New Thinking

The Savings App Explosion

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On Black Friday and Cyber Monday 2017, shoppers around the country turned to their smartphones and laptops. According to Adobe Analytics data, American shoppers spent approximately $6.6 billion on Cyber Monday and $5 billion on Black Friday. For value-savvy shoppers, there was one extra ingredient in the mix: Apps and websites offering online-only coupons and discounts.

As an inducement for customers to purchase more in the holiday shopping rush, mobile apps from Amazon and other retailers sent push notifications about online-only discounts. More surprisingly, customers were happy about the push notifications—these days, using smartphones for retail discounts is commonplace. But this wasn’t always the case.

When McDonald’s began experimenting with smartphone apps in 2015, one feature was high on the priority list: Exclusive mobile discounts. Customers ordering Big Macs or breakfast sandwiches through their McDonald’s smartphone app would then find targeted coupons for related products in their apps. Unless shoppers used McDonalds’ app, they would not receive the discount.

These discounts targeted at users are a win-win for customers and brands. Customers receive free items or discounts on items to purchase, and brands such as McDonald’s leverage huge amounts of data collected through mobile apps, credit card transactions, and loyalty card programs to steer customers towards items they want them to buy (at full price, of course) in the future.

Other dining chains, retailers, and supermarkets also offer discounts through mobile apps. Starbucks’ mobile app and loyalty system, which offers micro-segmented promotions, is one of the best known success stories of the app industry. Supermarket firm Kroger integrates their loyalty card program into their smartphone app, and combines customer-facing coupons offering deep discounts with a loyalty program that collects massively detailed shopper analytics. Target, meanwhile, offers special mobile app-only discounts as a way to compete with online retailers.

For retailers and startups, offering coupons via smartphone fulfills three related objectives: Generating additional revenue or income, steering customers towards new products, and collecting additional data on shopper habits.

Dori Yona of Earny, a retail cash-back startup which refunds customers if an item they purchase decreases in price, says the name of the game for these apps is increasing customer willingness to purchase items on mobile devices.

“In general, we are seeing a shift in E-commerce as to where buying is happening,” Yona says. “Purchasing is occurring more on mobile as opposed to web. As more consumers shift to mobile, the same people who were looking for coupons on the web are looking for the equivalent on mobile.” Mobile coupon apps, as Yona points out, are just the latest iteration of a longstanding E-commerce tradition of promo codes and coupons.

Customers in the United States and many other countries, for instance, are used to retailers sending them targeted coupon codes and special promotions in exchange for giving their email addresses. Some retailers, such as Gap Inc. (Gap, Banana Republic, Old Navy) and Macy’s offer customers substantial savings in emails. Newer E-commerce and service companies adopt a similar approach, with many startups leveraging venture capital investment to offer customers sharply discounted promotional codes via email.

For instance, meal kit brand Blue Apron offers new customers extremely inexpensive trial subscriptions, and ridesharing services Uber and Lyft both offer new passengers free or sharply discounted rides.

There’s also a large sector of businesses who exist solely to offer customers discount codes for E-commerce via mobile app or desktop. Companies such as RetailMeNot, Honey, and Ebates steer customers towards discount codes for retailers. In turn, the companies earn commissions from those referrals.

When a user opens RetailMeNot’s mobile app, they can either search for discount codes for specific retailers or browse a daily deals list. RetailMeNot is set up so, in many cases, the company gets a small commission for connecting a customer using their service with a specific retailer. It’s designed as a win-win-win situation where the customer saves money on their purchase, the E-commerce retailer has a guaranteed transaction they don’t lose to a less-expensive rival, and RetailMeNot takes a cut in exchange for making the connection.

Using these sites and apps has become instinctual behavior for many users. As Michael Schneider of the travel discount app Service puts it, “Ten years ago, I don’t know if I would try to find a discount code, but today it’s sort of a standard practice to save money just because it is so easy to check and see.”

There are also more conventional coupon apps for smartphones designed specifically for grocery shoppers that function more like the coupons in a Sunday newspaper circular than anything else. These apps, such as Coupons.com and Cellfire, are aimed directly at value-conscious shoppers hoping to wring the most value out of every dollar. Because smartphones are portable, they are an ideal format for such shoppers, especially those who might no longer subscribe to newspapers, where coupon circulars have historically appeared.

According to a 2010 article by Time’s Brad Tuttle, retail coupons were pioneered in the late 19th century by Coca-Cola. The young drink manufacturer found, much like Uber or Blue Apron, that offering vouchers for their product at loss leader prices was an easy way to convert customers into regular Coca-Cola buyers.

Coupons remained a novelty in the first decades of the twentieth century, before gaining mass traction with the Great Depression. In the 1930s, retailers and brands alike made a calculated decision: With customers facing hard economic times, it made more sense to guarantee their loyalty by offering discounts than risk losing them to a competitor.

Thankfully, the economy is on a better footing these days than it was in the Great Depression. However, many customers that retailers want to target are—much as they were in the 1930s—looking to stretch their income as far as possible. This leads to a natural niche in which mobile apps can grow and monetize.

As Starbucks’, McDonald’s’, Target’s and Kroger’s investments show, store apps with coupons are an easy route for marketing innovation. Coupons are offered as enticements for customers to try new products or visit a retailer more frequently. In exchange for these discounts, retailers then use mobile apps in conjunction with in-store beacons, website cookies and more to gain a deep knowledge of shoppers’ habits and purchase journeys.

Meanwhile, for third-party sites, steering discount codes to customers is a handy way to make income. Thanks to economies of scale, these companies largely sustain themselves on affiliate partner income and commissions while handling no physical inventory, retail stores, or supply chain.

Online-only savings and coupons aren’t going away anytime soon, either. One third-party discount tool, Honey, has already acquired $40.8 million in funding, and retailers are scrambling to add mobile-only and web-only discounts to their ecommerce presences.

As it turns out, mobile apps and granular web promotions offer a new frontier of engaging and reaching customers for brick-and-mortar and ecommerce outfits alike. The next time your phone gets a push notification about a sale at your favorite retailer, remember: There’s a lot of data behind it.

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