Case study: Cardagin’s rewards app

The story

Rob Masri set up Cardagin Networks in 2010 to develop an app targeted at smaller, local merchants that offered rewards to customers via smartphones and other mobile devices.

Consumers can use the Charlottesville, Virginia-based company’s app to check out details of shops, view offers, redeem coupons, earn loyalty points and collect rewards. In the store, the consumer can view any offers on their device and redeem the discount at checkout. The app is free for consumers. 

The app allows businesses to record transactions and award points when a purchase is made. The merchants can easily track redemptions per offer and consumers’ spending patterns. By late 2011 most of the 1,385 merchants using the app were giving big discounts to the 160,000 consumers who had downloaded it.

The challenge

Mr Masri believed Cardagin’s biggest potential differentiator from offline and mobile rivals was its ability to customise offers to consumers’ preferences. But to his disappointment, the way the merchants used the app was challenging Cardagin’s core business model, which was to provide sophisticated analysis that would help merchants identify and understand their best customers, and build better marketing relationships with them.

The store managers were reluctant to provide discounts to their most loyal customers because they assumed the regulars would visit anyway. Instead, they were using discounts to attract new customers or to win less loyal customers.

The strategy

Mr Masri set about persuading stores that the app was more than an online gimmick. He argued that simply being exposed to the marketing messages that accompanied coupons helped persuade consumers to buy products even if they did not redeem the discount offer. To try to measure this “exposure effect”, he stressed the importance of tracking every customer visit.

What happened

Cashiers were encouraged to ask all customers if they were on the loyalty programme – the Cardagin network – and whether they would like to record their purchases in order to earn reward points and future offers.

Mr Masri organised simple brochures that explained how consumers could earn points each time they made a purchase and outlined the benefits.

Cardagin also simplified the interface of the app so that consumers could quickly access their loyalty code and merchants could easily scan the consumer’s code.

The outcome

Tracking every purchase allowed Cardagin and the merchants to analyse consumer preferences and the effects of offers. For example, one coffee shop owner was able to see quickly and easily that an offer of a free drink was redeemed by more than 500 shoppers in a week, while a 99 cents discount was redeemed by 300.

The owner gained extra revenue of more than $1,000. More important, the app revealed that more than 40 per cent of customers who redeemed the offer returned over the next four weeks, compared with 10 per cent of the redeemers of the 99 cents price-reduction offer.

When Cardagin and the merchants monitored purchasing and redemption patterns they found many customers did not redeem the coupon but still continued to visit the store, and a signifcant percentage of those non-redeemers increased their purchases.

The lessons

Cardagin wanted to show local retailers the longer-term, deeper value of its technology. In other words, it had to do more than merely sell or market a product; it also had to educate shop owners unfamiliar with apps in how to use such technologies to get the most out of them.

For any business, this means working with clients to help them understand the new context, and providing hard evidence on any new process would have a positive effect on the bottom line. 

- Financial Times, 28 May 2012