What We Can Learn From Supermarkets
Analyst firm Canalys projects that mobile apps will generate $7.3 billion in revenue in 2011 from downloads, in-app payments and subscriptions. And they expect that number to double to $14.1 billion in 2012. As huge as these revenue numbers are, a big opportunity is being missed. With a little more thought and understanding of retail psychology, I believe those numbers could be considerably higher.
In a high tech mobile world it may seem a little dull to draw inspiration from the humble supermarket chain. But if such immensely successful examples of retail genius exist, wouldn’t it make sense to explore the various ways the same strategy could provide a monetization masterclass for mobile applications developers?
There are few companies better at selling physical goods and services than supermarket chains. They offer a vast array of products and services, creating an in-store shopping experience (with seemingly minimal effort) which sells massive volumes of both necessity and impulse purchases, generating billions of dollars in sales in the process. The customer experience has been refined to an art form—intelligent product placement and subtle but precise special offers cater to all demographic groups while still feeling targeted.
Personally, I am the world’s biggest sucker for such deals and frequently end up spending at least 10% more than I plan to when I do the weekly shopping. Over the course of 10 months this could increase my spend by over $1500! Surely it must be possible to replicate this success within mobile applications.
However, a majority of application developers seem to lack even the most basic understanding of retail psychology when they craft their monetization strategies. Limited availability of end user profiled data should not be an excuse for only using the most basic Freemium model.
Supermarkets don’t work that way; in-store sales are driven not by a static model, but by a fluid one—a combination of seasonal events, timed offers, demographic probability, and knowledge of what’s hot and what the competition is offering. Then, the customer journey is scrutinized and high margin products are placed in “sweet spots” which catch your attention from the time you enter the store to the time you leave.
This model stands in stark contrast to the “one size fits all” strategy of virtual goods and other services, propped up with a bit of blind network advertising that seems boring and grossly unsophisticated. The predictability of Freemium services can be annoying and has an adverse effect on the buying mindset. They are boring and often ignored. Perhaps, replicating some of these supermarket upsell techniques could enliven mobile app market.
Even high profile apps like Foursquare are massively short-changing themselves when it comes to monetizating end user eyeball time. They have a great brand persona, a slick and engaging experience, great social and reward hooks (with Mayorships, check-in leaderboards and badges) and now 10 million users, many of whom (like me) are very active. So where is the revenue source to justify the estimated $600m market CAP? Right now it’s via “special nearby” tabs, many of which are next-to-useless unless you happen to be Mayor. Why hold back? The potential to deliver multi-layer value to partners, brands and the user is immense. You have their eyes, now develop some “sweet spots.”
Incorporating the same sophisticated product placement and special offer techniques used by supermarkets, Foursquare could easily apply numerous special deal layers within the user journey, based not only on location but user profile. They could Optimize UI real estate in the same way supermarkets optimize shelf space to deliver a multitude of well-placed promotions based on the age/sex demographics of people who are likely to visit a location. They could even deliver a variety of promotions depending on what time of day a user checks in. The possibilities are endless and, if deployed in a slick and uncluttered fashion, they could have a significant impact on Foursquare’s earnings potential.
Foursquare is a great example, but I am convinced a more tactical approach to app-based monetization can be applied in varying degrees by most developers. By understanding the profile of the user, analyzing the user journey and deploying a smarter variable upsell strategy within the flow of the application (gaming credits, virtual goods, subscription services, special offers, etc.) there is much more profit to be found in the mobile app market.
You can follow Geoff Casely on Twitter @geoffcasely
