Perx dumped daily deals business to focus on loyalty card app, has no regrets
May 8, 2012 by Terence LEE
Before Perx co-founders Andrew Roth and Jon Sugihara started work on their loyalty card mobile app, which is now the market leader in Singapore, they ran successful daily deals site PLAYhawaii.com. It was on track to generate US$2M in revenue a year.
Based in Hawaii, they expanded their business to Asia, founding Maiplay last year with Facebook co-founder Eduardo Saverin as an investor and advisor. They launched in Jakarta and Singapore, entering a heated field dominated by Groupon.
However, they dumped their daily deals business within months. They sold PLAYhawaii.com and launched their loyalty card mobile app in October 2011. They’re now based in Singapore.
What sparked the change was their belief that daily deals is a lousy way to acquire loyal customers for merchants. The hunch paid off: At the time of the interview, Perx had close to 40,000 registered users, and about 400 merchants in Singapore, with 10 to 20 new locations each week.
Their partner merchants are not lightweights either. Big brands like Popeyes, Famous Amos, and Dunkin Donuts have come on board. With pole position in the country secured (around!, Pointpal, and Squiryl are competitors), they are now working with a partner to scale their business to other parts of Asia.
“When we call merchants, we really had to tell them not to hang up as we’re not a daily deals company.”
Perx works very simply for consumers. Once they open up the app, they will find merchants that are near their location. They can get a “chop” from the merchant every time they spend, simply by scanning a QR code. Rewards can be redeemed once they hit a certain amount of chops on a loyalty card. To date, Perx has registered 160,000 chops.
Elaborating on the problems with the daily deals model, Jon points out a fundamental conflict between daily deals sites and merchants: While sites like Groupon and LivingSocial are concerned with procuring as many deals in as short a time as possible, their clients are actually after loyal customers.
“When we call merchants, we really had to tell them not to hang up as we’re not a daily deals company. Merchants were fatigued with group buying sites,” says Jon.
Deals, which can give a discount between 60 to 80 percent, tend to attract bargain hunters, and merchants hate that. Perx weeds bargain hunters out, simply by rewarding users after one chop instead of offering a steep discount right away.
Perx differentiates itself from other loyalty card apps by offering not just analytical tools as a value proposition, but the ability to increase revenue and decrease costs for merchants through “Chopmobs”.
“Offering just a replacement for a paper loyalty card doesn’t excite CEOs,” says Andrew.
Perx’s Chopmobs have been rather successful in generating top-line revenue for merchants, through increasing sales by 30 to 50 percent in any given week. The company takes a commission from the sales, or 25 percent of the value of reward items.
After accounting for expenses, merchants are still making three times more money than if they were to run a daily deals campaign, claims Andrew. Merchants that have tried Chopmobs include The Coffee Bean, which earned a 50 percent increase in revenue during the campaign, and Salad Stop.
“You don’t need to discount yourself steeply anymore,” he says.
While increasing customer spend and loyalty is their key differentiation, Perx is not shabby in other areas too. They claim to offer “tons” of analytics, something that wasn’t possible with paper loyalty cards.
They also have proprietery algorithms in place to determine if someone is a potential fraud, for instance, taking a picture of a QR code and passing it around. Users will get flagged twice, and will get suspended if they don’t respond via email.
Nonetheless, fraudsters are nothing to worry about, since most customers are honest and the net benefit is still positive.
When it comes to app design, they have decided to keep things simple by focusing on merchants instead of themselves.
“You don’t see Perx branded all over. We don’t have cute mascots. We want to focus on merchants and not on us,” says Andrew.
He is probably referring to Squiryl. They also do not believe in the concept of trading chops as a viral mechanism, which is something that Squiryl does. This is because merchants want people to come back to them, not to others. It helps the app, but not the merchants.
Instead, Perx offers the Perx Wheel, which gives users a chance to win prizes while spreading the word on social media.
“What would you rather have? Someone posting abour your brand in their Facebook wall? Or someone trading your chops away?” says Andrew.
“We don’t want to send invoices to small merchants all the time. We don’t want them to feel like they’re getting cut everytime they get a chop.”
Looking ahead, Perx is in the midst of implementing new features to enhance its value to clients and users. They are partnering with major POS providers to print QR codes on receipts, which means they won’t slow down queues anymore. The code is also one-time use only, which means it’s impossible to pass them.
They are also experimenting with a new form of advertising that would make banner ads seem as passe as bell bottom jeans.
It is called sponsored chops, and here is how it works: Users who get a chop from Merchant A will receive an extra chop for free from Merchant B. This extra chop is actually paid for by Merchant B, and Perx uses revenue from sponsored chops to subsidize Merchant A’s costs of participating in Perx. Call it a quadruple-win situation.
“We don’t want to send invoices to small merchants all the time. We don’t want them to feel like they’re getting cut everytime they get a chop,” says Andrew.
Ultimately, banner ads suck at the moment because they offer no value to most customers. They also suffer from a case of diminishing returns, as their rampant use is having an impact on effectiveness.
Sponsored chops, on the other hand, actually gifts the consumers with something tangible. It has the potential to generate better returns for merchants, especially when coupled with the relevancy of geo-located and time-sensitive promotions.
If all goes well, Perx might be firmly entrenched as part of a new wave of innovation in the advertising industry.
“It’s why many of our investors are excited about what we’re doing,” says Andrew.
Together with the other loyalty card apps, Perx indicates a future where offering points as a reward would be dead.
“If you talk to institutions like banks and credit card companies, they will agree with you. Do you know what are the credit card points you have right now? Do you want to trade your points for toasters, napkins cutlery and stuff like that?” asks Andrew.
As innovative as they might be as a company, the co-founders don’t shy away from saying that they are great executors. With a lean staff of five and a development team in Ukraine, they were able to hash out their app from conception to launch in three months. The predecessor, Maiplay, took two months to develop, and the process included securing partnerships.
They also cite understanding customers as a key advantage. After all, the idea for Perx came about after they listened to their clients who wanted more customer loyalty and not bargain hunters.
“We know what merchants need, having worked with hundreds of them already. Small businesses don’t have time to think about marketing. They’ll either do nothing, or pay someone to just let them do it. We’re offering to do essentially all the marketing for merchants,” says Jon.
Perx is a top ten finalist at Echelon 2012 and the winner of the Singapore Satellite event. Organized by tech blog e27 for the third year running, Echelon 2012 is a key startup launchpad in Asia with over 1,100 delegates in attendance and 50 startups exhibiting in the Marketplace. Check out SGE’s coverage of Echelon 2012.
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About The Author
Terence LEE - Editor
Terence writes mainly about technology trends and startups in Asia. He believes in crafting smart content: Not just a regurgitation of text, but well thought-out pieces that serve the reader using a combination of data, design, narratives, analysis, and visual impact. His articles have been published on Venturebeat, Yahoo!, Straits Times, Today, and The Online Citizen. He also co-founded NewNation.sg, a satirical news site covering Singapore affairs. Engage him on LinkedIn and Twitter.Read other posts by Terence LEE