Shoppers may finally be able to toss out the dozens of barely punched buy-10-get-1-free cards in their wallets -- all without giving up on earning the free coffee, frozen yogurt or other goodies from their favorite local businesses.
A growing number of start-ups provide one account that racks up rewards for spending at multiple mom-and-pop businesses. Approaches vary, but they're all card-free. Punchey, which launched in mid-August, ties rewards to a user's email address; year-old LocalBonus, which expanded its partnerships from one to six cities in April, adds rewards based on spending with a linked credit card. Others, including Belly and Perka, ask users to check in with a mobile app while they're in-store. (Belly does have a physical card for old-school users.) Bigger players, including Foursquare and Groupon, have also added local-business loyalty offerings in recent months.
The push comes as the daily-deal space matures: With so many services offering half-price vouchers at local businesses, start-ups are looking for alternatives, says Jack Vonder Heide, chief executive of Technology Briefing Centers, a research firm. Businesses like the virtual-punch-card idea, because it helps them reward loyal customers without having to shell out the substantial discounts that daily-deal sites demand, and it sidesteps the fraud risk that accompanies physical punch cards. A high-tech offering that pools rewards also helps smaller businesses better compete against big chains, says Kelly Hlavinka, a managing partner at loyalty research firm Colloquy. The average household has enrolled in 18 loyalty programs from national chains, and actively participates in just a third of those. "It's difficult for local businesses to cut through that noise," she says.
Aside from helping to shrink the stack of loyalty and punch cards in your wallet, the apps can offer substantial savings for shoppers. Many of the programs entice participating businesses to offer rewards you might not be able to buy, Hlavinka says. At Evolution Wine and Spirits Northbrook in Chicago, for example, 300 Belly reward points can be traded in for an in-store wine tasting for the user and six friends. Others, like LocalBonus, pool points earned from multiple retailers toward one reward: For each dollar spent, participating businesses might offer, say, 10 loyalty points; customers who rack up 10,000 points then get $30 cash back. That model lets shoppers see savings even if they don't visit a business frequently, says founder and chief executive Derek Webster.
But shoppers should carefully check the number of retailers participating in a program before signing up, says Brad Spirrison, the managing editor of app-review site Appolicious. "That's the challenge for most of these companies," he says. "It's obviously a land grab, but they're all limited in areas covered and number of businesses signed up." Most currently focus on large cities, and even there, the number of small businesses signed up may only be in the hundreds. In other words, there's a good chance that only a few of the restaurants, spas, fitness centers and other local businesses you frequent have signed up.
Making things more difficult, a shopper's favorite businesses may have each signed up with a different service, so the user could wind up juggling multiple apps and earning methods. And some programs require more effort than others, requiring users to scan receipts or spend a few minutes on their phone in stores. "Just like you suffer from having too many print cards in your wallet, you can have too many apps on your phone and lose sight of which ones are worth using," Spirrison says.
It's also important to look at the rewards schedule. Many programs don't pool rewards, so you're still potentially stuck with a punch card -- albeit a virtual one -- that perpetually has just a few points on it, says Vonder Heide. The rewards aren't always valuable, either. Some merchants using Perkville and Belly offer such dubious rewards as getting a high five, or getting to punch a comic book store owner in the stomach. "These are things that make for great articles, but in reality, consumers care more about saving money and getting real discounts," Vonder Heide says. Sunil Saha, founder and chief executive of Perkville, says merchants are encouraged to mix creative perks with valuable ones, and that most choose to reward customers "with things they truly value." Logan LaHive, founder and chief executive of Belly, says businesses offer an average of eight rewards, which blend discounts and quirky opportunities that help businesses get more personal with their customers.
The biggest risk, however, may be of losing rewards entirely. "Almost all the companies in this space are start-ups, and start-ups come and start-ups go," Vonder Heide says. If a rewards provider disappears, customers could see their balance disappear along with it -- which means shoppers might be wise to redeem their rewards sooner rather than later.