October 1, 2010, 11:25 AM

Screen to Store

Retailers look to mobile marketing programs to nudge window shoppers into stores.

Katie Evans

Managing Editor, International Research

Food, water, mobile phone. Those might well be the three items a teen would choose to bring if stranded on a desert island—and not necessarily in that order.

Consider that consumers 18 and younger send and receive an average of 2,779 text messages a month, about 93 a day, according to a Nielsen Co. analysis of the mobile phone bills of more than 60,000 subscribers. Teens likely won’t have a magazine, television or PC with them at all times, but they are very likely to have a mobile phone.

That love affair between teens and their phones makes mobile an obvious marketing channel for teen apparel and accessories retailer American Eagle Outfitters Inc. The retailer sends text message alerts and coupons to customers—hundreds of thousands have opted in, the retailer says—and operates an m-commerce site. It also participates in the location-based social network foursquare, which lets users track their friends’ whereabouts and earn discounts by using their phones to check in at participating locations.

But when it comes to boosting store sales through mobile, it’s a new app called shopkick that’s really excited Mike Dupuis, vice president of marketing and operations for American Eagle Outfitters Direct.

“Shopkick is the first mobile application that truly rewards the user for engaging in the physical store environment,” he says. “And it offers a level of location precision I’ve yet to see anywhere else.”

New mobile marketing programs like these are drawing interest among retail chain executives because they have the potential to induce a shopper walking past a store to walk in. There’s still scant evidence that the programs work, but there’s enough interest among consumers to make retailers take a look.

Foursquare, for instance, attracted 600,000 virtual check-ins per day in May, only 14 months after it was launched. Shopkick is even newer, but the buzz around location-based mobile services helped it raise $15 million in venture capital this summer—before it had even introduced the retail rewards app that American Eagle is now rolling out.

To be sure, location-based apps like foursquare and shopkick are hardly mainstream. Only 4% of U.S. online adults have ever used location-based social networks on their mobile phones, with only 1% using them more than once a week, according to a recent study from Forrester Research Inc., a research and consulting firm.

“The consumer behavior element is an open question,” says Julie Ask, vice president and principal analyst at Forrester. She notes some of these services require that a consumer keep an app open on her phone while she shops, which might be awkward when pushing a shopping cart. “Will consumers walk about with a phone in their hands and an application open? What will motivate them to do so?” she wonders.

Check in vs. Walk in

Rewards are the answer, or at least shopkick hopes so. Shopkick is designed to drive store foot traffic and sales. In that sense it’s more retail-oriented than foursquare, which offers some discounts, but is mainly designed to help users discover new places, see where their friends are and gain insider information, like learning about the great new panini at the local deli.

With shopkick, shoppers out and about open the app to view a list of nearby stores where they can “Check in,” which just requires they move near a store. Check-ins garner a couple of rewards points—what shopkick calls kickbucks—which users can cash in for gift cards, music downloads or to make donations to a charity.

A shopper gets more points when she steps into a store, which shopkick calls a “Walk in,” with the shopkick app open on her phone. For example, Dupuis says, American Eagle offers around 35 kickbucks for a “Walk In.”

Once a retailer knows the shopper is in the store—through shopkick—it can entice her with special discounts and offers, let her know about items on sale or shell out more kickbucks to encourage actions that typically lead to a sale. For example, shoppers who enter a dressing room at a participating American Eagle store can scan a poster for an additional 35 kickbucks, Dupuis says.

What makes shopkick especially appealing for retailers, Dupuis says, is that the retailer knows the shopper is in the store. That’s accomplished by special signal transmitters that the retailer deploys in the store and that send out an inaudible signal picked up by the iPhone’s microphone and then by the shopkick app. (For now, shopkick only works with Apple Inc.’s iPhones.) That sets it apart from other services that use the GPS technology in mobile phones to establish roughly where a consumer is.

“A lot of location-based apps leverage GPS technology, and are, at best, not precise,” Dupuis says. Knowing that a customer has literally crossed over the store threshold is huge, Dupuis says. Sales come from entering a store, not just standing nearby, he says. That’s why most retailers offer more points for walking in and other bonuses for engaging in other actions once in the store.

Reaping rewards

But 35 kickbucks doesn’t get a consumer all that much, which raises the question of how effective the incentive will turn out to be.

Dupuis estimates the going rate for a song download is around 250 kickbucks, and a shopkick spokeswoman confirms a $5 gift card at American Eagle requires 1,250 kickbucks. But she adds merchants can structure rewards however they wish. For example, one merchant is offering a $25 gift card for 250 kickbucks. And merchants put caps on the amount of times per day shoppers can enter a store and complete tasks to earn kickbucks, in order to prevent abuse. Retailers can also offer special discounts for shopkick users.

Shopkick gets paid a small fee for each kickbuck a store doles out. If a consumer buys an item after using the app, shopkick gets a percentage of the purchase price, shopkick says. There’s also a fee for the shopkick signal transmitters, which the spokeswoman says cost less than $100 each. American Eagle says it has two to three in each store, and Dupuis says deploying them required nothing more than plugging them into an electrical outlet.

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