Jan 29, 2007

Increase sales by leveraging people's herd mentality?

In an article titled “Swarming the shelves”, The Economist describes a growing trend in promotional marketing. The idea is that, if a certain product is seen to be popular, shoppers are likely to choose it too. The challenge is to keep customers informed about what others are buying. "People that shop like you also chose this product." Amazon.com has been very successful with this in the online world, but doing it in the physical world is more difficult.

Welcome is designing new payment technology based on this principle, for cross promotions triggered automatically when the customer pays at a real world point of sale.

Imagine a new restaurant opening in a shopping mall. Today, the restaurant would typically distribute coupons through the local paper, by direct mail, or through cross promotions with other merchants in the same mall. None of these offers are targeted. They could be wasted on customers that would never go to the restaurant anyway, or customers that are already loyal to the restaurant and don’t need the offer.

Welcome’s technology gets around these problems by using credit and debit card data to automatically deliver a cross promotion only to those customers that are highly likely to appreciate and use the offer.

Say that you have never been to the restaurant in question. Say that you are shopping right now at a store which happens to have many customers that go to the restaurant. Say that your shopping patterns indicate that you are pretty similar to those other customers. It is highly likely that a valuable offer to try out the restaurant will catch your attention. Welcome's technology determines all of this at the moment of payment, using a combination of information stored in several places, on servers, in the merchant's POS terminal and in the chip of the customer's credit or debit card (in the case of a smart card transaction). If everything fits, you get a special offer printed at the bottom of your card receipt, encouraging you to go to the restaurant.

The technology is based on an algorithm that creates matrices of relevant merchants and relevant customers, and analyses the overlap between the too. If the overlap is high (meaning the customer is highly likely to appreciate the offer) and the promotion is outside the overlapping area (meaning the customer hasn't visited the merchant before) the promotion gets triggered.

The restaurant simply asks its acquirer bank to set up the cross promotion, then sits back and lets all the individual POS terminals and cards everywhere do their work and automatically churn out offers to relevant customers that have not yet been to the restaurant. There is no CRM to manage, no expensive databases, no sending out mailings, no door-to-door negotiations with merchants, no guessing at which merchants tend to see customers that might be interested in the restaurant, and on and on and on.

Of course, our real goal is to develop innovative ways for banks to prove to merchants that payment cards are a valuable service and that interchange fees are justified.

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