Carrying around loyalty cards for different stores can be a pain, so moving loyalty programs to mobile phones makes sense. I’ve lost one too many “buy 10 sandwiches, get one free” cards to count. Cardagin Networks, maker of mobile loyalty card technology for retailers, is attempting to solve this problem.
The Charlottesville-based company, which just announced a $1 million Series A round of financing from private investors, focuses on developing mobile loyalty card programs for retailers, especially in college towns. Consumers using the technology can manage their loyalty cards from their mobile phones, track visits and redeem coupons and promotions from local businesses. Cardagin was selected as an AlphaPitch company for DEMOfall09.
Cardagin isn’t alone in the attempt to upload loyalty card programs to mobile phones. Companies like Scanaroo and Cardstar are working on similar offerings. According to Venture Beat, the company is launching its service in April starting with the University of Virginia’s population in Charlottesville, VA. After the launch, Cardagin plans to expand to other college towns in the region.
The management end of the loyalty program, as far as the business model goes, will be free. Cardagin plans to make money selling scanner-enabled kiosks to scan mobile phones. Again, we get into the problem of needing kiosk technology for the mobile phone coupon or loyalty program to work. Businesses will also be charged an additional fee of $1 per day to create and publish ads on the network. And Cardigan seems to think it may be able to charge consumers for special promotions outside of their opted-in loyalty programs. (*note: In a comment to this post, Cardagin CEO Rob Marsi added that the company plans to generate revenue by publishing and pushing mobile ads.)
Obtaining those kiosks will cost anywhere from $600 to $1000 per month year for the test period. Given the monthly marketing budget for small local businesses, spending any amount for one loyalty program might be pushing it. Yes, this replaces the cost of the business printing loyalty cards, but for many businesses the kiosk is still pricier than print. Also, lower-cost point-of-sale offerings will make it difficult for Cardagin to remain competitive using their current business model beyond the Virginia and Southeast college markets.
Cardagin has signed up five Charlottesville businesses for its initial 30-day test launch to ensure its systems can handle the traffic. Venture Beat notes that based on its revenue model, Cardagin must sign up 2,500 users in the first year (roughly 10% of the University of Virginia population) as well as 50 businesses per year, each of which use the ad components of the service conservatively.