A new iPhone application that lets consumers rack up reward points by simply walking in to stores could give banks and card issuers the foundation for a truly mobile loyalty program.
shopkick, the name of the application and of the Palo Alto, Calif., startup that developed it, delivers discount offers to users once they have entered a participating retailer's store and awards additional points — or "kickbucks" — for scanning specified items or trying on clothing in a dressing room.
Analysts said it would be relatively easy for banks to tap in to shopkick's app model.
"I think, for [card] issuers, yes, there are definitely opportunities to tie their rewards capabilities with this type of solution," said Gwenn Bezard, a research director at Aite Group LLC in Boston.
Such an offering would prepare banks "for the next stage that ultimately will be mobile payments," he said.
Cyriac Roeding, shopkick Inc.'s co-founder and chief executive, said it is not specifically pursuing banking partners for the program, which is funded mostly by merchants, though it has worked with Citigroup Inc. on a similar application. Citi also was one of several entities that invested $15 million of venture capital in shopkick in a recent funding round.
shopkick, in partnership with Citi, developed CauseWorld, an application that lets people earn "karma points" by visiting retailers. Users can redeem their points, which Citi partially funds from its marketing budget, by donating to charities from a list.
A Citi spokesman would not say whether it would consider participating in the new application.
The single biggest problem for merchants is generating foot traffic, Roeding said.
"Why does nobody ever reward anybody for walking into a store?" he asked during a demonstration Tuesday of the shopkick app at an American Eagle Outfitters store in New York's Times Square.
From its experience in developing CauseWorld, shopkick decided it made sense to create a program that gave consumers more direct value by presenting them with offers, he said.
The challenge, he said, was coming up with a way to accurately determine a user's specific location. CauseWorld and other mobile applications use global positioning systems — like those found in cars — to determine that a user has visited a store. But GPS is not precise, so the app might think a user is inside a store when he or she just walked by, making it an impractical way for retailers to entice people into their stores.
"You cannot afford to reward everybody in Times Square," Roeding said.
This inspired what Roeding calls the shopkick Signal, a device placed near a store's entrance that emits inaudible signals. The devices have a range of 50 to 100 feet. If a shopkick user has the application running on his or her iPhone, it will detect the signal and deliver a certain number of kickbucks to the user.
Once inside a store, a user can browse lists of discounts that can be presented during checkout. Users also can enter their loyalty account numbers for participating retailers along with other information to get more targeted offers, Roeding said.
They also can click on the "scan" tab, which brings up options for earning additional kickbucks by using the phone to scan the bar codes on specific items.
American Eagle's Times Square store also had posters in dressing rooms that contained a scannable bar code to award users additional points. In addition to American Eagle, shopkick this week introduced Best Buy Co. Inc., Macy's Inc., Sports Authority Inc. and the mall operator Simon Property Group Inc. as partners. The system is live in the New York, San Francisco and Los Angeles areas. Chicago and other cities are expected to be added soon.
More than 600 stores and 100 malls are expected to install shopkick's technology in the next four weeks. The application currently is available for Apple Inc.'s iPhone, but Roeding said his company also plans to make it available for handsets running on Google Inc.'s Android operating system.
Merchants fund virtually all of the kickbucks that shoppers earn by visiting participating stores. shopkick supplies some funding for points that users can attain, via GPS, by simply checking in when they are in the vicinity of certain nonpartner retailers, according to Roeding.
Redemption options for kickbucks include gift cards at partner retailers, music downloads, charity contributions, Facebook credits and DVDs.
With banks facing new debit and credit card regulations that already are reducing revenue, analysts say merchant-funded rewards programs are alluring to issuers.
Aite Group's Bezard said banks easily could tie use of their cards to a shopkick-like rewards model.
"Let's say I go to Best Buy and I use the application. I could get messages that say, 'Hey, if you are a Citibank customer and you are paying with your Citibank card, you get extra benefits,' " he said.
Neil Strother, the practice director for mobile marketing strategies at ABI Research in Oyster Bay, N.Y., said he sees an opportunity for issuers to get involved "by extension."
"The shopkick setup is really aimed at brick-and-mortar-type companies and then the product suppliers," Strother said. The key for banks is to understand how people decide to use the app and then figure out whether they can enhance the process, he said. Awarding kickbucks for specific card uses "seems to be the most obvious angle from a card-issuer standpoint."
Mike Dupuis, the vice president of marketing and operations at American Eagle's AEO Direct division, said the Pittsburgh retailer is "actively" considering tying its store-branded credit cards (which General Electric Co.'s GE Money Bank issues) to promotions on the application.
Though shopkick has no bank partners to speak of, Roeding said the company would consider such a venture if it supplied more value to consumers. "In general, our principle is that any rewards that are useful to consumers are interesting to us, and only those," he said.
