items, the offers may include a coupon for Pampers. Regular purchasers of coffee may see Folgers offers.

The product requires four inputs to provide these personalized offers:

1. Member identification

2. Household purchase history

3. Merchant product hierarchy

4. Merchant & CPG offers

Members must activate their offers prior to their being available for discounts at the POS. This ensures that the Member is aware of the offer being made. After the offers are tendered at the POS, SmartShop maintains a tally of discounts taken, providing settlement services for Merchants and CPGs.

The major functional components of SmartShop are described below:

A. Data Center : Member household purchase histories, or transaction logs, are imported from Merchants’ databases. Information includes UPCs, price per UPC, and the total amount paid.

B. Offer/Rule Library : Merchants and CPGs input their offers on different products. Offers indicate a dollar or percentage off, limit on total customers per offer, a list of eligible UPCs, offer effective period, Member assignment rules and digital assets (logos) associated with the offers.

C. Targeting Engine : LoyaltySuite provides the analytical engine for distributing the offers. It statistically evaluates the transaction logs to identify customers likely to be interested in a given offer, incorporating the Merchants’ and CPGs’ designated distribution strategies.

D. Communication Staging : After the various offers are distributed to Members, they are uploaded to the Staging Server. The server is the source for offers presented to the various communication channels. A flag is maintained for each Member indicating whether they have viewed the offers.

E. Communication Channels : Members view their offers in four different ways. Email notices are sent weekly. Offers can be viewed on MyPBT portal. In-store kiosks catch Members right as they initiate shopping trips. Members can view their offers on-the-go via mobile devices.

F. POS : The POS component consists of two elements. First, SmartShop will monitor the UPCs scanned at checkout. Once the eligible UPCs are identified, SmartShop will transmit the discounts to the ECR for application to the Member’s checkout total.

G. Settlement : SmartShop will track all offers redeemed through the system. This information will be aggregated on a regular basis (e.g. weekly) for use in electronic settlement of funds between CPGs and Merchants.

H. Web Reporting : Merchants and CPGs will be provided with metrics outlining the performance of their offers. Customer segmentation will be integrated in the reporting of these metrics.




web

email

kiosk

communicationstaging

shopperidentified

datacenter

manufacturer retailer

electronic offerdelivery at POS

next-generationtargetingengine

Offer/Rule library-----------

collaborationplatform

mobileweb reporting

-----------settlement

SmartShop Product Architecture

A

B

C D

F

G

H

E

1.4 CUSTOMER VALUE PROPOSITION

SmartShop will deliver value to four different constituencies:

Merchants Innovative loyalty program that fosters an ongoing relationship with customers

Deliver customers offers on the products they care about

Reduced cost for production and delivery of coupons

Ability to target best customers to improve overall gross margin

CPGs Ability to get messaging much closer to their end customers than ever before

Reduced cost for production and delivery of coupons

Target customers of rival CPGs for offers

Members Receive much more relevant coupons than what arrives in the Sunday paper

Ability to redeem coupons is greatly simplified versus current search-clip-n-carry model

Through increased use of coupons, purchasing power is extended

PBT Revenue from CPGs and Merchants

Increased utility for the Wallet

Increased Member enrollment and usage through a stronger Merchant “push” strategy

2 PRODUCT STRATEGY AND OVERVIEW

2.1 GOALS AND OBJECTIVES

The goal for SmartShop is to become Merchants’ primary loyalty program. A single, highly effective loyalty program simplifies administration, reduces costs and keeps customers’ focus on their relationship to the Merchant. Achieving this goal does not require a radical departure from current industry practices. Rather, it requires re-channeling existing discounts into a customer-specific model. The initial market entry will be selling SmartShop as an augmentation to an existing loyalty program or as a trial program for grocers without existing programs. Over time, as the value of SmartShop is realized, grocers will increase their reliance on it as their primary loyalty program.

Essentially, SmartShop will be Merchants’ CRM application for managing their customers. As such, SmartShop must be built with a whole product approach. Models for product development and service delivery include Siebel and Salesforce; Amazon.com and Netflix; and Visa and PayPal. Because SmartShop will touch multiple points of Pay By Touch and Merchants, the objective is to keep the level of customization as minimal as possible. Otherwise, the solution risks being expensive, long to implement and not scaleable.




2.2 STRATEGIC ROADMAP

SmartShop represents the first step on the road toward Pay By Touch’s Personalized Marketing product suite. Personalized Marketing leverages the PBT biometric credential to provide Members with relevant offers and information related to their purchases and interests. The graphic below provides a high-level strategic roadmap for Personalized Marketing.

SmartShop: Provide consumers with highly relevant discounts, on the products they like to regularly buy. Initial release is targeted toward the grocery industry. Subsequent verticals for expansion include mass merchandisers, drug stores, pet discounters and convenience stores.

Online: Create eCoupons which the consumer can load into their Pay By Touch wallet by clicking on internet ads. The eCoupons are then redeemed upon purchase via the Pay By Touch wallet at both brick & mortar merchants and online merchants.

Media Network: Extend the distribution points already in place for in-store, online and mobile communication of SmartShop and Online. Establish infrastructure for scheduling and distributing messaging to Members based on their individual preferences.




SmartShopMass MerchDrugPetC-Stores

SmartShopGrocers

Online- eCoupons

Media Network- Advertising

Personalized Marketing

2.3 COMPETITIVE ANALYSIS

2.3.1 Direct and Indirect Competitors

U.S.-based competition in the loyalty field centers primarily on grocers, secondarily on other mass merchandisers. Analysis of SmartShop competitors is based on three attributes:

1. Degree of relevance : level of personalization in the loyalty program

2. Offer Communication : how closely does the communication of offers/ rewards fall relative to the critical moment when the customer initiates shopping

3. Program Management : amount of effort for Merchants and CPGs to implement and manage the loyalty program

Each of the competitors is described below. Two firms are called out in greater detail because their models are most competitive to that offered by SmartShop: Concept Shopping and POSnet.

Concept Shopping

Concept Shopping provides a robust solution that provides personalized offers to shoppers based on their purchase histories. The offers are funded by CPGs and are delivered to shoppers via in-store kiosk, the web and email. For a Merchant, the solution is nearly all upside, as the CPGs fund the offers from their own promotional budgets, not trade allowances. CPGs gain a direct line to customers most interested in their products. Concept generates most of its revenue from the CPGs.

CPGs commit a certain dollar amount for a defined period, $10,000 for six months for example. They set parameters for offer distribution, and then let the system go on “auto pilot”. Based on pre-defined rules, it distributes the offers to the Merchant’s customers until hitting the total dollar amount or the end of the active period.

Concept Shopping’s innovation is a targeting model that incorporates a customer’s prior product purchases as well as their responses to different discount offers. If a customer previously redeemed a given discount on Pampers, for instance, the discount will be the same or less the next time. If the customer didn’t redeem, the next discount is higher to induce the sale.

Concept Shopping has been in business for several years (approximately 7). It was tested at Safeway, which never committed to the solution. Concept is currently running pilots and expanding within Albertsons, deployed under the Avenu name in Jewel Osco stores. Concept currently partners with kiosk-provider Tactical Retailing Solutions (TRS) for the Jewel-Osco pilot. However, it is likely a new provider for kiosks will be selected in the first half of 2006 as Albertsons expands the program.




Off

er C

om

mu

nic

atio

n

Degree of Relevance

Difficult

Moderate

Easy

Program Management

One size fits all

Reflects my specific interests

Days until my next

shopping trip

Right before I

shop Concept Shopping

POSnet

Vala

ssis

VRM

SSAPTr

ivers

ity

Retalix/ Sagarmatha

S&H Greenpoints Catalina

Safeway Club Card

Gro

cery

Shopp

ing

Networ

k

Loyalty Lab

NCR Copient

dunnhumby(Tesco, Kroger)

Dorothy Lane

SmartShop

SmartShop Competitive Landscape

POSnet

Concept Shopping can be classified as an innovative offer targeting engine with supporting infrastructure around it. POSnet, on the other hand, provides the supporting infrastructure needed to deliver personalized offers, but without a proprietary targeting engine. POSnet is a member-owned Limited Liability Corporation dedicated to the commercialization and operation of its electronic offer management and point-of-sale clearing system. Pathmark is its largest customer.

The company’s Retail Media Management™ is an open platform and electronic offer management infrastructure that enables retailers to flexibly share their customer relationships with trading partners providing the widest possible array of creative household-specific promotional offers through multiple communication channels including direct mail, email, internet couponing sites, kiosks, service-counter label systems, POS printers, mobile shopping devices and an innovative solution to in-store coupon clearing

In addition to robust, open platform offer management, POSnet provides settlement functionality. Its aggregation of transactional data facilitates measurement and analysis of marketing results on a real-time basis. POSnet’s settlement provides four critical requirements:

Validation : POSnet central systems extract redemption details from retailer point of sale systems and perform validation routines to verify that the rewards issued at checkout are in agreement with requirements contained in the central database.

Automated invoicing : A weekly process aggregates daily point of sale redemption activity into a single invoice transmission document for each funding CPG-sponsor.

Weekly payment : The issuance of weekly CPG-sponsor invoices, retailer receivables reports and joint settlement documents occurs each Monday following weekly close. Through a concentration account managed by Bank of America, CPG payments are collected by ACH transfers executed on Monday, allowing for funds transfer to retailers on Wednesday.

End-to-end audit trail accountability : Retailers (and third parties the retailer authorizes) can readily follow the disposition of any redemption forward through the settlement process, and/or trace any settlement document or invoice back to the precise original point of sale redemption transactions.

The following table summarizes other companies in the loyalty solutions space.

# Company Description Degree of Relevance Offer Communication Program Management1 dunnhumby

(Tesco, Kroger)dunnhumby is the analytics engine and consultancy behind Tesco’s renowned customer-specific loyalty and marketing program. Kroger has established a JV with dunnhumby to target the U.S. market.

Combining existing customer data with a breadth of consumer lifestyle and attitudinal data worldwide, dunnhumby provides its clients with unprecedented understanding of the behavior and motivation of customers. This information underpins the creation of both communication programs, such as direct marketing, and targeted products, services and promotion that enable clients to create value for their customers and improve the

Tesco mails out offers to its customer base. Unclear how Kroger is leveraging its dunnhumby-generated programs. With ties to two of the largest grocers in the world, in-store communication of offers seems to be within reason.

In the U.S., dunnhumby is working directly with Kroger and offers its services to other retailers through the JV. The lack of information and track record for implementations earns dunnhumby a difficult rating for Program Management.




# Company Description Degree of Relevance Offer Communication Program Managementlifetime value of each customer.

2 Valassis VRMS Provides a leading CRM database solution to merchants; primary customers are supermarket.

MarketEXPERT is effective at developing lists of customers based upon attributes or shopping behavior.

To date, MarketEXPERT users primarily make use of direct mail for communicating differentiated information or offers to customers.

User must create build offers in MarketEXPERT for targeting, then build same offers in Target-EXPERT for POS delivery. TargetEXPERT has been integrated to NCR, IBM, and Retalix POS systems.

3 Retalix/ Sagarmatha

Retalix is a leading provider of POS software to supermarkets. Sagarmatha offers a sophisticated targeting engine. In December 2003, Sagarmatha signed an MOU agreement with Retalix to market and sell Sagarmatha’s Personal Promotion Builder system. Retalix is currently building the combined loyalty system for a European client and will then make the solution available to other clients.

Sagarmatha provides an automated offer generation system which supports one-to-one marketing. Its Personal Promotion Builder (PPB) gives retailers a sophisticated and automated data mining technology and personalization solution.

Offers developed by Sagarmatha can be communicated via kiosk; however, Retalix does not provide for this functionality currently. Thus, the Retalix solution can put offers in front of the customer right before sale but does not provide a whole product solution for doing so.

Retalix can output offer information to be utilized at a kiosk or web page, but it does not provide for actually communicating the offers; that work is the responsibility of the retailer. This solution also requires that the retailer utilize Retalix systems throughout its IT infrastructure, from the POS to the back office to the CRM component – an expensive solution for many retailers.

4 Catalina Catalina Marketing is the global leader in providing behavior-based communications on a mass scale, targeted to individuals as individuals. The company has been challenged financially over the past several years and has refocused on its core business; selling couponing to CPG companies at the POS for the purposes of encouraging brand switching by consumers.

Catalina can offer retailers limited ability to target shoppers, utilizing the retailer’s customer data, based upon category behavior or shopping activity in departments. Relevance is driven by the CPGs that participate – if a customer does not purchase a particular brand, the degree of relevance is diminished.

All offers are delivered at the POS, after the customer has paid, in the form of paper coupons which must be brought back into the store on a future visit to redeem.

With a highly successful track record and implementations in over 170 grocery and drug retailers nationwide, Catalina has deep experience in aiding retailer Program Management.

5 NCR Copient A hardware, software and communications "promotion execution" system, the Copient Solution offers retailers a consolidated platform that enables content management, targeted marketing, offer automation, customer account management and enterprise/store communications. Marsh Supermarkets is the only known retail company to have implemented the Copient solution.

Copient is a promotion based tool; that is, retail clients build promotions based upon purchasing dependencies; a shopper may receive an offer triggered by the shopper purchasing a specific item. For example, Copient may issue an offer to a shopper for buying salsa if the shopper purchased chips. Its offer targeting system is driven from a product perspective, not driven by providing relevant, important offers to each customer. It is not designed to execute targeting of a specific number of relevant offers per shopper.

Marsh Supermarkets implementation of Copient is a screen that presents offers to the customer at checkout. These offers become activated and available the next time the customer shops. The customer is provided with the offers on the receipt as a reminder for her next shopping trip.

The solution interfaces with existing POS systems to enable discounting functionality, while working in concert with retailers’ existing CRM and back-office accounting applications. Copient is able to display promotional messages in-aisle and at the checkout via their display devices. As Copient is owned by NCR, it will likely be challenged to provide its solution to retailers utilizing an IBM, Retalix, or other competing POS system.




# Company Description Degree of Relevance Offer Communication Program Management6 Grocery

Shopping Network

Grocery Shopping Network of Minneapolis has developed software that connects consumers with retailers and manufacturers via the Internet. Beginning next month, consumers who visit the websites of participating supermarkets will be able to make personalized shopping lists, research product information and receive coupons and other promotions based on their previous purchases.

Offerings include “personalized” e-flyers, in which GSN simply parses the current weeks’ ad flyer for products the shopper has purchased before.

Customers’ personalized e-flyers are emailed out every Wednesday.

GSN provides the functionality to parse the Merchant’s existing ad flyer into items that would be of interest to customers based on their purchase histories. Program Management primarily consists of exporting of the t-log data and producing the weekly ad flyer.

7 SAP Triversity Triversity is a retail software company based in Toronto providing POS systems, back office systems, and a CRM database solution that can support targeting and delivery of offers to customer segments. Triversity focuses on specialty retailers as its customer base.

In Sept. 2005, SAP announced the acquisition of Triversity.

Triversity’s CRM product, Allegiance, is a customer-centric solution designed for retail. It gives retailers the ability to capture and analyze customer and transaction data, and then use that data to build stronger, more profitable and longer-lasting customer relationships.

The functionality of Allegiance can be further enhanced through the addition of various Triversity services, including Promotion Delivery. Note, however, that Triversity does not provide a complete infrastructure for promotion communication. Based on known information, it is assumed offers are communicated by retailers via external methods (mail, email).

The targeting of offers in the CRM solution is a manual process. Data transfer is through File Transfer – Batch and Trickle. A multi-platform file and message transfer solution that automates the daily consolidation process for multi-site and multi-channel retailers through two information transfer modes: file transfer for off-line batch file transfers, and continuous data trickle.

8 Loyalty Lab San Francisco-based Loyalty Lab is a provider of on-demand retail loyalty and customer management solutions. Its flagship Customer Relationship Manager Suite allows retailers to create and manage loyalty programs, email campaigns and promotional offers from a single desktop.

Primarily offers points-based loyalty solutions.

Loyalty Lab’s “Standard Package” includes Dynamic Segmentation. This includes segmentation based on demographic, geographic, RFM, prior purchases, and survey response. This segmentation would allow some limited degree of relevancy.

The primary delivery mode for Loyalty Lab’s offerings is via email. In addition, rewards can be tracked by the consumer via a web interface.

Loyalty Lab has been architected as a highly modular software-as-a-service. This approach simplifies implementations with retailers’ existing systems. However, Loyalty Lab is challenged to provide tight integration into a retailer’s POS system providing for the electronic delivery of offers at the POS; while moving in this direction with mall merchants, large chains are beyond the company’s present capability.

9 S&H Greenpoints

S&H Greenpoints is an updated version of the old greenstamps program. Shoppers enroll at participating stores, use their loyalty card each time they shop, collect points based on purchasing, and can redeem points for gifts.

Classic Greenpoints has no customer-specific relevancy. However, the company has introduced SHPROMO™. The promotion system is a sophisticated engine that allows each promotion to track consumer behavior across multiple shopping trips and makes sophisticated decisions real-time. Each communication has the ability to be unique and personalized for each customer.

Customers can receive a message related to their Greenpoints as they go through check out. This message sustains their loyalty until the next shopping trip.

Merchants must pay the program fee and implement the Greenpoints technology in store. Thereafter, the program essentially runs itself. Greenpoints offers a range of additional consulting services tailored for Merchants’ unique marketing programs.




# Company Description Degree of Relevance Offer Communication Program Management10 Dorothy Lane

MarketDorothy Lane (DLM) is included as an example of a Merchant building its own solution that directly competes with SmartShop.

Club DLM is a loyalty card, which DLM uses to capture t-logs and to deliver relevant offers. In October 1995, DLM ran its last newspaper ad and began focusing its marketing efforts on keeping and pleasing the 30 percent of its customers who supply 80 percent of its profits, and especially pleasing the 1 percent who account for 11 percent of the take.

Coupons are targeted, with different customer groups receiving different batches of coupons and different levels of discounts -depending on what the data tells DLM executives about which customers like what. And the more the customer spends, the better the deal.

8-10 offers are delivered via the mail to customers.

As a homegrown solution, DLM developed this approach over time. The system does require regularly updating of offers, but Program Management at this point is probably no more a burden than would be putting together weekly ad flyers.

11 Safeway Safeway is included as an example of a Merchant building its own solution that indirectly competes with SmartShop.

Safeway’s Club Card is used to run a two-tier pricing approach. Customers are presented discount offers on the shelf, and receive their discounts once they present their Club Card at the POS. The Club Card acts as an inducement for customers to present their cards at checkout, but there is little in the way of special offers to individuals.

None Offers are presented on the shelf as the customer shops.

Club Card is relatively straightforward to manage. There are no requirements to develop customer-segment strategies, so the program runs relatively efficiently as a storewide promotion.




2.3.2 Strengths, Weaknesses, Opportunities and Threats

Strengths WeaknessesPay By Touch

Biometric access to loyalty program increases its usage by removing the need to present a card

Biometric ID increases data quality

In-store presence (in-lane, kiosk) for PBT service facilitates introduction of SmartShop

SmartShop

Highly relevant offers to Members increase consumer interest in retailers and brands

Multiple communication channels to ensure contact with customers

Requires an evolution in Merchant business models (channel existing offers more directly to individuals) rather than a revolution

PBT in-house expertise in developing customer-specific marketing programs

Pay By Touch

Currently lacks most elements needed to provide SmartShop

Not PBT’s sole business model, putting product development in competition with other product initiatives

SmartShop

Acquired product built for a single store implementation, significant work required to make scalable for the market

Merchants may have concern turning over their loyalty programs to a relatively new, inexperienced loyalty provider

Merchants may have concern in making biometric auth the only way to access their primary loyalty program

Opportunities ThreatsPay By Touch

Through biometric enablement and a suite of solutions, PBT can serve as the primary provider to Merchants of revenue-generating products

Increase Wallet utility with a unique value-added financial instrument for Members

SmartShop

Customer-specific discounts are an emerging trend (Top 10 retail trend in 11/21/05 WSJ article)

CPGs are looking for ways to form direct relationships with customers

Hosted software is increasingly being used by companies

Pay By Touch

RFID cards can include loyalty card information as well as payment mechanisms

Smart cards can include loyalty and payment mechanisms

SmartShop

Inertia – Merchants retain existing loyalty programs

Large market player – e.g. Catalina – decides to aggressively pursue this business model

Start-up develops a competitive offering – e.g. Concept Shopping

2.3.3 Differentiators

SmartShop will offer a whole product, such that Merchants will be able to target their offers based on t-logs, communicate through multiple channels, deliver discounts to customers at the POS and reconcile offers between CPGs and Merchants. Few competitors offer a complete solution to the market. In addition, Pay By Touch offers its intrinsic strengths in the offering.

Relative to its most direct competitor, Concept Shopping, SmartShop is more consistent with current industry practices regarding the distribution of discounts: Merchant and CPG control over the offers, weekly cycles for distributing offers. Concept Shopping’s approach does require more faith in its targeting model due to the opaqueness of its model.




3 BUSINESS MODEL

3.1 MARKET SEGMENTATION AND VALUE PROPOSITION

3.1.1 Merchants

Merchants will benefit in three ways from SmartShop:

Increased revenues and profits by re-orienting their promotions into customer-specific models

Reduced costs for advertising

Generate revenue from CPGs for coupon placement

Increased Revenues and Gross Margins

The top value to Merchants implementing SmartShop’s customer-specific promotional model will be an increase in sales and profits, achieved through changes in three components of Merchants’ economic models: higher average customer baskets, increased transaction volumes and higher gross margins.

The table to the right describes a typical customer segmentation for Merchants. The best customers provide the largest share of revenue, at the highest gross margins. The worst customers generate the lowest spending while taking a disproportionate share of the markdown dollars. The goal of customer-specific marketing is to move more customers into a profile consistent with the top deciles. These would be the most loyal customers. Those customers that do not respond with an improvement in their average basket will not receive a disproportionate share of the markdowns.

In his book Customer Specific Marketing, Brian Woolf relates the experience of Gregerson’s Foods. In April 1994, Gregerson’s initiated its Club Greg card, offering its best customers special discounts while sharply decreasing the in-store temporary price reductions. 18 months later, CEO “Greg” Gregerson described the program results to Woolf: “Our same-store sales are up 5%, and our gross profit is up over one full percentage point! Differentiated marketing works!” Woolf reports similar results for a variety of retailers implementing customer-specific marketing.

The table to the left models the increases for the top 25 SmartShop grocers if they achieved one fifth the benefits that Gregerson describes. The lift in gross profit is based on a 1% increase in same store sales and a 0.2% point increase in gross margins.

Higher sales result from customers’ increased loyalty, driven by consistent delivery of relevant offers that are easily accessible. In addition to increased household share of wallet, the Merchant experiences an increase in the number of customer transactions.

The increased gross margins are based on a more targeted use of trade and consumer promotion dollars. By fostering an increased loyalty with the customer, the Merchant will gain as the customer not only buys the on-sale items, but she buys the majority of her household needs when they are not on sale. At the same time, by reducing the wide distribution of TPRs, many customers will buy items at full price.




General Food SmartShopRevenues Lift in

No. Grocer (billions) Gross Profit1 Kroger 51.1$ 103,222,000$ 2 Safeway 35.8$ 72,316,000$ 3 Albertsons (excl. drug stores) 34.7$ 70,025,890$ 4 Ahold USA (excl. Bi-Lo) 18.6$ 37,596,218$ 5 Publix 18.6$ 37,481,100$ 6 Delhaize America 15.8$ 32,008,920$ 7 Meijer 11.1$ 22,422,000$ 8 H.E. Butt 10.6$ 21,412,000$ 9 Winn-Dixie 9.9$ 20,040,420$ 10 A&P 7.8$ 15,756,000$ 11 Giant Eagle 5.1$ 10,302,000$ 12 SuperValu (excl. Save-A-Lot, Deals) 4.8$ 9,675,598$ 13 Pathmark 4.0$ 8,035,560$ 14 Hy-Vee 3.9$ 7,781,503$ 15 Stater Bros. 3.8$ 7,676,000$ 16 Aldi USA 3.5$ 7,070,000$ 17 Wegmans 3.3$ 6,666,000$ 18 Raley's 3.2$ 6,464,000$ 19 Roundys 3.0$ 6,082,220$ 20 Price Chopper 2.5$ 5,050,000$ 21 Harris Teeter 2.4$ 4,848,000$ 22 Save Mart 2.2$ 4,444,000$ 23 Schnuck Markets 2.2$ 4,444,000$ 24 Ingles Markets 2.2$ 4,372,896$ 25 Weis Markets 2.0$ 4,100,600$

Merchant Value Proposition

Modeled Lift in Gross Profit

Actual Supermarket Customer Data

Decile Spending and Markdowns

Source: Customer Intelligence, Gary Hawkins

Decile#

CustomersDecile

Spending% of Total

Decile Markdown $

% of Total Markdown

Markdown as % of

Spending10 2,671 10,161,647$ 59.5% 813,439$ 49.1% 8.0%9 2,671 3,113,702$ 18.2% 326,487$ 19.7% 10.5%8 2,671 1,564,890$ 9.2% 188,791$ 11.4% 12.1%7 2,671 891,308$ 5.2% 116,982$ 7.1% 13.1%6 2,671 544,806$ 3.2% 77,408$ 4.7% 14.2%5 2,671 345,851$ 2.0% 52,698$ 3.2% 15.2%4 2,671 218,307$ 1.3% 35,685$ 2.2% 16.3%3 2,671 132,857$ 0.8% 23,580$ 1.4% 17.7%2 2,671 73,003$ 0.4% 15,051$ 0.9% 20.6%1 2,671 27,984$ 0.2% 7,984$ 0.5% 28.5%

Total 26,710 17,074,355$ 100.0% 1,658,105$ 100.0% 9.7%

Reduced Advertising Costs

The second benefit is a reduction in the cost to produce and distribute promotions to customers. At a high level, the weekly ad circulars and newspaper advertising can be thought of as reminding the best customers about the offers from their favorite store, and attracting new customers who shop elsewhere. Once a Merchant switches to a customer-specific approach, mass media advertising is no longer the primary communication vehicle. Direct-to-consumer modes become more important: email, web, kiosk, direct mail, mobile device. These modes are less expensive than traditional media; combined with a reduction in print media advertising, Merchants are able to increase profits.

The table to the right outlines an example of the savings a Merchant could expect with SmartShop:

Households: The number of households (HH’s) per store is set as 10,000.

70% of HH’s in a given locale are deemed to shop with a Merchant, meaning 14,286 HHs are in a Merchant’s geographic coverage

80% of a Merchant’s actual customers are assumed to belong to SmartShop

Weekly Ad Flyers: Typical distribution of ad flyers follows a 3-to-1 model.

Ad flyers cost $125 per thousand (12.5¢ ea)

Ad flyers are distributed via subscriber newspapers, newsstand papers and in-store

With SmartShop, Merchants cut their distribution in half as customers receive discounts information via other modes

Kiosks: SmartShop customers will often walk into a store, biometrically identify themselves at a kiosk and print out their offer sheets.

Kiosks deliver the weekly offers to about 50% of SmartShop customers. 50% of HH’s don’t get kiosk printouts because they miss a shopping week or print them out at home from the web.

Costs per offer sheet are estimated at 3¢: roughly one cent for the paper plus two cents for maintenance and depreciation

Activation and Redemption: Activation occurs when the customer views her offers via the web or kiosk. It signals that the customer has actually taken in the information presented, a key goal for Merchants.

PBT will earn 2.5¢ per activated offer sheet ($25 CPM), and another 2.5¢ per offer sheet for redemption of any offer at the checkout ($25 CPM)

75% of HH’s are assumed to view their weekly offer sheets, with email generating the strongest prompt to Members’ activation

Half of activations are assumed to result in redemption at the POS

Communications: Digital communication of offers (web, email, mobile) is an expense incurred by PBT.

Several pioneers in customer-specific promotions have reduced their conventional advertising without a loss in revenues. Brian Woolf notes the following in Customer Specific Marketing:

“One fascinating discovery with differentiated marketing is that traditional print advertising can be cut with no noticeable adverse impact on sales! Both Gregerson’s Foods…and Ukrop’s…have cut their newspaper and other print advertising at least in half. Meanwhile, others, such as Morgan’s Tuckerbag…Dorothy Lane Market…and Green Hills Farms…have eliminated print advertising completely! This works because different customers are targeted with different offers, and newspapers and circulars are poorly suited to communicate these new variable, targeted offers.”




SmartShop vs. Mass Distro of Ad Flyers

Hypothetical Savings – Single StoreCurrent

Mass Distro. Mass Distro.Loyalty

CustomersHouseholds 14,286 14,286 8,000

Ad Flyers/HH/week 3.00 1.50 Total Weekly Flyers 42,857 21,429 Ad Flyer Cost-per-Thousand (CPM) 125$ 125$ Weekly Ad Flyer Cost 5,357$ 2,679$

Kiosk Printouts/HH/week 0.50 Total Weekly Kiosk Printouts 4,000 Printout CPM 30$ Weekly Kiosk Printout Cost 120$

Offer Activation/HH/week 0.75 Total Weekly Offer Activations 6,000 Activation Payment to PBT CPM 25$ Weekly Activation Cost 150$

Offer Redemption/HH/week 0.38 Total Weekly Offer Redemptions 3,000 Redemption Payment to PBT CPM 25$ Weekly Redemption Cost 75$

Subtotals 2,679$ 345$ Total Weekly Costs 5,357$ 3,024$ Total Annual Costs 278,571$ 157,226$

SmartShop

CPG Payments for Offer Placement

Merchants currently receive trade allowances from CPGs to offset the cost to produce and distribute ad flyers, as well as to address other elements of Merchant promotions. The table to the right outlines the average Merchant allocations for every dollar of trade allowance they receive from a CPG. On average, 44% of a CPG’s trade allowance to a Merchant goes toward offsetting expense (e.g. ad flyer production) or straight to the Merchant’s bottom line. Based on an average discount amount of 86 cents, that translates into 68 cents going directly to the Merchant per redeemed discount.

FSIs, on the other hand, are costs borne by CPGs without Merchant involvement. However, with SmartShop, CPGs are now leveraging the customer data of Merchants and the distribution infrastructure (i.e. kiosks) of Merchants. This change affords an opportunity for Merchants to charge CPGs an offer placement fee. As demonstrated in the next section, CPGs cost for distributing offers via SmartShop will be significantly less than the equivalent distribution via FSIs. So the CPGs arguably have money to spend on offer placement fees.

The structure for determining these placement fees can vary depending on the source of the offer: trade promotion dollars or consumer promotion dollars:

Trade promotion offers: Trade promotion allowances are a negotiated amount between the Merchant and the CPG. The working assumption is that Merchants will negotiate new fees with CPGs for their inclusion in the SmartShop offer set.

Consumer promotion dollars: Because consumer promotion dollars are currently spent outside of the negotiated agreements between Merchants and CPGs, there are different models that could potentially govern the placement of CPG-input offers in customers’ offer sheets. The following are possible models:

i. Negotiated: Similar to the trade promotion-based offers, the Merchant enters into an agreement with each CPG that spells out the fees for offers distributed to the Merchant’s customers.

ii. Bid System: In this model, CPGs would bid for inclusion of each offer in the distribution to customers. For example, General Mills bids 7.5¢ for inclusion of a Cheerios offer in the Offer Pool, payable per customer offer activation or redemption. CPGs adjust their bids based on a number of factors (e.g. importance of Merchant, prior offer results, special marketing initiatives, etc.). The Merchant uses each CPG’s bid rate as a factor in determining which offers to include in the weekly Offer Pool.

iii. No Fee: Merchants hold off on charging under this scenario. Rather, they view deep discount offers from CPGs as the better play in driving increased traffic, higher average baskets and increased gross margins.

Merchant ROI

The table to the right presents an example of the Merchant’s ROI (i.e. Albertsons). The cash flow projections model out the cash in and cash out. Cash in numbers reflect the three value propositions discussed herein. For CPG Placement Fees, the assumptions are 2.5¢ for ten Merchant-input offer slots (ignoring the possibility of billing for the ten CPG-input slots). Even so, the model shows a very quick payback to the Merchant for SmartShop of less than one year.




CPG Trade Promotion Dollars

Merchant Allocation

Source: Deloitte Consulting; TNS Marx FSI Trend Report

Est. DollarDistribution Pct of Total Amounts

Consumer Discount 56% 0.86$

Merchant Profit 24% 0.37$

Merchant Expense 20% 0.31$

Total 100% 1.54$

# stores 1,797 Cost per kiosk 5,000$ # HHs per store 10,000 3-yr kiosk maintenance 20%# kiosks per store 2 POS changes per store 25,000$

Year 1 Year 2 Year 3Household Adoption Rate 20% 50% 80%

Cash InGross margin pickup 17,506,472$ 43,766,181$ 70,025,890$ Reduced ad flyer costs 54,514,562$ 136,286,405$ 218,058,249$ CPG Placement Fees 35,041,500$ 87,603,750$ 140,166,000$

Total 107,062,535$ 267,656,336$ 428,250,138$

Cash OutPBT SmartShop fees 5,256,225$ 13,140,563$ 21,024,900$ Kiosks (2 per store) 17,970,000$ 898,500$ 943,425$ Kiosk maintenance 1,198,000$ 1,257,900$ 1,320,795$ POS changes to accept offers 44,925,000$ 2,246,250$ 2,358,563$

Total 69,349,225$ 17,543,213$ 25,647,683$

Net cash flow to Merchant 37,713,310$ 250,113,124$ 402,602,456$

Example Merchant ROI

3.1.2 CPGs

CPGs will benefit in three ways from SmartShop:

Reduced cost for offer distribution

Improved customer targeting

Reporting and analysis

Reduced Cost for Offer Distribution

As described previously, CPGs have increased their issuance of FSIs even as consumers are redeeming fewer coupons. The increased production and distribution costs combined with diminished consumer usage of coupons represent a poor ROI for promotional spend. SmartShop offers a way to reduce the costs associated with the distribution of coupons.

The table to the right outlines an example of how SmartShop costs less than FSIs. The premise of the example is to analyze the costs of getting 405,000 household redemptions.

Distribution: The count of households receiving the offers.

For FSIs, a blanket distribution of 45 million is required. All of these FSIs must be produced and distributed.

SmartShop starts out with a distribution to 2.7 million households. There is no cost for this initial distribution.

Activation: The number of households that actually “take in” the offer, recognizing what is being promoted.

“Activating” an FSI is defined as reading it. The 10% rate is an estimate based on grocer ad flyer readership.

Activation of a SmartShop offer is set at 75%, the rate utilized in other calculations herein.

Redemption: The number of households redeeming the coupon at the checkout.

For FSIs, the rate is under 1% of distribution, as noted previously.

SmartShop redemption is estimated at 15% of distribution, or 20% of activations (15% / 75%). This assumption translates into an average of two CPG offers redeemed out of every ten.

Cost: The cost required to get the 405,000 redemptions.

A typical cost for distribution of 45 million FSIs is $250,000.

The baseline cost for the SmartShop redemptions is tied to the number of activations. The previously described cost of 2.5¢ is used here.




Measure Quantities Pct of Distro Quantities Pct of Distro

Distribution 45,000,000 100.0% 2,700,000 100.0%Activation 4,500,000 10.0% 2,025,000 75.0%Redemption 405,000 0.9% 405,000 15.0%

Cost 250,000$ 50,625$ (@2.5¢ per activation)

FSI SmartShop

CPG Offer Distribution

Savings Example

Improved Customer Targeting

Through the analysis of a customer’s purchasing history, CPGs will be able to distribute promotional efforts to the most relevant customer segments. SmartShop essentially serves as an agent for the CPG, allowing direct communication to Merchants’ customers.

Obviously, discount offers are not the principal driver of customer purchasing decisions. CPGs invest significantly in product attributes, production, distribution and marketing. However, the SmartShop offer serves as a way to drive behavior, a financial incentive that complements the other product efforts. Through SmartShop, CPGs have a new, more powerful tool to:

Reach and retain their highest value customers

Identify top potential customers for their products

Target customers of competitors

Reporting and Analysis

A consistent limitation in trade and consumer promotion management for CPGs is the lack of visibility. CPGs distribute coupons and provide TPR funds, but have little information on the effectiveness of these promotions. 85% of CPGs rate trade promotion inefficiency as a very high issue.

SmartShop will provide insight to CPGs on the effectiveness of their offers. Offers will be analyzed on both demographic and behavioral bases. CPGs will know the impact of different targeting strategies. Over time, the CPG can see the impact of changing the dollar amount of the discounts offered.

The goal of the reports is to give CPGs the data necessary to experiment and refine their customer marketing strategies and to understand the ROI of their trade and consumer promotion efforts. Longer term, these reports will be cross-merchant as Pay By Touch signs up new clients.

3.1.3 Members

Members’ SmartShop value proposition is driven by two benefits:

Savings : Members receive discounts on items they regularly purchase.

Convenience : Offers are delivered in an easy to access and utilize manner; no more hunting through multiple FSIs and ad flyers, clipping relevant coupons and remembering to take them to the store

These benefits are delivered to Members free of charge.




Trade & Consumer Solutions

Direct to Direct to Consumer Consumer MarketingMarketing

AccountAccountManagementManagement

Collaboration Collaboration & Exchanges& Exchanges

Account Account PlanningPlanning

• How can we focus marketing investments on our highest value consumers?

• How should we leverage information from retailer loyalty programs to jointly market to the consumer?

• What types of promotional events and tactics are most effective?

• How can we get visibility to the quality of in-store execution?

• How should we collaborate with the retailer to improve demand forecasts?

• What supply chain productivity gains can be achieved by linking supply forecasting with CRM information?

• Which type and level of account are the most profitable and how should we prioritize customer investments?

• How do we incorporate lessons learned from past activities into future planning?

Four CPG Challenges in Trade & Consumer Management

Deloitte Consulting

Source: Deloitte Consulting, “What is Trade Promotion?”, August 2004

Demographic• Age• Location

Behavioral• Product purchase levels• Purchase categories• Consumer redemption rates

CPG Offers

Reporting Segments

3.2 VALUE CHAIN STRUCTURE

3.2.1 Members

The value to Members of SmartShop lies in its convenient delivery of relevant savings. These benefits will be delivered as follows:

SmartShop Enrollment: Member enrollment in SmartShop should be seamless and with few additional requirements beyond basic Pay By Touch enrollment.

Relevant Offers: Offers will be based on a Member’s household shopping history. This will require frequently updated t-log data of high integrity. The targeting of eligible offers must result in consistently relevant promotions for Members.

Offer Receipt: Receipt of the (weekly) offers should require a minimum effort on the part of the Member. Members can receive their offers via the web, linking to the offers from a notification email. Upon entry to a store, the experience of picking up the offer sheet must be quick – kiosks should be near the store entry and the wait time to print out the offers should be measured in seconds. Members may also receive offers via mobile device.

Offer Tender: Rather than fumble through a wallet or purse to present coupons for swipe at the checkout, Members will automatically receive their discounts at the POS prior to paying. The receipt will display the discounts received.

3.2.2 Merchants

The value to Merchants of SmartShop lies in driving increased transaction volume and average basket sizes with higher margins through a lower cost promotion distribution network administered via easy program management. These benefits will be delivered as follows:

Offer Setup: Authorized Merchant employee(s) will be able to enter new sets of offers into the SmartShop system via web interface. In addition, Merchants will be able to target offers in such a way as to reward their best customers while avoiding the “cherry picker” shoppers.

Targeting: The key to improving existing loyalty programs and reducing effective costs for distribution will be highly effective targeting.

Messaging: Because SmartShop works through several customer touch points - email, web, kiosk, mobile, POS, receipt - Merchants will want to ensure a consistent message to their customers. Limited Merchant messaging will be included, formatted for the different communication modes.

Monitoring and Administration: Merchants will be able to track the distribution, activation and redemption of offers on a daily basis. SmartShop will honor limits on Member purchases of items at discount. Merchant changes to offers will be updated quickly. SmartShop will alert Merchant if two offers are entered for the same product.

Offer Tender: As a Member transacts via Pay By Touch, a Merchant will be able to automatically apply her discounts to the checkout total within the overall payment transaction.

Settlement: Critical to ensuring margins and earning revenue via CPG offer placement fees will be settlement services provided by SmartShop.

Reporting: Data gained from running promotions to customer segments will be of immense value for Merchants to better understand their customers and their promotions.

3.2.3 CPGs

The value to CPGs of SmartShop lies in directly reaching consumers most interested in their products through a lower cost delivery mode administered via easy program management. These benefits will be delivered as follows:




Offer Setup and Targeting: Authorized CPG employee(s) will be able to enter new sets of offers into the SmartShop system via web interface. In addition, CPGs will be able to target offers to consistent users of their product; users of competitive products; and users with certain demographic and purchasing attributes.

Targeting: The key to improving existing loyalty programs and reducing effective costs for distribution will be highly effective targeting.

Messaging: Because SmartShop works through several customer touch points – email, web, kiosk, mobile, POS, receipt – CPGs will want to ensure a consistent message to consumers. Limited CPG messaging will be included, formatted for the different communication modes.

Monitoring and Administration: CPGs will be able to track the distribution, activation and redemption of offers on a daily basis. SmartShop will honor limits on Member purchases of items at discount. CPG changes to offers will be updated quickly.

Offer Tender: As a Member transacts via Pay By Touch, her CPG discounts will be automatically applied to the checkout total within the overall payment transaction.

Settlement: Managing the settlement process, with audit functionality, is a critical component to the value of SmartShop.

Reporting: CPGs are keenly interested in understanding what drives different consumers to purchase their products. SmartShop reports will provide customer-segmented data to CPGs for analysis of offers.

3.3 COST STRUCTURE

SmartShop is a product with a significant service component. As with any technology product, there will be development costs – engineering staff time and possible new software/hardware investments. The total scope of these costs will need to be determined. In addition, delivery of the product is well beyond a “plug-n-play” implementation. Each Merchant’s in-store POS and overall system architecture will require varying levels of customization. While many of the customization costs will be borne by Merchants, Pay By Touch will have a responsibility to provide professional services to see the implementation through. In addition, Merchants and CPGs who are new to the customer-specific marketing model may require strategic and analytical consulting. Kiosks are a critical communication channel; Merchants are expected to bear the cost of these including paper restock.

Once built and implemented in a Merchant’s environment, the following are currently identified costs for SmartShop:

Email : PBT will bear the expense for sending out emails to Members with their SmartShop offers

Settlement : PBT may engage a settlement agent for clearing and payment services

Customer Service : PBT personnel to handle issues and inquiries from Merchants, CPGs and Members

Sales & Marketing : SmartShop will be marketed to Merchants and CPGs (collateral, trade shows, industry publications, sales trips)




4 USE CASES AND IMPLEMENTATION SCENARIOS

4.1 INTRODUCTION

The following use cases describe interactions with SmartShop by Members, Merchants, and CPGs.

MEMBERS

4.1.1 Use Case 1 : Establish Member Household ID

4.1.1.1 Description

PBT Members will be able to link themselves to other PBT Members via a common Household ID.

1. During enrollment or after enrollment, a Member will be presented the opportunity to identify any other PBT Members with which they share a household.

2. The Member will enter the first name, last name and phone number of the shared Household Member.

3. PBT will send a message to the other identified Member notifying him/her of the request to be linked to a common Household.

4. The identified Member will approve or decline the request to be linked.

5. The originating Member will be notified of the approval or decline.

6. For approvals, PBT will establish a common Household ID between the two Members.

4.1.1.2 Justification for Use Case

In the retail industry – particularly grocery – customers are tracked at the household level. This is because multiple members of the same household may do the shopping for the entire family. T-log data is tracked for households, and offers will be distributed to all members of a household.

4.1.2 Use Case 2 : In-store SmartShop enrollment

4.1.2.1 Description

During in-store enrollment into Pay By Touch, a Member will be automatically enrolled in that store’s SmartShop program. Immediately after enrollment and activation, the Member will be presented a SmartShop offer sheet for new customers.

1. Member enters the information needed to enroll in PBT, which is sufficient for setting up a SmartShop account.

2. Member’s new SmartShop account is communicated both to PBT Server and to the Merchant’s customer management database.

3. Member is presented New Member offer sheet at the kiosk, which she can print out.

4. Her discounts are immediately available at the POS when she goes through checkout.


Leveraging the same information that is entered for PBT to do SmartShop enrollment prevents a Member from having to re-enter the same data twice. In addition, Merchants are expected to be interested in getting as many Members into their loyalty program as possible. Finally, by entering Members




automatically into SmartShop, they receive immediate gratification in the form of discounts. This immediate gratification will go a long way toward establishing a habit of using PBT by the Member.

4.1.3 Use Case 3 : Web-based SmartShop enrollment

4.1.3.1 Description

During a web-based PBT enrollment or afterwards, a Member can sign up for all SmartShop programs for which she is eligible.

1. After enrollment or during Member updating to her account, a page of SmartShop programs is presented. The list of SmartShop programs may be governed by certain rules, such as proximity to Member’s home address.

2. Member will check the boxes for the programs she wants to join. She will also indicate whether she wants the loyalty programs to be tracked at the household or individual level.

3. Member’s new SmartShop account(s) are communicated both to PBT Server and to the Merchants’ customer management database(s).

4. Member is presented New Member offer sheet(s) on the web, which she can print out.

5. Her discounts are immediately available at the POS when she goes through checkout.


Basis for this use case is similar to UC.2, except that the online enrollment environment increases the number of programs that can be presented to the Member.

4.1.4 Use Case 4 : Offer Activation

4.1.4.1 Description

Before a set of offers can be used at the POS, they must be activated. Activation occurs once the Member views her offers online or at the kiosk, or clicks a URL in the offer email. Activation makes the discounts available to the Member at the POS.

1. (a) Member activates offers by viewing them on the web or clicking URL in offer email(b) Member activates offers by viewing them at an in-store kiosk(c) Member activates offers by affirmatively replying to a SMS text message displaying the offers

2. PBT SmartShop server records the activation, making the offers “live” and eligible for redemption at the POS.

3. When Member purchases offer-eligible products, her discounts are recognized by the Merchant POS during checkout.


Without activation, the value of discounts is entirely lost. Consumer will not see the discounts, and may not buy the advertised product. Or if she does, she is buying a product she wanted anyway and the Merchant/CPG just gave away money. The discounts are seen only after the transaction is concluded.

4.1.5 Use Case 5 : Offer redemption

4.1.5.1 Description

At checkout, the Member will receive her discounts without any additional effort on her part.

1. Member purchases products listed on her SmartShop offer sheet.




2. Cashier scans the UPCs of products in the Member’s basket.

3. UPCs eligible for discounts will be identified and matched to their discounts.

4. Discounts will be processed through the ECR and the transaction total will be reduced accordingly.

5. Member pays for her purchase.

6. The tendered discounts are communicated back to the PBT SmartShop server in real-time or near real-time.


Application of discounts at transaction time is a critical success factor. Members should receive discounts at checkout to reduce extend their purchasing power and without real-time application of offers, Members could re-use discounts multiple times.

4.1.6 Use Case 6 : Offer limit management

4.1.6.1 Description

Offers will be established with limits, so as to manage the total amount of discount provided. After a Member redeems an offer, the quantity of product eligible for the discount will be reduced by the number of items purchased.

1. Member receives offer for $1.00 off cereal, limit 2.

2. She purchases three boxes of cereal.

3. She receives $1.00 off on two of the three boxes at the POS.

4. After completing the transaction, the PBT SmartShop server is updated with the purchase quantity. The limit on the cereal is reduced, in this case to 0.

5. No more cereal can be bought at the discount for the duration of the offer period.


If limits are not followed, the Merchant and CPG would pay out too much for the promotion and Pay By Touch would risk liability for the error.

4.1.7 Use Case 7 : Biometric auth fails - kiosk

4.1.7.1 Description

Member goes to kiosk to retrieve her offers. Biometric auth fails, leaving her unable to activate her offers and use the offer list as a basis for shopping.

1. Member walks up to kiosk, places her finger on the reader.

2. The biometric fails after several attempts.

3. Member enters her 10-digit phone number.

4. The offers associated with the phone number (which is linked to the PBT Wallet) are returned to the kiosk.

5. Her offers are now available for redemption at the POS.


Biometric auth failures will continue to be an issue for a while. These failures can turn a Member off if she must pay more for her purchases than she should.




4.1.8 Use Case 8 : Biometric auth fails – In Lane

4.1.8.1 Description

Member attempts in lane biometric auth to complete a transaction. The auth fails, making the SmartShop offers inaccessible at the POS. While the Member can use other payment options, she is unable to tap her offers. To prevent a potential blow-up situation that affects both the Merchant and PBT, the cashier needs a reliable backup plan that quickly resolves the issue.

1. Member attempts biometric auth to complete transaction and receive her SmartShop discounts.

2. Auth fails, making the SmartShop offers inaccessible.

3. Member agrees to pay via the cards in her physical wallet, but still wants her discounts.

4. Member enters her 10-digit phone number.

5. The offers associated with the phone number (which is linked to the PBT Wallet) are returned to the POS. Note that only the offers, no other elements of her Wallet are returned (i.e. checking account info, credit cards, debit, etc).

6. Her offers are recognized for eligible purchases and the discounts are applied accordingly.


The scenario above describes one possible way to address the issue of an in-lane failure of biometric auth. The driver for this use case is that loss of the ability to get her discounts is a real loss of money to a Member, caused by Pay By Touch. This cannot happen. In the noisy, fast paced environment of a store, a cashier needs a quick, consistent way to handle this issue.

4.1.9 Use Case 9 : Offer reminder alerts

4.1.9.1 Description

Members will be able to set their preferences for reminders regarding their offers. The alerts communicate remaining offers to Members and the date of expiration for the discounts.

1. Member logs in to MyPBT.

2. She clicks on the Loyalty Programs tab.

3. She clicks a specific Merchant’s SmartShop program.

4. She clicks ‘Preferences’.

5. She checks that she wishes to receive reminders regarding her unexpired, unused offers.

6. She sets ‘Thursday’ as her day of the week to receive these alerts.

7. She checks ‘Email’ as one mode for receiving these alerts. The email address associated with her Member Profile is used for these alerts.

8. She checks ‘Mobile’ as a second mode for receiving the reminders. She enters her mobile device phone number.


Offer reminders demonstrate the power of SmartShop’s digital communication modes relative to existing undifferentiated mass distribution of ad flyers and FSIs. The reminders are a helpful way of letting the Member know that she has discounts available to her for items she regularly buys, but that she may be at risk of losing the offers if not used by the weekend. Merchants and CPGs are expected to view reminder functionality as a powerful component of the SmartShop offering.




4.1.10 Use Case 10 : View SmartShop offer history

4.1.10.1 Description

Member will be able to see her history of offer redemptions via the MyPBT portal.

1. Member logs in to MyPBT.

2. She clicks on the Loyalty Programs tab.

3. She clicks her Albertsons SmartShop offers link.

4. She clicks View History.

5. She is presented with a list of her transactions for the year-to-date.

6. Her savings per offer are shown. In addition, her SmartShop savings for the year are summed.


The transaction history is a form of audit for the Member. In addition, by showing the discounts received, the value of shopping with the Merchant is reinforced, as well as the value of using Pay By Touch to access SmartShop. This is a good example of how Pay By Touch extends a Member’s purchasing power.

OFFER ENTRY AND DISTRIBUTION

4.1.11 Use Case 11 : Export t-log, customer data and product hierarchy


Merchant establishes the t-log and customer data export files per PBT’s specs and transfers them weekly to PBT’s SmartShop server.

1. Merchant is provided with export file requirements: data contents, formats (XML, delimited), etc.

2. Merchant utilizes existing export functionality of its database applications or hires a third party (e.g. database vendor) to customize the export functionality.

3. After establishing the file contents and format, and the export functionality, Merchant sets up a weekly export of files to PBT.

4. Merchant will receive confirmation information and any error reporting after each weekly export of t-logs, customer data and product hierarchy.


T-logs, customer data and product hierarchies are the fuel that makes SmartShop run. PBT will need to be prepared for a variety of software applications that will contain the necessary data. The goal is a standard methodology for the export of data that requires no import customization on the part of PBT.




Albertsons SmartShop Savings

Date Ref ID Location Description Quantity Savings

1/27/2007 5478957 San Francisco, CATide Ultra, Liquid Laundry Detergent, 100 oz., Save $2.00 off lowest shelf price

1 $ 2.00

1/27/2007 5478957 San Francisco, CAPalmolive Auto Dish Liquid, 45 oz., Save 80 cents off lowest shelf price

1 $ 0.80

1/27/2007 5478957 San Francisco, CAStove Top, Stuffing, 6 oz., Final price after discounts, 89 cents

2 $ 0.70

1/27/2007 5478957 San Francisco, CAHeinz Gravy, 12 oz., Final price after discounts , 89 cents

2 $ 0.60

1/27/2007 5478957 San Francisco, CALipton, Iced Tea Single Serve, 16 oz., Save 30 cents off lowest shelf price

6 $ 1.80

1/20/2007 5476911 San Francisco, CAHillshire Farm, Deli Selects, 6 oz., Final price after discounts, $1.79

2 $ 1.00

1/20/2007 5476911 San Francisco, CASimply Potatoes, Mashed Potatoes, 24 oz., Final price after discounts, $1.99

1 $ 0.50

1/13/2007 5472078 San Francisco, CAChicken of the Sea Solid White Tuna, 6 oz., Final price after discounts, 89 cents

3 $ 0.75

1/13/2007 5472078 San Francisco, CAHefty One Zip Bags 35 ct., Save 90 cents off lowest shelf price

2 $ 1.80

1/13/2007 5472078 San Francisco, CAGeneral Mills Lucky Charms Cereal 14 oz., Save $1.00 off lowest shelf price

2 $ 2.00

1/13/2007 5472078 San Francisco, CAPeter Pan, Peanut Butter, 18 oz., Save 50 cents off lowest shelf price

1 $ 0.50

SmartShop Savings (year-to-date) 12.45$

4.1.12 Use Case 12 : Merchant selects and implements customer database marketing application


Merchants without an existing loyalty program will need to implement a customer database marketing application. The application tracks customers’ spending, and applies analytics to segment the customer population. These segmentations are a basis for distributing offers to Members.

1. Pay By Touch identifies best partner(s) to provide this application.

2. Pay By Touch and Vendor exchange technical information.

3. Pay By Touch works with Merchant to advise in selection customer database marketing app.

4. Merchant installs customer database marketing app.

5. Merchant implements SmartShop.


If a Merchant does not track customer purchases – i.e. via loyalty card – the fundamental value proposition of SmartShop is invalid. Merchants without existing loyalty cards are the “low hanging fruit” for sales efforts, but they will need technology to segment their customers and to track their purchases.

4.1.13 Use Case 13 : Merchant creates offer


Merchant enters an individual offer into the SmartShop application.

1. Authorized Merchant employee logs in to SmartShop Offer Builder, selects ‘Create Offer’.

2. Employee names the offer – this name is for internal tracking purposes only. For example, Merchant may want to create a Diamond Customer Coke $1.00 Offer and an Opal Customer Coke $0.50 Offer.

3. Employee selects the applicable UPC code(s) for the promoted product(s). Selection may be done via a hierarchical list of pre-loaded UPCs, search or directly entered UPCs.

4. During the UPC selection process, associated product images will be displayed. For each communication mode (kiosk, web, email, mobile), the Employee will choose the single image which will be used in communicating the offer. Kiosk, for example, may have a gray-scale image while the web will have a full-color version.

5. Employee enters the Offer Description. This is the text which provides the product(s) promoted, along with any size information. The Offer Description can vary based on the communication mode (web, kiosk, email, mobile).




Merchant ‘Create Offer’ ScreenCurrent Green Hills Implementation

Merchant ‘Create Offer’ ScreenCurrent Green Hills Implementation

6. Employee enters the applicable dollar discount per item, as well as the item limits for the duration of the promotion.

7. The offer distribution strategy is selected. Strategies essentially look for a reference group of previously purchased UPCs to determine customer interest in a given offer. The reference group of UPCs for an offer may be narrow or wide. For example, a narrow reference group for a Bud Light 6-pack offer would be the Bud Light 6-pack UPC. A broad reference group for the Budweiser 6-pack offer would be all beer UPCs. The basis for determining these reference groups is the Merchant’s product hierarchy. A product hierarchy example is presented below. From this hierarchy, strategies are executed. The available strategies are:

Reward : Narrowest strategy. Offer is targeted to customers buying exactly the UPC(s) listed in the offer.

Category : A bit broader than Reward. The offer is distributed based on customer purchases one-level up from the UPC level. For example, the Bud Light 6-pack offer would be distributed to frequent purchasers of any ‘Beer-Domestic’ UPCs.

Introduction : Broader than Category. The offer is distributed based on customer purchases two-levels up from the UPC level. For example, the Bud Light 6-pack offer would be distributed to frequent purchasers of any ‘Beer’ UPCs.

Up-sell : Similar to Category, except that only purchasers of UPCs at a lower price than the offer UPC(s) are targeted for distribution. Alternatively, an Employee can create his own set of reference UPCs for use in the Up-sell strategy.

Custom : Freedom to create, name and save custom UPC reference groups. Examples of custom strategies include: (i) distributing a baby food offer to buyers of diaper UPCs; (ii) distributing a Wisk detergent offer to buyers of Tide; (iii) distributing a Hamburger Helper offer to buyers of ground beef; and (iv) distributing an offer for a new organic soup to buyers of other organic products.

8. The total number of offers to be distributed is entered. In addition, the customer segments and lifestyle groups (from the Merchant’s customer database marketing application) are selected. Offers will only be distributed to those customer segments/lifestyle groups, up to the distribution limit.

9. Employee saves offer; SmartShop creates a tracking ID for the offer.


This is a basic requirement for the application – creating offers. The distribution strategies are a key component of making the offers relevant to customers.




Sample Product Hierarchy

Beer Categories

4.1.14 Use Case 14 : CPG creates offer


CPG enters an individual offer into the SmartShop application.

1. Authorized CPG employee logs in to SmartShop Offer Builder, selects ‘Create Offer’.

2. Employee names the offer – this name is for internal tracking purposes only.

3. Employee selects the UPC(s) eligible for the offer. UPCs can be selected by:

Direct entry

Search

Viewing the product hierarchies via a series of drill down menus

4. Employee enters offer description, amount and limits.

5. The distribution of the offer is entered. The CPG is presented a list of eligible Merchants. The CPG can select the eligible Merchant banners and set the overall distribution limit per banner.

6. Employee selects the offer strategy, customer segments and lifestyle groups for distribution.

7. The offer will have an availability period. These are the dates during which an eligible Merchant may use the offer for distribution to its customers.

8. The offer descriptions to be used in the various communication modes are entered.

9. The employee selects the images to run in the various communication modes. The system will serve up all images available for the UPCs entered, allowing for an easy selection process.

10. Employee indicates whether the offer is available for a Offer Ad slot in the Offer Sheet. Merchants may select any CPG offer checked as being ‘Available for Ad’ to fill one of the two premium Offer Ad slots.

11. Employee enters the text to be used in the Offer Ad for different communication modes.

12. Employee selects or uploads the image to be used with the Offer Ad.

13. Employee saves offer; SmartShop creates a tracking ID for the offer.FILE: PBT DOCUMENT.DOC VERSION: 1.0 PAGE 36 OF 44



CPG Offer Creation

Screen MockupField Name Value

Offer Name

UPC Code(s)

Offer Description

Offer Amount [$]

Offer Text

Limit per Customer

Limit per Customer Text

Distribution Distribution Ad Offer Placement Bid Ad Bid

Albertsons

Jewel-Osco

Piggly Wiggly

Farm Fresh

Green Hills

Strategy

Lifestyle Group

Availability Period Effective Date

Expiration Date

Offer Description for Web

Offer Description for Email

Offer Description for Kiosk

Offer Description for Mobile

Offer Image for Web

Offer Image for Email

Offer Image for Kiosk

Ad Description for Web

Ad Description for Email

Ad Description for Kiosk

Ad Description for Mobile

Ad Image for Web

Ad Image for Email

Ad Image for Kiosk

Select Image

Select Image

Select Image

Search UPCs UPC Hierarchy

Select Image

Select Image

Select Image


CPGs are the primary revenue drivers for SmartShop. The ability to enter offers is a critical factor in the product’s success. Use of the Customer strategy is expected to be quite popular with CPGs, and will require CPG access to each Merchant’s product hierarchy.

4.1.15 Use Case 15 : Merchant creates Offer Pool


Merchant creates an Offer Pool. Offer pools are the weekly aggregation of individual offers to be targeted to a Merchant’s customer base.

1. Authorized Merchant employee logs in to SmartShop Offer Builder, selects ‘Create Offer Pool’.

2. Employee enters information for Offer Setup:

Offer Pool Name : follows standard convention describing the period of activation.

Start/End Dates : start and end dates during which the Offer Pool is active.

Target Date : date on which the SmartShop targeting engine will distribute the offers to the Members; usually set with enough time to re-do the targeting if needed prior to the publish date.

Publish Date : date on which the offers are viewable via the web and distributed via email.

3. Employee scans the CPG Offers. These are the offers made available by the CPGs for the upcoming week. SmartShop automatically aggregates these offers to be included in the weekly Offer Pool for targeting to the Merchant’s customer database. From this list, he has a sense of what offers will appear in the Members’ offer sheets.

4. Employee then searches through the list of previously created offers in the Merchant Offer Library. This list includes any new offers just created by the Employee.

5. Once he finds an offer he likes, the Employee drags the offer from the Merchant Offer Library to the Merchant Offers box. The associated information (name, discount, strategy, etc.) for the offer is automatically populated.

6. Once the Employee has added all the offers he wants, he clicks ‘Continue’.

7. SmartShop performs a duplicate UPC search. If two offers are found to contain the same UPC code, the Employee is alerted to this situation. He can then accept the duplicate UPCs or make appropriate adjustments to the Offer Pool.

8. After clarifying how to handle any duplicate UPC codes, the Employee clicks ‘Continue’ again. SmartShop creates the Offer Pool and assigns an Offer Pool ID.




Create Offer Pool

Screen MockupOffer SetupOffer Pool Name Start End Target PublishWeek of Jan 22 - 28, 2006 01/22/2006 01/28/2006 01/18/2006 01/20/2006

Merchant Offer Library Merchant Offers

Dept Name Disc Strategy Segments Dept Code Name DiscDistrLimit Strategy Segments

CustLimit

116 Coke 6-Pk 12 oz 0.50 Reward D R O P Q 117 466807 Bud Light 12-Pk 1.00 50,000 Reward D R O P Q 2116 Coke 12-Pk 12 oz 1.00 Reward D R O P Q116 Coke 2 Liter 1.25 Reward D R O P Q116 Diet Coke 6-Pk 12 oz 0.50 Reward D R O P Q116 Diet Coke 12-Pk 12 oz 1.00 Reward D R O P Q116 Diet Coke 12-Pk 12 oz 2.00 Reward D R116 Diet Coke 2 Liter 1.25 Reward D R O P Q116 Pepsi 6-Pk 12 oz 0.50 Reward D R O P Q116 Pepsi 12-Pk 12 oz 1.00 Reward D R O P Q116 Pepsi 2 Liter 1.25 Reward D R O P Q116 Diet Pepsi 6-Pk 12 oz 0.50 Reward D R O P Q116 Diet Pepsi 12-Pk 12 oz 1.00 Reward D R O P Q116 Diet Pepsi 2 Liter 1.25 Reward D R O P Q117 Bud/Bud Lt 6-Pk Cans 0.75 Introduction D R O P Q CPG Offers117 Bud/Bud Lt 6-Pk Cans 0.75 Reward D R O P Q Merch Distr Cust117 Bud/Bud Lt 12-Pk Cans 1.00 Introduction D R O P Q Manufacturer Dept Code Name Disc Limit Strategy Limit117 Bud/Bud Lt 12-Pk Cans 1.00 Reward O P Q P&G 112 123450 Folgers Classic 1.50 250,000 Custom 5117 Bud/Bud Lt 12-Pk Cans 2.00 Reward D R P&G 700 123451 Pampers Cruisers 2.00 100,000 Custom 3117 Bud/Bud Lt 24-Pk Cans 2.00 Reward D R O P Q P&G 700 123452 Bounce Free 0.75 500,000 Introduction 5117 Bud/Bud Lt 6-Pk Bottles 1.00 Reward D R O P Q P&G 700 123453 Bounty White/Prints 1.00 300,000 Introduction 3117 Bud/Bud Lt 12-Pk Bottles 1.50 Reward D R O P Q P&G 701 123454 Crest Whitening 1.00 500,000 Custom 3117 Bud/Bud Lt 24-Pk Bottles 2.00 Reward D R O P Q P&G 701 123455 Olay Generating 2.00 300,000 Reward 2117 Coors/Coors Lt 6-Pk Cans 0.75 Reward D R O P Q P&G 701 123456 Always Ultra Thins 0.75 500,000 Introduction 3117 Coors/Coors Lt 12-Pk Cans 1.00 Reward D R O P Q Nestle 110 234560 Nesquik Powder 0.75 100,000 Reward 2117 Coors/Coors Lt 24-Pk Cans 2.00 Reward D R O P Q Nestle 112 234561 Nescafe Coffee 1.00 250,000 Introduction 3117 Coors/Coors Lt 6-Pk Bottles 1.00 Reward D R O P Q Nestle 700 234562 Fancy Feast 0.25 500,000 Reward 10117 Coors/Coors Lt 12-Pk Bottles 1.50 Reward D R O P Q Kellogg 700 345670 Special K 0.75 200,000 Category 3117 Coors/Coors Lt 24-Pk Bottles 2.00 Reward D R O P Q Kellogg 700 345671 Nutrigrain Chewy Bars 0.75 200,000 Reward 5

Continue


Offer pools are the vehicle for distributing the selected offers to the customer database such that each Member receives up to 20 apiece. The Merchant has no control over the CPG-entered offers. These are handled by SmartShop’s targeting engine rules.

4.1.16 Use Case 16 : Offer Pool is distributed to customers


After finalizing the Offer Pool, the Merchant Employee sends it to the SmartShop targeting engine for a two-step distribution process.

1. Targeting engine receives the Offer Pool.

2. Offers, subject to their parameters (strategy, customer segments, distribution limits, discount amounts), are preliminarily distributed to the Merchant customer base. Each customer’s purchase history is statistically analyzed for likelihood of interest in a given offer.

3. Merchant Employee is presented with a screen showing the preliminary offer distribution. In 7th Street’s LoyaltySuite this is called the “ReVision” screen. The screen tells the Employee:

Assigned limits per offer

Number of eligible households, based on customer segments assigned (e.g. Diamond, Ruby, etc.)

Modeled distribution of offers, which tells the number of households that would receive a given offer.

Markdown cost is based on the modeled number of households receiving the offer multiplied by the discount amount.

Merchant Employee can use an on-screen slider (“ReVision” column in graphic above) to alter the number of offers made available to change the modeled number of households receiving the offer. He can only do this for Merchant-entered offers.

CPGs will not be able to access the ReVision screen.

4. After he is satisfied with the preliminary distribution of offers, the Merchant Employee commands the SmartShop targeting engine to execute the final distribution of offers. After this execution, the Offer Pool is considered targeted.

5. The targeted offers per household are then forwarded to the SmartShop Server.


The core engine of SmartShop is the targeting function. This targeting process is what makes the offer relevant to customers.




7th Street Software

ReVision Screen

4.1.17 Use Case 17 : Targeted Offer Pool is published


The offers are made available for viewing by customers via three communication modes prior to the Offer Pool Effective Date: email, web, mobile. Communication via the fourth mode, kiosk, occurs starting on the Effective Date.

1. The kiosk, email and web display of the offers will be based on one of three templates for each customer:

20 regular-sized offers

19 regular-sized offers, 1 ad-offer

18 regular-sized offer, 2 ad-offers

2. Email and mobile distribution preferences are used as parameters for distribution of the Offer Sheet:

Email address

Mobile device number

Preferred receipt date


The communication of the offers is a critical component for Member activation and redemption of offers.

4.1.18 Use Case 18 : Merchant is paid for CPG fees and discounts


Merchants will accept the CPG-funded discounts at the POS for each Member. There will be a weekly settlement of these discounts and the fees the CPG owes to the Merchant.

1. At the end of each week, SmartShop will tally the offers redeemed by Members:

Tracked by offer ID

Quantity of offers redeemed

Total dollars provided by the Merchant in the form of discounts

Total CPG Placement Fees and Offer Ad Fees owed to the Merchant

Report displaying each Member activation by Member SmartShop ID, date, time and communication mode; and each redemption by date, Member SmartShop ID, time, location and transaction ID.

2. The Offer Activation and Redemption Report will be provided to the Merchant for their records and for them to audit against their own records as appropriate.

3. The individual Reports will be provided to each CPG for their review and to prepare ACH batch payment.

4. Money will flow from the CPGs to the Merchant in one of two ways:

a. CPGs will transfer the funds to Pay By Touch. Pay By Touch will then transfer the funds to the Merchant one day later.




No Offer Ads 1 Offer Ad 2 Offer Ads

Proposed Offer Sheet Templates

b. CPGs and the Merchant will work with a third party Settlement Agent. Pay By Touch will provide the documentation to the Settlement Agent, who will validate the payments from the CPGs to the Merchant.


Merchants must be made whole for the discounts they accept and the revenue they’ve earned.

4.1.19 Use Case 19 : Merchants and CPGs use results of prior offers to set new offers for the future


Over time, both Merchants and CPGs will learn what works and what doesn’t in setting targeted discounts for products. From this information, they can improve the efficacy of their future promotions.

1. SmartShop’s reporting engine performs analytics on Members’ redemption of offers and their pre-offer and post-offer purchasing behavior.

2. The analytics also provide insight based on customer demographics and purchasing characteristics.


Information gained from running these promotions through SmartShop is a key value proposition for both Merchants and CPGs.




5 REQUIREMENTS DEFINITION

5.1 INTRODUCTION

SmartShop requirements are driven by:

Existing SmartShop functionality as developed for implementation at Green Hills Market in Syracuse, NY

Loyalty Solutions business unit direction – Gary Hawkins, Joe Lampertius, Sterling Hawkins

Market and product analysis performed by product management

5.2 MARKETING REQUIREMENTS

The graphic below outlines a high-level process flow for SmartShop.

Member

Pay By Touch

Merchant

CPG

Set-up Offer Distribution Redemption

SmartShopHigh Level Process Flow

Existing Member links Wallet to

Household ID for SmartShop

account

Member enrolls in

SmartShop during PBT enrollment

Existing customer

DB?

Merchant implements customer database

Merchant exports t-logs and customer segmentation info

Update Wallet

Merchant SmartShop-

enables customer database

Y

N Merchant uploads product hierarchy

Merchant prepares POS for offer delivery

Merchant acquires kiosks for offer comm.

Merchant negotiates with CPGs for fees

CPGs negotiate with Merchant for fees

Member indicates

communication preferences

Merchant uploads product graphics

CPGs upload product hierarchies and graphics

CPGs prepare offers for targeting

Merchant prepares offers for targeting

Offers are statistically matched to Members’

t-logs

Offers are distributed to Member accounts

Member views offers

Offers are ready for

viewing by Members

email web

kiosk mobile

Member shops in Merchant

store

Member accesses PBT for offers and

to pay

Process PBT auth and

Wallet Get offers

Offers are

inserted into the

POS

Eligible UPCs

ID’d, disc. applied

Payment accepted on total

Reduce avail. offers

Tally weekly redemptions

Provide Merch. reports

Provide CPG

reports

Calculate CPG

remit. to Merch.

Process pmt betw.

Merch. and

CPGs

CPGs make

payment

Update Member’s

MyPBT transaction

report




5.2.1 PBT Wallet

MR Description Use Case

Priority

MR 1.1 Household ID. Member ID is associated with a Household ID for purposes of tracking purchases and distribution of SmartShop offers.

UC 1 High

MR 1.2 Auto-Enrollment. Members can be automatically enrolled in different Merchants’ SmartShop programs during PBT enrollment or later with the click of a button. These IDs are added to their Wallet.

UC 2UC 3

High

MR 1.3 View Offers Online. Member can view and activate her offers through the MyPBT portal. She will see how many offers she has left after redeeming any with limits.

UC 4 High

MR 1.4 View Transactions Online. Member views her SmartShop offer redemption history.

UC 10 Medium

MR 1.5 Offer Reminder Alerts. Send alerts to Members after the initial communication of offers, letting them know they are available up to the Expiration Date.

UC 9 Low

5.2.2 In-Store


Priority

MR 2.1 Offer Transmission. Offers available to a Member shopping with a particular Merchant are delivered to the store after the biometric auth.

UC 5 High

MR 2.2 UPC Sniffer. Ability to track all UPCs in a Member’s basket during check-out and identify those that are eligible for SmartShop discounts.

UC 5 High

MR 2.3 ECR Discounts. Redeemed discounts, subject to purchase limits, are transmitted to the ECR to reduce the sub-total.

UC 5UC 6

High

MR 2.4 Redeemed Offer Transmission. At the conclusion of the transaction, the redeemed offers are transmitted back to the PBT SmartShop server.

UC 6 High

MR 2.5 SmartShop Kiosk. Activate and deliver available offers to a Member at the kiosk after she biometrically identifies herself.

UC 4 High

MR 2.6 Backup to Failed Bio Auth – Kiosk. Member will be told after a failed bio attempt to enter her 10-digit phone number. After entering the number, her offers will be returned for viewing on the kiosk.

UC 7 High

MR 2.7 Backup to Failed Bio Auth – In Lane. Member will be told after a failed bio attempt to enter her 10-digit phone number. After entering the number, only the SmartShop offers in her Wallet will be returned. No payment instruments will be returned.

UC 8 High




5.2.3 Merchant MIS


Priority

MR 3.1 Customer, T-Log, Product Hierarchy and Product Logo Export. Merchant creates export files according to PBT published specs for customer segmentation data, filtered t-logs, product hierarchy and product logos. Files are exported to PBT SmartShop server via FTP.

UC 11 High

MR 3.2 Write New Member SmartShop Enrollments to Merchant Database. During PBT enrollment or afterwards, Members can automatically enroll in SmartShop. These newly enrolled accounts will be written to the Merchant’s customer database.

UC 2UC 3

High

MR 3.3 Merchant Updates T-Logs for Offer IDs. Merchant adds fields that track when offers are used in a transaction.

UC 18UC 19

High

5.2.4 SmartShop Application


Priority

MR 4.1 Offer Creation. Merchants and CPGs enter offers into the SmartShop Offer Library.

UC 13UC 14

High

MR 4.2 Offer Pool Creation. Offers from the Library are added to create an Offer Pool.

UC 15 High

MR 4.3 Offer Targeting and Distribution. Households likely to be interested in a given offer are identified according to the targeting strategy and their prior purchases. Offer relevancy contention (e.g. Coke & Pepsi ‘Introduction’ distribution strategy have equal relevancy to a HH) is settled via a process TBD.

UC 16 High

MR 4.4 Offer Communication. Send out Offer Sheet notifications to Members based on their communication preferences (email, mobile). Present Offer Sheet on web and kiosk, using standard templates.

UC 17 High

MR 4.5 Track Offer Activation and Redemption. As offers are activated by Members and redeemed at check-out, the SmartShop server will track these activities and update in real-time. Offers with limits will be decremented or inactivated after redemptions.

UC 4UC 5UC 6

High

MR 4.6 SmartShop Administration. Merchants, CPGs and PBT will have the ability to add and delete users. Users will have an assigned role defining their privileges within the system.

UC 13UC 14UC 15

High

MR 4.7 Reporting. Reports will be generated showing offer activation and redemption activity. These reports will include straightforward details regarding offer activity (for settlement purposes) as well as insightful analytics describing efficacy of offers.

UC 18UC 19

High




5.2.5 Professional Services


Priority

MR 5.1 Customer Database Marketing Application. Identify candidate applications for Merchants that do not currently track customer purchases. Understand their capabilities as they relate to requirements for SmartShop. Leverage strategic partnership for business development activities.

UC 12 Medium

MR 5.2 Implementation Project Management. PBT implementation field team works with Merchant on the in-lane, in-store and MIS requirements for SmartShop.

UC 2UC 3UC 5UC 6UC 8UC 11UC 12

High

MR 5.3 Strategic Consulting. PBT consultants offer practical advice and strategic insight for using SmartShop, optimizing offer efficacy and performing economic analysis. Consulting includes evaluation of different strategies, customer segmentations, effects of different discount levels and managing SmartShop vis-à-vis ad flyers/FSIs.

UC 14UC 15UC 16UC 19

High

5.2.6 PBT Financial


Priority

MR 6.1 SmartShop Contract. Develop terms & conditions for Merchants and CPGs’ usage of SmartShop.

All High

MR 6.2 Billing System. Develop functionality to track and bill for fees owed by Merchants and CPGs to PBT and for CPGs obligations to Merchants.

UC 18 High

MR 6.3 Settlement. Establish procedures for the transfer of cash from CPGs to PBT, and the transfer of cash from PBT to Merchants. Set up separate accounts and coordinate with Finance as required. Also, establish relationship and procedures with a third party settlement agent.

UC 18 High




pay by touch smart shop mrd

Business