Loyalzoo
The UK's first cloud-based loyalty app for independent shops and eateries.
- Location
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London,
United Kingdom
Categories: Advertising & Marketing Digital B2C
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Investment
sought: - £120,000
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Equity
offered: - 13.04%
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Investment
amount: - £204,510
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Valuation
(pre-money): - £800,000
Idea
Introduction
Loyalzoo offers independent retailers a loyalty app to replace traditional loyalty cards (cardboard and plastic). It allows any merchant to run their own loyalty programme on their customers’ smartphones, and gives them the tools currently only available to the big brands and retail chains, such as customer analytics, push promotions and social marketing.
The main objective of the product is to get the merchant's new (and existing) customers to become regulars and to encourage the trend to “shop local”.
The idea came to the founders by looking at their wallet full of (often unused) loyalty cards, and seeing how most big retail chains are promoting their own branded loyalty apps to replace traditional loyalty cards. The immediate question was: What about the independents?
The challenge was to create a loyalty app for independent shops and restaurants that is affordable, easy to use, and that gives them the technology they need to compete in this increasingly mobile society.
One of our current customers explains why it works so well for them, in the below video:
Intended impact
The effects of this app are very simple, and therefore very profound. At a practical level, it changes the shape of people's wallets! They don't need to carry all those plastic and paper loyalty cards, at least not those of the independents. For merchants, it gives them the means to establish a permanent connection with everyone that comes into their shop.
Almost every large retail chain has launched loyalty apps, either in parallel to traditional loyalty cards (Costa, Nando's, Tesco), or as their only loyalty system (Starbucks, GBK, Giraffe, etc). This gives them the tools to better understand their customers and get more competitive, whilst the smaller independent merchants are left behind.
Local merchants are the lifeblood of an area, but they'll never be able to compete against the large brands with all their technology and marketing investments.
The Loyalzoo app is therefore a social product, a) because it heightens the levels of personal contact between merchant and customer, b) because it brings together all independent shops into a single social unit while preserving the integrity of each, c) because it cultivates the habit of shopping locally and so draws consumers back towards neighbourhood shops. Once shoppers start to use the app for multiple shops, its social implications start to show because the overall impact is greater than the sum of individual loyalty schemes. In effect, the more shops that join the app the more dense the network becomes: it becomes intensive as well as extensive.
So the power of the app, when fully deployed, would go far beyond its usefulness as a means of giving loyalty points. It uses the latest mobile technology to invigorate a very old feature of everyday life, one to which many people have a strong sentimental attachment.
Substantial accomplishments to date
We have developed: 1) iOS app, Android app, with Blackberry and Nokia on the way; 2) Merchant apps and control panel; 3) Supporting back-end system (database).
We have over 70 shops/eateries using Loyalzoo throughout the UK. Furthermore, we have businesses in California, South Africa and Japan. So we are already a global brand, in its infancy.
We have seen significant growth in merchant signups since January, with an average of 4 new signups per week from the website alone. And our user base (consumers) has now reached 1,900 users, with a growth of more than 100 new users every week.
Feedback is extremely positive. Both customers and merchants love it for its simplicity and elegance.
And the whole system sits on a technology infrastructure that has been designed to be 100% scalable.
On the 25th February we were chosen by Future 50 to be among Britain’s 50 most disruptive startups.
Finally, we have attracted interest from the press, with articles about us published by London's Evening Standard, The Guardian and ChiswickW4, and we have a strong 7,000+ community of followers on Twitter.
Monetisation strategy
Our pricing is based on a monthly subscription charge to the merchant, with the possibility of subscribing to a free plan. It is important to bear in mind that there is an intrinsic value to having a merchant on the app even if they are not actively using it and therefore not paying. It increases the coverage of the app and therefore, as the number of customers using the app increases, it increases the likelihood that customers will 'force' the merchant to start actively engaging.
There are three pricing plans:
1) Free plan. This plan allows merchants to test the app for free for as long as they have fewer than 30 customers. It is very important to give merchants the feeling that they are getting value out of the app before billing them. We believe it also reduces, almost to nil, the possibility of a merchant coming off the app.
2) Starter plan. £37/month with two free "push" promotions per month. This plan allows up to 100 customers to use the app at a store. It is targeted mainly at smaller outlets, such as hair salons, smaller coffee shops, delis etc.
3) Unlimited plan. £57/month with four free "push" promotions per month. There is no upper limit on the number of customers on this plan. It is aimed at larger outlets such as restaurants and pubs.
As we are at the early stages of deployment, we have set up these simple plans for clarity and simplicity. However it is important to remember that the monetisation possibilities in an app such as this are immense. Extra "push" promotions, for example, are charged £10 each. And in future there are many monetisation opportunities with payments, business acquisition, advertisement, analytics, etc.
Use of proceeds
About one third of the investments will go into customer acquisition (sales and marketing). This is performed via 4 different channels: organic and social media, paid search and advertising, email campaigns and direct sales agents. We also plan to hire a marketing specialist.
Another third of the investments will go into software development. We need to develop an API so that third-party services can connect to our back-end, but we also need to keep evolving the app to support more smartphones and new features that merchants require.
The rest will be spent in taking office space and sustaining operations.
Market
Target market
There are about 150,000 independent retailers in the UK alone, and we believe there are at least 120,000 that live on repeat business. And we expect that, within a couple of years traditional loyalty cards will certainly disappear from our wallets, replaced by apps.
The most important sectors are: restaurants, pubs, coffee shops, delis, butchers, bakers, hair salons, spas, sports clubs, florists, physiotherapists, dentists. And every week we discover new services we'd never thought of that are interested in using the app. Any shop or service that does repeat business and has a fixed location could reasonably use the app.
And in future we plan to enable the app to cater for mobile businesses (moving market stalls, visiting beauticians, etc). as well as independent online businesses.
In terms of the geographical spread, at the moment, because we are a British-based company, we see our impact firstly in the UK. However as we have already found, it can be used just as easily anywhere in the world, certainly in the Anglophone part of it. We see our next target markets being Ireland, the US, South Africa, Australia and New Zealand. Multilingual versions of the app would then allow us to penetrate the European, Asian and South American markets.
Characteristics of target market
There are approximately 150,000 independent retailers in the UK. And after we exclude certain categories such as corner shop grocery stores (which would benefit little from a mobile loyalty scheme), and include other outlets such as dental clinics, physiotherapists, clubs, etc, we estimate a total market size of 120,000.
Given the relentless growth of automated and mobile systems, we think that in a few years loyalty cards, both paper and plastic, will be a thing of the past. At the most conservative estimate, we reckon that by 2018, 50% of independent retailers will be using mobile apps to manage customer loyalty, which represents a market of 60,000 retailers in the UK alone. And we are confident we can achieve a market share of between 10% and 30%.
We have not attempted to estimate the size of the market worldwide, but believe the opportunity is vast indeed.
Marketing strategy
At present we have four main sales channels:
1) organic search (covering search engines and social media)
2) sales agents
3) email campaigns
4) paid search/adverts.
So far, the channel we have found most successful is online search (organic and paid). We are now signing up through our website an average of four new merchants each week, delivering a growth of over 100 users per week.
It should be kept in mind however that this is not purely a matter of numbers. The app really comes into its own where there is density of usage by merchants; in other words, where consumers can have reward schemes at different shops in their neighbourhood.
This is why we believe big growth will come from establishing a network of sales agents, which we have already started to do. An affiliate program, and a licensing opportunity for third-party digital agencies are in the works too.
Competition strategy
At present we don't see any serious competition, at least not from within the UK.. This market is still in its infancy, and although there is a substantial market already in mobile loyalty for big brands/retail chains etc, there is very little on offer to independents. There is a good reason for this: yes, the independent sector is a huge market, but it is also a tough market to sell into, and the requirements are different compared to retail chains.
A few startups have tried to enter this sector in the UK, but did not succeed, mostly due to poor quality of the offering. In fact, they all took the easy approach of using QR code scanning technology, very easy to implement, but with very poor acceptance by consumers (it's perceived as a very 'techie' thing to do). It is also an approach where technology stands too much in the way between merchant and customer, and provides very little value to retailers. In some cases, these startups have been founded by people with no experience of selling, who underestimated the importance of a proper go-to-market strategy.
The only decent offerings in this space come from the US, but none of them are focusing on the UK or Europe, and have little presence in the UK.
We believe that the key to our long-term success is the quality of what we offer and on this score, we are confident that our cloud-based app is the easiest, most elegant of its kind, not just in the UK, but globally.