Shopkick: Re-Inventing Retail and Rewards?

As I described in Friday’s entry, the online deals business has taken off and will transform a number of industries, from retail to marketing to payments.  Groupon has achieved nearly 50 million subscribers and a $15 billion valuation in just over two years and is being joined by Google, Facebook and Amazon (Living Social investor), which are all entering the market.

My prediction would be that the next big opportunity would be to overlay traditional offers with location-based services – this would make offers more immediate and relevant.  Imagine walking out of the gym and receiving an offer for a freshly squeezed orange juice from the café next door or leaving the cinema and being offered a 2-for-1 deal at the restaurant across the street.

Still, the most prominent location-based service providers, Foursquare, Facebook Places, Gowalla and Scwngr, have mostly focused on social and gaming features. 

Shopkick, on the other hand, is taking a far more retail-focused approach – it aims to be “the Foursquare of shopping”.  However, what makes Shopkick so interesting is not only its commercial focus, but its approach to rewards and shopping.  Unlike traditional reward programs, it does not only reward the actual purchase, but every step the customer takes towards the cash register, from entering the store, to checking out merchandise to trying clothes on. 

Shopkick addresses the challenges of the retailer in a far more fundamental way than traditional reward programs, by enabling them to engage with the customer at every step of the purchase process and could be the beginning of a re-invention of retail and rewards.

The enabling factor behind Shopkicks approach is the precision of its tracking technology.  Traditional GPS tracking has a relatively large error margin and does not give the precision required.  Shopkick’s tracking technology relies on small boxes that it installs in retail locations.  These boxes emit an audio signal that is inaudible to humans, but is picked up by mobile phones on which the Shopkick app is installed.  Using this technology, Shopkick is able to determine if someone has entered a certain store or changing room.

This technology saves the customer from having to check in, as they do with other location-based services, and automatically rewards them with loyalty points, or Kickbucks.  Kickbucks can then be redeemed across all partner stores for gift card rewards or for Facebook Credits.  Retailers can also install several Shopkick trackers within their stores and reward shoppers for browsing, while they provide promotions and information about products along the way.

Since launching in August 2010, it has made some very impressive progress.  It has entered partnerships with national retailers, such as Macy’s, Best Buy, Target and Simon Malls.  It’s installed at 1,100 stores and 100 malls across 18 US markets and has reached 750,000 customers, doing more than 1 million check-ins per day.

Still, the most encouraging metric relates to walk-in promotions.  By boosting the rewards that users get when they walk into the stores, Shopkick has been able to increase walk-in by 50-100%.  This is particularly encouraging as tripling Kickbucks awards only costs the retailer 50 cents to $1.  With single transactions in specialty retail being worth $10 – 15, this could be a very good investment.

So, Shopkick can continue on this trajectory? To a great extent, this will depend on its ability to develop its product to engage customers during the shopping process.  Can it introduce features that make products come alive, suggest additional products based on the customer’s taste and connect them with friends while shopping?  Will it make shopping a more exciting experience and help us make better decisions along the way?  If so, Shopkick will surely be a transformational force across retail, marketing and rewards.