By adaptive - May 8th, 2017
Can free parking or gratis metro rides drive retail sales at brick and mortar shops? A new app is banking that this business plan will be proven and live up to its name, Validated.
The Portland, Oregon-based startup is effectively positioning itself to benefit from the widespread adoption of better mobility plans and growing transportation options in urban areas around the U.S.
In April the company went nationwide, expanding beyond its original markets in Portland and Seattle to 10 new metro areas across the country.
The service is free to consumers who download the app to a smartphone and then meet a predetermined spending limit at participating retailers and restaurants. The consumer is then given credits that can be used on a participating mode of transportation.
Current partners include Lyft, payment processor PayByPhone, ReachNow (BMW’s carshare), and BikeTown (Portland’s bike share program).
Founder/CEO Tov Arneson discussed Validated’s growing business with Open Mobile Media’s Robert Gray…
OMM: What’s the genesis of Validated?
Arneson: Our first product was Parkt—an on-demand valet product. You’d download that app and schedule to meet the valet and then summon them back. We were issued a patent on that technology but realized the economics of that business didn’t make sense.
We started looking at trends of transportation and retail and thought why don’t we mimic the mechanism of free shipping in ecommerce. Instead of spend X and get free shipping, apply that to an urban brick and mortar business to level the playing field. It made sense for us to go this direction.
OMM: So how does it work?
Arneson: The economics from a business standpoint, we like to talk about average spend today with a decision maker. If average spend is $80, then we suggest they set the spend threshold (for consumers to earn Validated credits) 20 percent higher, so $100, and meaningful validation around 7 percent. We take 2.5 percent. So the total outlay for the business is $9.50; $7 direct pass-through to the customer, $2.50 to Validate for commission. So on $100, the retailer pays under 10 percent.
OMM: What’s been your experience so far in terms of boosting spend?
Arneson: We’re seeing the average threshold amount across 75 merchants in Portland and Seattle, is $118. The actual purchase amount is $183, 58 percent more than (the threshold). Our 2.5 percent fee is capped on the threshold amount. So the total cost to clients is about 6 percent.
When we first started out we thought we were solving expensive transportation, but the problem we’re now solving is the sale or discount. J.C. Penney and others discounted themselves into the basement. What we offer to the merchant is the same mechanics of a sale or discount but done in a way to elevate their brand. It’s transportation validation; consumers see it as much higher value.
OMM: Is it reimbursement to your bank account or PayPal?
Arneson: The consumer scans their receipt in-app with their smartphone, we authenticate the amount and issue credits that are held in the user’s account (the app). The user can then shop and dine at other merchants on the platform.
When you’re ready you can redeem those credits to your preferred mode of transportation. We have a suite with all different providers we support and you choose where you want to redeem (the credits). They are redeemed via deeplink to the provider you’ve selected.
OMM: Which partners do you work with?
Arneson: Lyft, PayByPhone, ReachNow (BMW’s carshare), and BikeTown (Portland’s bike share program).
OMM: Are there in-app ads?
Arneson: If we do, it would probably be lead generation and soon, now that we have full profiles, we could make a suggestion and issue credits ahead of time. We know you like to shop at a certain store or dine at certain restaurants, we’d send you points. It could be a source of lead generation pre-purchase.
OMM: Are you using AI?
Arneson: On our backend, when we process the receipts we look at and categorize what type of merchant it is, match that up to our back end, what time was the purchase made, what part of the city, how much greater was the spend. There is machine learning on the backend.
Mobility is focused on how people move, we’re bringing the how people live to (mobility). Those two are very connected but strangely not very connected today. We want to be the connective tissue that makes people’s lives better and make cities work better.
OMM: What do you do with the info about where people are shopping and when? Is there value in that as well?
Arneson: Right now we’re storing it and analyzing it and figuring out the best way to use it. There’s a lot of data of how people move and where they move and what mobility they use. But there’s a disconnection on where they’re spending their money and the behavior with those transportation methods and we want to bridge that gap.
We can help the omni-channel efforts of these retailers, if you purchase something in a certain zip code we could send it to you where there’s a chance you could return it, around 35 percent. If somebody goes into a store, the return rate drops below 10 percent.