This article was featured on Pizzamarketplace.com on September 22, 2014.
Many restaurant brands have invested a lot of money in building a custom mobile app for their brand. Reasons range from "it's cheap to re-engage with a mobile audience" to "we want to be able to provide mobile payments to quicken in-store lines and collect more data on our customers." If you are one of the unicorns that has a majority of your customers actively participating in your loyalty program or app, you can ignore the rest of this post. Otherwise, read on.
I'm sorry to tell you that your loyalty program and/or app will not be as valuable as you think. Here's why:
First, many marketers naively see a branded mobile app as an additional marketing channel rather than a strategic service offering, such as mobile payments. Just because you built it doesn’t mean they will come. Getting consumers to download and use your app consistently is really, really hard and requires a sustained marketing effort from day 1. This is why most brands find success in offering consumers some kind of reward or discount in exchange for the download. If you don’t offer something and back the app with a sustained marketing push, adoption will be low, participation from consumers will be even lower and all of that money you spent getting the app up and running will go to waste.
Second, even if you are successful in getting people to download your app, only a precious few of your customers will ever actually use it. These are typically the top 1 to 3 percent of your customer base; the people who know and love your brand and visit you frequently enough that having an app on their phone is justified. To these top customers, your app is valuable because they will accrue rewards for visits they already planned on making and will, perhaps, have a better in-store experience (provided your app actually works the way you want, which is rare on the first release). But as of mid-September 2014, you have a problem: Apple Pay has just demolished the payment value of a branded app. Apple Pay now makes possible for consumers to pay with their phone without downloading your app by offering consumers the ability to store any credit card on their phone and use it with any NFC-enabled device in-store - it's an idea that already has traction: McDonald's, Subway, Panera, Chipotle and Starbucks, the champion of the branded app, have all stated they will accept Apple Pay.
Starbucks accepting Apple Pay is a huge deal and here's why: the consumers using your mobile app are comprised of some fraction of your current customer base who (a) have a smart phone that is compatible with your app, (b) also come frequently enough that they want your app and (c) are willing to download it. Frankly, it's just not that many people. Estimates show that, Starbucks, for example, a globally recognized brand with what is considered the most successful food-service app by far, has less than 20 to 30 percent of its customer base on the app and transactions through the app accounted for less than 14 percent of all sales, according to their last financial release. While this is remarkably high, it is equally unlikely to replicated.
Apps can be a fantastic investment for brands who (a) have a very high customer frequency, (b) a large enough quantity of customers that a subset of those can justify having an app and (c) have both the cash to pay for the app and sustained marketing efforts to promote more downloads. Starbucks has incredibly high frequency (6x/month), very busy lines and lots of cash -- there is increased motivation by consumers to download the app (go through the line faster) and higher likelihood they’ll keep using it (since they were already planning on going back). If your brand has lower customer frequency, lower cash reserves and/or lines that aren't as busy as Starbucks, then an app is likely not your best investment.
Apple Pay's adoption potential
Apple Pay, on the other hand, represents way more adoption potential. As it relates to your brand, the number of people who may want to pay you with Apple Pay is some fraction of iPhone owners who are also your customers. It is very likely that the number of people who qualify to transact with your brand via Apple Pay is way higher than the number of people who would download and use your app. And, because many POS terminals offer NFC compatibility, this new mobile payment option will be mainstream in no time (as of 9/15/14, Apple already pre-sold 4 million phones).
That said, there is definitely some value in having your own branded app. For those top 1 to 3 percent of your customer base, having an icon living on their phone serves as a valuable reminder. And surely, the die-hard users of your app will spend a little more and come back a bit more frequently. But buyer beware: A recent study from Localytics shows that around 20 percent of all mobile apps downloaded are used only once and then disregarded. At a certain point you have to ask yourself, "Is it better to get 200 people to spend $100 more or 20,000 people to spend $10 more?" The answer, by a factor of 10, is 20,000 people. Don't think this is you? Compare your number of loyalty club/app members and your total social media following.
Kim Matlock, from Hard Rock Cafe, pointed out at a Venturebeat conference that they have a couple million people in their loyalty program and more than 9M fans on Facebook. Obviously, there is a ton of value in converting those people into some type of CRM/loyalty program which will allow her to market to them. If a brand as sophisticated and established as Hard Rock is seeing this phenomenon, what makes you think your brand is different?
Invest in your marketing platform
What you really should be focused on is investing in a marketing platform that will allow you to acquire customers from across the web into a centralized database and distribute and track promotions that can connect to Apple Pay, so you can get an exact ROI for every marketing campaign. This way, you can optimize your marketing and grow your database in preparation for Apple Pay being adopted by your customers.
With Apple Pay, you will be able to offer the same payment utility/value to consumers as your app does, and, because it doesn't require a download, more people will use it. And for what it’s worth, I would bet a pretty penny that Google will push Google Wallet hard to be more competitive with Apple Pay so Android owners don’t switch to Apple.
Focus your energies and attention on tracking your marketing, not building apps with mobile payments. That way, you can generate higher and higher returns on your marketing investments, instead of investing in a payment infrastructure which not many people will use and has just been leapfrogged by a technology which is now widely available for all. You can thank Apple for solving that payment problem for you and you can help yourself by refocusing your marketing dollars and attention.
P.S. To learn more about Privy's marketing platform, sign up for a personalized demo, or, check out The Two Things Every Successful Privy Customer Does.