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 app has now been running live for over a year and we feel it has established itself as a premium digital loyalty offering to independent merchants.
We completed our first funding round with Seedrs in April last year and since then we have grown steadily. We are now raising a further round with a view to execute on our marketing strategy of scaling the business through channel partners.
In this video, one of our current customers explains why it works so well for them:
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.
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.
The goal of Loyalzoo is to help independent merchants and smaller groups compete in an increasingly mobile world, with a service that’s affordable and designed for them.
On average, merchants using Loyalzoo see a sales increase of 8%, from customers they already have, and without reducing margins. The app aims to alter the merchant/customer relationship in a subtle but far-reaching way. For consumers, don't require a paper and plastic loyalty card(s) stuffing their wallets and they are guaranteed their points/stamps at every visit. For merchants, it gives them the means to establish a permanent connection with everyone that comes into their shop.
Loyalzoo is also a social product, a) because it changes the nature of the interaction 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 grows intensively as well as extensively.
Substantial accomplishments to date
We successfully raised over £200,000 from more than 170 investors via the Seedrs platform in April 2014.
- with over 270 shops/eateries using Loyalzoo throughout the UK and other countries, we believe we have grown to be the UK’s largest loyalty app for independent retailers;
- we are establishing commercial arrangements with three large merchant service providers with access to nearly 100,000 merchants in the UK and Ireland;
- the integration into First Data’s Clover system will make our service instantly accessible to over 35,000 merchants across the US and UK.
- our iOS and Android apps keep receiving very positive reviews in the app stores;
- we have launched a new patent-pending ‘online’ product for non-bricks & mortar shops (Kiwis);
- we have launched a technology that allows us to integrate Loyalzoo into almost any legacy Point-Of-Sale system and capture transactional data, as well as a native integration with First Data’s Clover POS system.
We have a three-tier pricing model, based on the three key services we offer merchants.
1) Our most common package is the monthly subscription of £27/month charged to the merchant, with the possibility of paying for a year in advance at a discount. We offer a 30-day free trial on this plan.
2) The Enterprise Plan, which includes full POS-integration on any Windows-based till, is £57/month with a one-off installation charge of £319. We have found for a busy pub or restaurant this is a very attractive proposition. We have also noticed it also opens up the tier-2 and -3 markets - slightly larger groups or chains. In our experience pubs in particular are a huge potential market for us and the most consistently enthusiastic in engaging with their customers through Loyalzoo.
3) Our third pricing option is the ‘online/mobile’ service for non-bricks & mortar businesses. This is priced at £9 per month, making it an affordable loyalty solution for any type of small business.
We believe 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 (the normal plan includes 2 per month). We have also found there are many monetisation opportunities with payments, business acquisition, advertisement, analytics, etc.
In terms of a business model, we feel that Loyalzoo has now achieved full scaleability. A merchant can sign-up, configure their individual loyalty program for his/her shop and get activated, all in a matter of minutes - all without manual intervention from the Loyalzoo team.
In our opinion Loyalzoo is a particularly appealing acquisition target for payment / merchant services companies and marketing agencies.
Use of proceeds
44% - Sales & Marketing
18% - Software Development
38% - Operations, Support, Management and other General expenses.
There are over 250,000 independent retailers in the UK alone, and we believe there are at least 120,000 that live on repeat business. We expect that, within a couple of years most merchants will have replaced traditional loyalty cards with some sort of digital loyalty solution.
The most important sectors are: restaurants, pubs, coffee shops, delis, butchers, bakers, hair salons, spas, sports clubs, florists, physiotherapists, dentists. Almost all signups to date have come to us through “search”.
Our patent-pending “Kiwis” solution for mobile businesses (market stalls, visiting beauticians, etc), as well as independent online businesses, has opened up our system to even more possibilities. This includes product manufacturers. A premium peanut butter manufacturer is launching their new loyalty scheme using our kiwi weblinks on their labels to engage their customers - whether they have bought their jar of peanut butter online or in a traditional shop.
In terms of the geographical spread, at the moment, because we are a British-based company, we see our impact firstly in the UK. We already get a significant number of merchant signups from the USA, but we wish to also target Ireland, Canada, South Africa, Australia and New Zealand.
Characteristics of target market
In our experience the independent retail/hospitality sector is very diverse and can be hard to access for example; independent business owners tend to be focused on the day-to-day running of the business, rather than wider marketing issues. So we’ve found that the early-adopters and most effective users of the app tend to come from sectors that are more business-focused such as restaurants and pubs. The pub sector in particular is an extremely promising one for us, especially in the UK.
We estimate that by 2018 a total of at least 120,000 independent businesses in the UK will use mobile apps to manage customer loyalty, and we are targeting a 50% market share.
We have identified three main sales channels:
1) organic search (covering search engines and social media)
3) paid search/adverts.
To date, nearly all our signups have come from online search (organic and paid). We believe this proves that there is a growing market for our product. We are now signing up through our website an average of four/five new merchants each week, delivering a steady rate of user growth.
We now want to focus on increasing our growth rate and to create the density of usage which will make the app an intrinsic part of the retail ecosystem. In order to achieve this, our efforts in recent months have focused on working with partners that have strong presence in the independent retail sector, such as merchant acquirers, merchant services companies, and POS vendors. This has proved a very rich seam for the business as merchant acquirers (providers of card payment services to businesses) are particularly eager to team up with us. In some cases, they will be selling our service to existing customers; in others, they will be trying to attract new customers from their competitors by offering Loyalzoo.
We are close to launching partnerships with 3 merchant services companies and one POS provider, giving us exposure to nearly 130,000 merchants in the UK, USA and Ireland. And we intend to setup many more partnerships in future, which will help us scale towards a highly profitable business.
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. We believe 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.
We feel we have established ourselves as the premium offering in this space in this virgin market, at least in the UK. No doubt, new competitors will appear in the next few years. However, having established our premium position, we believe it would be a daunting task for a brand new offering to enter the market. And in our opinion, the intrinsic stickiness of our service (switching would require the merchant to re-educate their customers to a new system) makes it even more difficult.
There’s more competition in the US, where the market is more mature. 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 app is the easiest and most elegant of its kind, not just in the UK, but globally.