MARKETING REQUIREMENTS DOCUMENT
Project Name: Personalized Marketing - SmartShop
MRD Version: 1.0
Date: 1/23/06
MRD Due Date: 1/23/06
Beta Release Date: 9/30/06
v1.0 Release Date: 12/31/06
Product Team:
Name Role Email address
Hutch Carpenter Senior Product Manager hutch.carpenter@paybytouch.com
Authorizations
Product Marketing: Title: SVP Product Marketing
Signature: Date:
Product Engineering and Support: Title: VP Engineering
Signature: Date:
Program Management: Title VP Loyalty Solutions
Signature: Date:
Platform Management: Title VP Platform
Signature: Date:
Finance: Title VP Finance
Signature: Date:
Operations and Risk Management: Title VP Operations & Risk
Signature: Date:
Security: Title: VP Systems Security
Signature: Date:
Professional Services: Title VP Implementation
Signature: Date
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DOCUMENT HISTORY AND CHANGE CONTROL
Version Date Description of Changes Initiator Initials
1.0 12/18/05 MRD initiated HC
1.0 1/23/06 Initial draft of MRD published HC
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EXECUTIVE SUMMARY
Many retailers, especially grocery stores, are improving the way they track customers' purchases -- and how they
reward those customers. Forget the old club card you must present with each purchase. \"You're going to see retailers,
particularly the grocery companies, do more with the data they gather from customers,\" says Mr. Fox, [professor of
marketing at Southern Methodist University]. \"They're going to give you a special discount or give you more information
about what you bought or what's on sale.\"
“Trends (A Special Report): Retail --- Upscale Experience, Downscale Prices”
Wall Street Journal, November 21, 2005
“Google is basically out to make every ad a targeted ad,\" said Safa Rashtchy, an analyst for Piper Jaffray & Co. \"That
started in search and that will go beyond search in display advertising and then offline.”
“Google explores radio ad sales; Search engine plans to buy dMarc of Newport Beach”
San Francisco Chronicle, January 18, 2006
Deloitte believes there are four umbrella challenges in Trade & Consumer Management that are of highest priority to
CPG manufacturers [including] Direct to Consumer Marketing: ‘How should we leverage information from retailer
loyalty programs to jointly market to the consumer?’
“What is Trade Promotion?”
Deloitte Consulting, August 5, 2004
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Companies have worked to get closer to
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the consumer in their marketing. Key to
Mass Targeted Personalized
this effort has been cycles of improvement
Marketing Marketing Marketing
in data gathering and technologies for
delivering content to individuals. For example, a major innovation for magazine publishers was the ability to
vary ads by subscribers’ locations, opening up channels for local advertisers. In recent years, Google has
taken marketing to another level with its AdWords. These catch consumers’ self-identified interests right at
a moment in which they are highly receptive to a message. Google’s recent announcement of its acquisition
of dMarc highlights the Web giant’s view about other areas ripe for more targeted marketing.
SmartShop is a product designed to take marketing even further along this spectrum, toward true
personalized marketing. Grocers and other retailers have established loyalty programs with an eye toward
improving their information capture and fostering a relationship with customers. The reality is few Merchants
have captured even a quarter of the potential of these programs. Consumer packaged goods manufacturers
(CPGs) are also keenly interested in developing better ways to market directly to individuals. Currently, they
have little ability to identify and reach
individuals most interested in the
products.
SmartShop will deliver a set of offers
(i.e. discounts) based on consumers’
actual purchases. Both Merchants
and CPGs will input the offers they
want to distribute. SmartShop will
handle the targeting and distribution
of these offers. Consumers will
receive their offers in an easy to
access and use process, completing
the loop for true personalized
marketing.
FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 3 OF 43
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Pay By Touch will generate revenue on SmartShop primarily through fees received from the CPGs, with
some revenues from Merchants as well.
The revenue model for
SmartShop Revenue Opportunity Top 25 U.S. Pure Play
SmartShop can be
General Grocers
characterized as: General Food # General Estimated Merchant Merchant CPG CPG
Revenues Food Revenue Activation Redemption Activation Ad Offer Loyalty
• Merchants provide No. Grocer Stores Opportunity Fees Fees Fees Activation Program
(billions)

1 Kroger $ 51.1 2,532 $ 345,618,000 $ 19,749,600 $ 9,874,800 $ 197,496,000 $ 118,497,600
the customer data 
2 Safeway $ 35.8 1,802 $ 245,973,000 $ 14,055,600 $ 7,027,800 $ 140,556,000 $ 84,333,600
Albertsons (excl. drug stores) 
3 $ 34.7 1,797 $ 245,290,500 $ 14,016,600 $ 7,008,300 $ 140,166,000 $ 84,099,600
and distribution Ahold USA (excl. Bi-Lo) 
4 $ 18.6 1,033 $ 127,026,827 $ 7,258,676 $ 3,629,338 $ 72,586,758 $ 43,552,055
5 Publix $ 18.6 850 $ 126,637,875 $ 7,236,450 $ 3,618,225 $ 72,364,500 $ 43,418,700
infrastructure 
6 Delhaize America $ 15.8 1,523 $ 108,148,950 $ 6,179,940 $ 3,089,970 $ 61,799,400 $ 37,079,640
7 Meijer $ 11.1 158 $ 75,757,500 $ 4,329,000 $ 2,164,500 $ 43,290,000 $ 25,974,000

8 H.E. Butt $ 10.6 298 $ 72,345,000 $ 4,134,000 $ 2,067,000 $ 41,340,000 $ 24,804,000
• CPGs provide the 
9 Winn-Dixie $ 9.9 587 $ 67,710,825 $ 3,869,190 $ 1,934,595 $ 38,691,900 $ 23,215,140

10 A&P $ 7.8 638 $ 53,235,000 $ 3,042,000 $ 1,521,000 $ 30,420,000 $ 18,252,000
revenue dollars 
11 Giant Eagle $ 5.1 222 $ 34,807,500 $ 1,989,000 $ 994,500 $ 19,890,000 $ 11,934,000
SuperValu (excl. Save-A-Lot, Deals)
12 $ 4.8 262 $ 32,691,068 $ 1,868,061 $ 934,031 $ 18,680,610 $ 11,208,366

13 Pathmark $ 4.0 143 $ 27,149,850 $ 1,551,420 $ 775,710 $ 15,514,200 $ 9,308,520
The revenue model 14 Hy-Vee $ 3.9 192 $ 26,208,000 $ 1,497,600 $ 748,800 $ 14,976,000 $ 8,985,600

15 Stater Bros. $ 3.8 159 $ 25,935,000 $ 1,482,000 $ 741,000 $ 14,820,000 $ 8,892,000
acknowledges the critical 16 Aldi USA $ 3.5 630 $ 23,887,500 $ 1,365,000 $ 682,500 $ 13,650,000 $ 8,190,000

17 Wegmans $ 3.3 65 $ 22,522,500 $ 1,287,000 $ 643,500 $ 12,870,000 $ 7,722,000
role Merchants’ customer 
18 Raley's $ 3.2 134 $ 21,840,000 $ 1,248,000 $ 624,000 $ 12,480,000 $ 7,488,000
19 Roundys $ 3.0 125 $ 20,550,075 $ 1,174,290 $ 587,145 $ 11,742,900 $ 7,045,740
databases serve in 
20 Price Chopper $ 2.5 106 $ 17,062,500 $ 975,000 $ 487,500 $ 9,750,000 $ 5,850,000

21 Harris Teeter $ 2.4 140 $ 16,380,000 $ 936,000 $ 468,000 $ 9,360,000 $ 5,616,000
delivering personalized 
22 Save Mart $ 2.2 123 $ 15,015,000 $ 858,000 $ 429,000 $ 8,580,000 $ 5,148,000

23 Schnuck Markets $ 2.2 101 $ 15,015,000 $ 858,000 $ 429,000 $ 8,580,000 $ 5,148,000
marketing for CPGs. 24 Ingles Markets $ 2.2 197 $ 14,774,760 $ 844,272 $ 422,136 $ 8,442,720 $ 5,065,632

25 Weis Markets $ 2.0 157 $ 13,854,750 $ 791,700 $ 395,850 $ 7,917,000 $ 4,750,200
TOTALS $ 262.0 13,974 $ 1,795,436,980 $ 102,596,399 $ 51,298,199 $ 1,025,963,988 $ 615,578,393
The table to the right Source: Supermarket News Top 75; SEC filings; company websites
provides a sense of the
Pay By Touch revenue opportunity in the U.S. grocery market. The $1.8 billion is based on a fully mature
implementation of SmartShop in the top 25 grocers, in which it becomes a primary loyalty program for
Merchants. The revenue model is defined more fully in §1.2.
The primary revenue generation for SmartShop is via CPGs. CPGs spend $75 billion annually in promotion-
related funds, either paid through Merchants to run ads and discounts or directly to consumers, such as
coupon distribution. Much of this money is wasted on expensive physical production and distribution of free
standing inserts (CPG coupons) and Merchant ad flyers. Not only are these current mass marketing
vehicles expensive, they have a very low readership. This combination leads to inefficient use of dollars and
represents the opening for SmartShop to successfully penetrate the market.
SmartShop will leverage Pay By Touch’s differentiating strategic assets in realizing this revenue opportunity:
Pay By Touch Wallet: The Wallet is the centralized home for a consumer to manage and access her
different financially-related accounts, including SmartShop offers. Members can also be linked to
households for purposes of tracking spending.
Implementation at the POS: To track consumers’ purchasing, a company must have access to their
transaction history. With in-store implementations across a variety of merchants, Pay By Touch has an
incredibly valuable asset for the design and implementation of SmartShop. In addition to information
access, PBT is positioned to deliver offers to consumers at transaction time.
Biometric credential: Biometrically identifying Members solves two issues that can bedevil loyalty programs.
First, it takes the burden off the consumer to keep multiple cards in her wallet. Use of PBT for identification
automatically captures her loyalty account. Second, it eliminates the practice of providing a false loyalty
card ID, providing an immediate increase in the quality of data captured.
Multiple communication channels: Pay By Touch will have multiple touch points with Members. In-store
kiosks provide a vehicle for communicating offers to Members. MyPBT will offer Members a comprehensive
view of their loyalty programs and provide a venue for Merchants and CPGs to communicate offers to
Members. Email communications will alert Members to new offers. Mobile devices can alert Members to
relevant offers through a unique combination of identity, purchase history and location.
FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 4 OF 43
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TABLE OF CONTENTS
1 INTRODUCTION............................................................................................................................................8
1.1 PURPOSE OF THIS DOCUMENT.......................................................................................................................8
1.2 OPPORTUNITY DESCRIPTION..........................................................................................................................8
1.3 OVERVIEW OF PROPOSED PRODUCT.............................................................................................................12
1.4 CUSTOMER VALUE PROPOSITION..................................................................................................................13
2 PRODUCT STRATEGY AND OVERVIEW.................................................................................................13
2.1 GOALS AND OBJECTIVES............................................................................................................................13
2.2 STRATEGIC ROADMAP................................................................................................................................14
2.3 COMPETITIVE ANALYSIS..............................................................................................................................15
2.3.1 Direct and Indirect Competitors.....................................................................................................15
Concept Shopping can be classified as an innovative offer targeting engine with supporting
infrastructure around it. POSnet, on the other hand, provides the supporting infrastructure needed to
deliver personalized offers, but without a proprietary targeting engine. POSnet is a member-owned
Limited Liability Corporation dedicated to the commercialization and operation of its electronic offer
management and point-of-sale clearing system. Pathmark is its largest customer..............................16
The company’s Retail Media Management™ is an open platform and electronic offer management
infrastructure that enables retailers to flexibly share their customer relationships with trading partners
providing the widest possible array of creative household-specific promotional offers through multiple
communication channels including direct mail, email, internet couponing sites, kiosks, service-counter
label systems, POS printers, mobile shopping devices and an innovative solution to in-store coupon
clearing....................................................................................................................................................16
In addition to robust, open platform offer management, POSnet provides settlement functionality. Its
aggregation of transactional data facilitates measurement and analysis of marketing results on a real-
time basis. POSnet’s settlement provides four critical requirements:...................................................16
2.3.2 Strengths, Weaknesses, Opportunities and Threats.....................................................................20
2.3.3 Differentiators.................................................................................................................................20
3 BUSINESS MODEL.....................................................................................................................................21
3.1 MARKET SEGMENTATION AND VALUE PROPOSITION..........................................................................................21
3.1.1 Merchants......................................................................................................................................21
3.1.2 CPGs..............................................................................................................................................24
3.1.3 Members........................................................................................................................................25
3.2 VALUE CHAIN STRUCTURE..........................................................................................................................26
3.2.1 Members........................................................................................................................................26
3.2.2 Merchants......................................................................................................................................26
3.2.3 CPGs..............................................................................................................................................26
3.3 COST STRUCTURE....................................................................................................................................27
4 USE CASES AND IMPLEMENTATION SCENARIOS................................................................................28
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4.1 INTRODUCTION..........................................................................................................................................28
4.1.1 Use Case 1: Establish Member Household ID..............................................................................28
4.1.1.1 Description..............................................................................................................................28
4.1.1.2 Justification for Use Case.......................................................................................................28
4.1.2 Use Case 2: In-store SmartShop enrollment.................................................................................28
4.1.2.1 Description..............................................................................................................................28
4.1.2.2 Justification for Use Case.......................................................................................................28
4.1.3 Use Case 3: Web-based SmartShop enrollment...........................................................................29
4.1.3.1 Description..............................................................................................................................29
4.1.3.2 Justification for Use Case.......................................................................................................29
4.1.4 Use Case 4: Offer Activation..........................................................................................................29
4.1.4.1 Description..............................................................................................................................29
4.1.4.2 Justification for Use Case.......................................................................................................29
4.1.5 Use Case 5: Offer redemption.......................................................................................................29
4.1.5.1 Description..............................................................................................................................29
4.1.5.2 Justification for Use Case.......................................................................................................30
4.1.6 Use Case 6: Offer limit management.............................................................................................30
4.1.6.1 Description..............................................................................................................................30
4.1.6.2 Justification for Use Case.......................................................................................................30
4.1.7 Use Case 7: Biometric auth fails - kiosk........................................................................................30
4.1.7.1 Description..............................................................................................................................30
4.1.7.2 Justification for Use Case.......................................................................................................30
4.1.8 Use Case 8: Biometric auth fails – In Lane...................................................................................31
4.1.8.1 Description..............................................................................................................................31
4.1.8.2 Justification for Use Case.......................................................................................................31
4.1.9 Use Case 9: Offer reminder alerts.................................................................................................31
4.1.9.1 Description..............................................................................................................................31
4.1.9.2 Justification for Use Case.......................................................................................................31
4.1.10 Use Case 10: View SmartShop offer history...............................................................................32
4.1.10.1 Description............................................................................................................................32
4.1.10.2 Justification for Use Case.....................................................................................................32
4.1.11 Use Case 11: Export t-log, customer data and product hierarchy...............................................32
4.1.11.1 Description............................................................................................................................32
4.1.11.2 Justification for Use Case.....................................................................................................32
4.1.12 Use Case 12: Merchant selects and implements customer database marketing application.....33
4.1.12.1 Description............................................................................................................................33
4.1.12.2 Justification for Use Case.....................................................................................................33
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4.1.13 Use Case 13: Merchant creates offer..........................................................................................33
4.1.13.1 Description............................................................................................................................33
4.1.13.2 Justification for Use Case.....................................................................................................34
4.1.14 Use Case 14: CPG creates offer.................................................................................................35
4.1.14.1 Description............................................................................................................................35
4.1.14.2 Justification for Use Case.....................................................................................................36
4.1.15 Use Case 15: Merchant creates Offer Pool.................................................................................36
4.1.15.1 Description............................................................................................................................36
4.1.15.2 Justification for Use Case.....................................................................................................36
4.1.16 Use Case 16: Offer Pool is distributed to customers...................................................................37
4.1.16.1 Description............................................................................................................................37
4.1.16.2 Justification for Use Case.....................................................................................................37
4.1.17 Use Case 17: Targeted Offer Pool is published..........................................................................38
4.1.17.1 Description............................................................................................................................38
4.1.17.2 Justification for Use Case.....................................................................................................38
4.1.18 Use Case 18: Merchant is paid for CPG fees and discounts......................................................38
4.1.18.1 Description............................................................................................................................38
4.1.18.2 Justification for Use Case.....................................................................................................39
4.1.19 Use Case 19: Merchants and CPGs use results of prior offers to set new offers for the future. 39
4.1.19.1 Description............................................................................................................................39
4.1.19.2 Justification for Use Case.....................................................................................................39
5 REQUIREMENTS DEFINITION...................................................................................................................40
5.1 INTRODUCTION..........................................................................................................................................40
5.2 MARKETING REQUIREMENTS........................................................................................................................40
5.2.1 PBT Wallet.....................................................................................................................................41
5.2.2 In-Store..........................................................................................................................................41
5.2.3 Merchant MIS.................................................................................................................................42
5.2.4 SmartShop Application..................................................................................................................42
5.2.5 Professional Services....................................................................................................................43
5.2.6 PBT Financial.................................................................................................................................43
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1 INTRODUCTION
1.1 PURPOSE OF THIS DOCUMENT
This Marketing Requirements Document (MRD) is intended for internal distribution only. The MRD
describes how SmartShop aligns with the corporate goals of Pay By Touch and will meet the demands of
existing and future customers. It explains the value that SmartShop would bring to our various customer
categories and how it would help differentiate Pay By Touch from our competition. Marketing Requirements
are specified; these describe the functionality that is required in order to realize the goals.
1.2 OPPORTUNITY DESCRIPTION
Consumer Packaged Goods Manufacturers (CPGs) spend CPG $100 Billion Annual Spend
$100 billion annually in advertising, marketing and promotion Grocer Advertising and Promotions
efforts with grocers. $25 billion is spent on advertising.
Another $17 billion goes toward direct consumer promotions,
Advertising, 25%
which include free standing inserts (FSI). FSIs are the
Trade
coupons provided by manufacturers in consumers’ Sunday Promotion,
newspapers. $10 billion is budgeted as “account specific” 48%
promotional dollars. These are dollars that the CPG uses to
run consumer promotions through specific Merchants. The Consumer
remaining $48 billion represent trade promotion allowances Promotion,
17% Account Specific,
provided by CPGs to grocers. Because grocers are the 10%
critical distribution channels to consumers, they hold
considerable sway over CPGs. CPGs provide grocers Source: Cannondale Associates
significant dollars to ensure their products are placed in weekly ad flyers, displayed in-store and promoted
via discounts, or temporary price reductions (TPRs).
Two problems plague the current industry promotional
CPG Coupons
structure, one a more recent phenomenon, the other a
Total Distributed and Redeemed: 2002-2004
longtime issue.
345 billions 3.8
Over the past decade, the efficacy of CPG FSIs and
340 3.7
1.1%
335 3.6
Merchant ad flyers has steadily diminished. FSI
Coupons Distributed
Coupons Redeemed
330 3.5
redemption rates are now below 1% (see chart) and
1.1%
325 3.4
ad flyer readership is typically under 10%. Whether
320 3.3
the cause is increasingly harried households,
315 3.2
0.9%
310 3.1
promotion saturation or shopping at alternative outlets,
305 3.0
the result is less bang-per-buck for these vehicles,
300 2.9
raising the effective cost of advertising that does
2002 2003 2004
“make it through” to consumers.
CPG Coupon Distribution Coupon Redemption
Source: CMS, Inc.
The other problem for Merchants and CPGs is that promotional programs follow an indiscriminate one-to-
many distribution model. All shoppers are treated the same when it comes to in-store discounts. According
to Accenture research, consumers are unaware of 51% of items bought on sale. This translates to a loss of
margin with zero marketing value to the Merchant and CPG. A second issue is that “cherry picker”
customers only purchase items on sale from different Merchants, meaning the gross margins on their
average basket are significantly lower than those of loyal customers.
Both CPGs and Merchants are unhappy with current promotional models. To address shortcomings, the
approach has been to throw money at the problem. In 1999, manufacturers spent 14.0% of their sales on
trade promotion; by 2003 that figure had risen to 17.4%. Unsurprisingly, Cannondale Associates reports
that 84% of CPGs are dissatisfied with the return on their trade promotion dollars.
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Pay By Touch Market Opportunity
By leveraging its strategic assets, Pay By Touch has
an opportunity to provide a solution that solves
several issues. SmartShop reverses the trend of Trade/Consumer Allowance
increasing costs in FSI and ad flyer production and Distribution of Spending
distribution by providing relevant offers that
consumers want and can easily access. TPRs can TPR/Coupon
TPR -
Offer
Coupon Dis
Current
be targeted to loyal, higher margin customers while Production & Distribution plays
Aware of TPR
Aware Unaware of TPR
Unaware
CPG coupons can find the most interested
consumers. The end state is more CPG trade TPR/Coupon -
End State Offer
Coupon Dis
promotion and consumer dollars applied toward Prod. & Distr. plays
Aware of TPR
Aware Unaware
driving profitable customer visits.
The basics of SmartShop that address the opportunity are:
• Targeting engine that distributes offers to Members based on their shopping history
• Weekly offer sheet that presents up to 20 offers to the customer
• Multiple low-cost communication modes that deliver offers right before Members initiate shopping as
well as earlier in the week
SmartShop Offer Sheet Example Structure
Merchant
Funded
Offers
CPG
Funded
Offers
Offer Ads Regular Offers
Members will receive weekly offer sheets with up to 20 different individual discounts. The first ten offers will
be those funded by the Merchant (trade promotion dollars). The second ten offers will be those funded by
individual CPGs (consumer promotion dollars). In the example above, there are two offers (Coca-Cola,
Haagen Dazs) that are set up as offer ads. These offers receive more real estate on the offer sheet and
allow larger, more dynamic graphics.
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Pay By Touch Revenue Opportunity
Pay By Touch will charge Merchants a fee for every offer sheet activated by a Member, and a second fee for
every offer sheet for which a Member redeems at least one Merchant-funded offer. This revenue approach
can be described as a “pay for performance” model. Activation fee revenue requires SmartShop to deliver
offers in an easily accessible, timely manner. Pay By Touch SmartShop Opportunity Sources of
Redemption fee revenue requires SmartShop to Revenue
have a targeting model that consistently
distributes relevant offers to Members.
S
SourceDescriptionMerchant Activation FeeMerchant fee for
Pay By Touch will charge CPGs a fee for each e
every offer sheet activated by a MemberMerchant Redemption
CPG-funded offer activated by a Member. It FeeMerchant fee for every offer sheet in which at least one offer
w
should be emphasized that the CPG activation fee was redeemed by a MemberCPG Activation FeeCPG fee for
e
is per offer, whereas the Merchant fee is per offer every offer activated by a MemberCPG Ad FeeCPG fee for every
p
sheet. This model establishes CPGs as the premium placement ad offer activated by a Member
primary source of revenue for SmartShop. In
addition, Pay By Touch will earn a fee for each
offer ad upon activation.
The SmartShop revenue opportunity is measured on a store-by-store basis. The key revenue drivers are:
• Number of households served in a geographic area
• Percentage of households joining SmartShop
• Percentage of households activating their offers every week
• Percentage of households redeeming their offers every week
The table to the right is an example of the revenue SmartShop Revenue Opportunity
Single Store
opportunity available in a single store location. In this
scenario, the activation fee and redemption fee are set at Single Store
Households/Week 10,000
2.5¢ for both Merchants and CPGs. The CPG ad fee is set
SmartShop Membership 80%
at a ratio of three times the offer activation fee, or 7.5¢. SmartShop Households 8,000
With reasonable assumptions and full CPG participation, a Percent Receiving Offer Sheet 100%
Weekly Distributed Offer Sheets 8,000
single store implementation of SmartShop could generate Percent Activated 75%
$136,500 annually. Weekly Activated Sheets 6,000
Merchant Fee per Activation $ 0.025
As the table shows, the revenue model for SmartShop can CPG Fees per Activation (2.5¢ x 10) $ 0.250
CPG Ad Fees per Activation (7.5¢ x 2) $ 0.150 $ 0.425
essentially be described as: Activation Fees $ 2,550
• Percent of Activated Sheets Redeemed 50%
Merchants provide the customer data and Weekly Redeemed Sheets 3,000
distribution infrastructure Merchant Fee per Redemption $ 0.025
Redemption Fees $ 75
• CPGs provide the revenue dollars Total Weekly Fees per Store $ 2,625
Revenue per Year $ 136,500
The table to the left provides sensitivity
SmartShop Revenue Opportunity Fee
analysis on the fees charged to the Merchant
Sensitivity Analysis
and the CPGs. The ad fee is assumed to
Merchant Activation & Redemption Fee
maintain a 3-to-1 ratio to the CPG offer
Per Offer Sheet
Activation Fee Ad Fee 2.5¢ 5.0¢ 7.5¢ 10.0¢
activation fee. Based on the revenue model,
CPG 2.5¢ 7.5¢ $ 136,500$ 148,200 $ 159,900 $ 171,600
changes in CPG fees have a significant effect
Fee 5.0¢ 15.0¢ $ 261,300$ 273,000 $ 284,700 $ 296,400
Per Offer 7.5¢ 22.5¢ $ 386,100$ 397,800 $ 409,500 $ 421,200
on the revenue potential per store.
10.0¢ 30.0¢ $ 510,900$ 522,600 $ 534,300 $ 546,000
FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 10 OF 43
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Grocer Market Analysis
SmartShop Revenue Opportunity Top 25 U.S. Pure Play
The table to the right lists
General Grocers
the top 25 grocers by General Food # General Estimated Merchant Merchant CPG CPG
Estimated Revenue Revenues Food Revenue Activation Redemption Activation Ad Offer Loyalty
No. Grocer Stores Opportunity Fees Fees Fees Activation Program
(billions)
Opportunity. The table 
1 Kroger $ 51.1 2,532 $ 345,618,000 $ 19,749,600 $ 9,874,800 $ 197,496,000 $ 118,497,600

2 Safeway $ 35.8 1,802 $ 245,973,000 $ 14,055,600 $ 7,027,800 $ 140,556,000 $ 84,333,600
includes only pure play Albertsons (excl. drug stores) 
3 $ 34.7 1,797 $ 245,290,500 $ 14,016,600 $ 7,008,300 $ 140,166,000 $ 84,099,600
Ahold USA (excl. Bi-Lo) 
4 $ 18.6 1,033 $ 127,026,827 $ 7,258,676 $ 3,629,338 $ 72,586,758 $ 43,552,055
general grocers. Discount 5 Publix $ 18.6 850 $ 126,637,875 $ 7,236,450 $ 3,618,225 $ 72,364,500 $ 43,418,700

6 Delhaize America $ 15.8 1,523 $ 108,148,950 $ 6,179,940 $ 3,089,970 $ 61,799,400 $ 37,079,640
mass merchandisers, such 7 Meijer $ 11.1 158 $ 75,757,500 $ 4,329,000 $ 2,164,500 $ 43,290,000 $ 25,974,000

8 H.E. Butt $ 10.6 298 $ 72,345,000 $ 4,134,000 $ 2,067,000 $ 41,340,000 $ 24,804,000
as Wal-Mart, Costco and 
9 Winn-Dixie $ 9.9 587 $ 67,710,825 $ 3,869,190 $ 1,934,595 $ 38,691,900 $ 23,215,140

10 A&P $ 7.8 638 $ 53,235,000 $ 3,042,000 $ 1,521,000 $ 30,420,000 $ 18,252,000
Sam’s Clubs, are 
11 Giant Eagle $ 5.1 222 $ 34,807,500 $ 1,989,000 $ 994,500 $ 19,890,000 $ 11,934,000
SuperValu (excl. Save-A-Lot, Deals)
12 $ 4.8 262 $ 32,691,068 $ 1,868,061 $ 934,031 $ 18,680,610 $ 11,208,366
excluded. 
13 Pathmark $ 4.0 143 $ 27,149,850 $ 1,551,420 $ 775,710 $ 15,514,200 $ 9,308,520
14 Hy-Vee $ 3.9 192 $ 26,208,000 $ 1,497,600 $ 748,800 $ 14,976,000 $ 8,985,600

15 Stater Bros. $ 3.8 159 $ 25,935,000 $ 1,482,000 $ 741,000 $ 14,820,000 $ 8,892,000
The Estimated Revenue 16 Aldi USA $ 3.5 630 $ 23,887,500 $ 1,365,000 $ 682,500 $ 13,650,000 $ 8,190,000

17 Wegmans $ 3.3 65 $ 22,522,500 $ 1,287,000 $ 643,500 $ 12,870,000 $ 7,722,000
Opportunity is based on 
18 Raley's $ 3.2 134 $ 21,840,000 $ 1,248,000 $ 624,000 $ 12,480,000 $ 7,488,000
19 Roundys $ 3.0 125 $ 20,550,075 $ 1,174,290 $ 587,145 $ 11,742,900 $ 7,045,740
the activation fee and 
20 Price Chopper $ 2.5 106 $ 17,062,500 $ 975,000 $ 487,500 $ 9,750,000 $ 5,850,000

21 Harris Teeter $ 2.4 140 $ 16,380,000 $ 936,000 $ 468,000 $ 9,360,000 $ 5,616,000
redemption fee at 2.5¢ for 
22 Save Mart $ 2.2 123 $ 15,015,000 $ 858,000 $ 429,000 $ 8,580,000 $ 5,148,000

23 Schnuck Markets $ 2.2 101 $ 15,015,000 $ 858,000 $ 429,000 $ 8,580,000 $ 5,148,000
both Merchants and 24 Ingles Markets $ 2.2 197 $ 14,774,760 $ 844,272 $ 422,136 $ 8,442,720 $ 5,065,632

25 Weis Markets $ 2.0 157 $ 13,854,750 $ 791,700 $ 395,850 $ 7,917,000 $ 4,750,200
CPGs. The CPG ad fee is TOTALS $ 262.0 13,974 $ 1,795,436,980 $ 102,596,399 $ 51,298,199 $ 1,025,963,988 $ 615,578,393
set at 7.5¢ Source: Supermarket News Top 75; SEC filings; company websites
The top six grocers represent 67% of the listed revenue opportunity. Each grocer’s potential revenue is
based on its number of stores and its average revenue per store. Average revenue per store is used as a
proxy for the number of households.
SmartShop offers Pay By Touch the potential for significant revenue. In the near term, landing two of the
top six grocers would represent significant market penetration. Alternatively, lining up a number of the
smaller players is another path toward penetrating the market.
The table to the left provides a
SmartShop Market Revenue Potential Fee Sensitivity
Analysis sensitivity analysis for the market
Merchant Activation & Redemption Fee
revenue sizing. This table carries
Per Offer Sheet
forward the fee sensitivity analysis
Activation Fee Ad Fee 2.5¢ 5.0¢ 7.5¢ 10.0¢
CPG 2.5¢ 7.5¢ $ 1,795,436,980 $ 1,949,331,578 $ 2,103,226,176 $ 2,257,120,774
from the per store revenue model.
Fee 5.0¢ 15.0¢ $ 3,436,979,361 $ 3,590,873,959 $ 3,744,768,557 $ 3,898,663,156
Per Offer
Again, CPG fee changes provide the
7.5¢ 22.5¢ $ 5,078,521,742 $ 5,232,416,341 $ 5,386,310,939 $ 5,540,205,537
10.0¢ 30.0¢ $ 6,720,064,124 $ 6,873,958,722 $ 7,027,853,320 $ 7,181,747,918
largest swings in revenue.
Consumer Packaged Goods Top 25 by N.
CPG Market Analysis
American Revenue
The table to the right lists the top 25 CPG companies, ranked by N. America Total
No. CPG Company Revenues Revenues
North American revenue. These companies represent the targets 1 PepsiCo $ 25.5 $ 43.5
for participation in SmartShop. Each company is a provider of trade 2 Procter & Gamble $ 25.3 $ 56.7
3 Kraft $ 22.1 $ 32.2
and consumer promotion allowances. According to a 2002 4 Coca-Cola $ 20.8 $ 41.4
Cannondale study, Manufacturers spend 16.9% of their revenues on 5 Conagra Foods $ 13.3 $ 14.6
6 Nestle $ 12.5 $ 76.4
trade promotion dollars. They spend an estimated 7.4% of 7 Unilever $ 11.4 $ 51.3
8 Sara Lee $ 10.8 $ 19.3
revenues on consumer promotions. 9 Dean Foods $ 10.5 $ 10.8
10 General Mills $ 9.6 $ 11.2
Larger CPGs offer multiple consumer brands sold by grocers. For 11 Kimberly Clark $ 9.0 $ 15.1
12 MasterFoods USA $ 8.0 $ 8.0
example, in North America, PepsiCo sells 118 different products 13 Land O' Lakes $ 7.7 $ 7.7
across its Pepsi Cola, Frito Lay, Gatorade, Tropicana and Quaker 14 Kellogg Co. $ 6.4 $ 9.6
15 Dole Food $ 5.3 $ 5.3
brands. Procter & Gamble sells 75 different product brands in five 16 Campbell Soup $ 4.8 $ 7.5
broad categories. Landing larger CPGs provides access to (i) more 17 Hormel Foods $ 4.6 $ 4.8
18 Cadbury Schweppes $ 4.5 $ 12.8
promotional dollars; and (ii) more products to target to Members’ 19 Hershey Foods $ 4.4 $ 4.4
20 H.J. Heinz $ 3.8 $ 8.9
varied tastes. In lieu of landing large CPGs initially, a series of 21 Clorox $ 3.7 $ 4.4
smaller CPGs can achieve the desired outcome of significant 22 Colgate-Palmolive $ 3.2 $ 10.6
23 Del Monte Foods $ 3.1 $ 3.2
promotional dollars and a large number of products for the Member 24 J.M. Smuckers $ 1.4 $ 2.0
database. 25 Wm. Wrigley $ 1.3 $ 3.6
Source: Hawkins Strategic; SEC filings; Yahoo Finance
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1.3 OVERVIEW OF PROPOSED PRODUCT
SmartShop will deliver highly relevant, SmartShop Product Architecture
personalized discounts to Merchants’
customers. For example, if a Member
C next-generation
regularly purchases baby items, the offers D E
communication
targeting
staging
may include a coupon for Pampers. Regular engine
purchasers of coffee may see Folgers offers. electronic offer
delivery at POS
email
F
The product requires four inputs to provide Offer/Rule library
B -----------
these personalized offers: manufacturer retailer
collaboration
platform
1. Member identification web
2. Household purchase history
shopper
A
3. Merchant product hierarchy identified
kiosk
datacenter
4. Merchant & CPG offers
Members must activate their offers prior to H
web reporting mobile
-----------
their being available for discounts at the settlement
POS. This ensures that the Member is G
aware of the offer being made. After the
offers are tendered at the POS, SmartShop maintains a tally of discounts taken, providing settlement
services for Merchants and CPGs.
The major functional components of SmartShop are described below:
A. Data Center: Member household purchase histories, or transaction logs, are imported from
Merchants’ databases. Information includes UPCs, price per UPC, and the total amount paid.
B. Offer/Rule Library: Merchants and CPGs input their offers on different products. Offers indicate a
dollar or percentage off, limit on total customers per offer, a list of eligible UPCs, offer effective
period, Member assignment rules and digital assets (logos) associated with the offers.
C. Targeting Engine: LoyaltySuite provides the analytical engine for distributing the offers. It
statistically evaluates the transaction logs to identify customers likely to be interested in a given
offer, incorporating the Merchants’ and CPGs’ designated distribution strategies.
D. Communication Staging: After the various offers are distributed to Members, they are uploaded to
the Staging Server. The server is the source for offers presented to the various communication
channels. A flag is maintained for each Member indicating whether they have viewed the offers.
E. Communication Channels: Members view their offers in four different ways. Email notices are sent
weekly. Offers can be viewed on MyPBT portal. In-store kiosks catch Members right as they initiate
shopping trips. Members can view their offers on-the-go via mobile devices.
F. POS: The POS component consists of two elements. First, SmartShop will monitor the UPCs
scanned at checkout. Once the eligible UPCs are identified, SmartShop will transmit the discounts
to the ECR for application to the Member’s checkout total.
G. Settlement: SmartShop will track all offers redeemed through the system. This information will be
aggregated on a regular basis (e.g. weekly) for use in electronic settlement of funds between CPGs
and Merchants.
H. Web Reporting: Merchants and CPGs will be provided with metrics outlining the performance of
their offers. Customer segmentation will be integrated in the reporting of these metrics.
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1.4 CUSTOMER VALUE PROPOSITION
SmartShop will deliver value to four different constituencies:
•
Merchants Innovative loyalty program that fosters an ongoing relationship with customers
• Deliver customers offers on the products they care about
• Reduced cost for production and delivery of coupons
• Ability to target best customers to improve overall gross margin
•
CPGs Ability to get messaging much closer to their end customers than ever before
• Reduced cost for production and delivery of coupons
• Target customers of rival CPGs for offers
•
Members Receive much more relevant coupons than what arrives in the Sunday paper
• Ability to redeem coupons is greatly simplified versus current search-clip-n-carry model
• Through increased use of coupons, purchasing power is extended
•
PBT Revenue from CPGs and Merchants
• Increased utility for the Wallet
• Increased Member enrollment and usage through a stronger Merchant “push” strategy
2 PRODUCT STRATEGY AND OVERVIEW
2.1 GOALS AND OBJECTIVES
The goal for SmartShop is to become Merchants’ primary loyalty program. A single, highly effective loyalty
program simplifies administration, reduces costs and keeps customers’ focus on their relationship to the
Merchant. Achieving this goal does not require a radical departure from current industry practices. Rather,
it requires re-channeling existing discounts into a customer-specific model. The initial market entry will be
selling SmartShop as an augmentation to an existing loyalty program or as a trial program for grocers
without existing programs. Over time, as the value of SmartShop is realized, grocers will increase their
reliance on it as their primary loyalty program.
Essentially, SmartShop will be Merchants’ CRM application for managing their customers. As such,
SmartShop must be built with a whole product approach. Models for product development and service
delivery include Siebel and Salesforce; Amazon.com and Netflix; and Visa and PayPal. Because
SmartShop will touch multiple points of Pay By Touch and Merchants, the objective is to keep the level of
customization as minimal as possible. Otherwise, the solution risks being expensive, long to implement
and not scaleable.
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2.2 STRATEGIC ROADMAP
SmartShop represents the first step on the road toward Pay By Touch’s Personalized Marketing product
suite. Personalized Marketing leverages the PBT biometric credential to provide Members with relevant
offers and information related to their purchases and interests. The graphic below provides a high-level
strategic roadmap for Personalized Marketing.
Personalized
Marketing
Media
Network
- Advertising
Online
- eCoupons
SmartShop
Mass Merch
Drug
Pet
C-Stores
SmartShop
Grocers
SmartShop: Provide consumers with highly relevant discounts, on the products they like to regularly buy.
Initial release is targeted toward the grocery industry. Subsequent verticals for expansion include mass
merchandisers, drug stores, pet discounters and convenience stores.
Online: Create eCoupons which the consumer can load into their Pay By Touch wallet by clicking on internet
ads. The eCoupons are then redeemed upon purchase via the Pay By Touch wallet at both brick & mortar
merchants and online merchants.
Media Network: Extend the distribution points already in place for in-store, online and mobile communication
of SmartShop and Online. Establish infrastructure for scheduling and distributing messaging to Members
based on their individual preferences.
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2.3 COMPETITIVE ANALYSIS
2.3.1 Direct and Indirect Competitors
U.S.-based competition in the loyalty field centers primarily on grocers, secondarily on other mass
merchandisers. Analysis of SmartShop SmartShop Competitive Landscape
competitors is based on three attributes:
Right
1. Degree of relevance: level of SmartShop
before I
shop POSnet Concept
Safeway
personalization in the loyalty Shopping
Club Card
program
2. Offer Communication: how closely Retalix/
does the communication of offers/ Sagarmatha
Offer Communication
rewards fall relative to the critical dunnhumby
moment when the customer initiates (Tesco, Kroger)
shopping
Ne opp ery
3. Program Management: amount of Loyalty Dorothy
M is
or g
ity
ive P
VR s
tw in
Sh r oc
las
S
Tr SA
Lab Lane
rs
k
G
effort for Merchants and CPGs to
Va
Program
Management
implement and manage the loyalty
program Difficult
Moderate
Each of the competitors is described below.
Two firms are called out in greater detail Easy
Days until
my next
because their models are most competitive to shopping NCR
S&H
that offered by SmartShop: Concept trip Copient Catalina
Greenpoints
Shopping and POSnet. One size Reflects my
Degree of Relevance
fits all specific interests
Concept Shopping
Concept Shopping provides a robust solution that provides personalized offers to shoppers based on their
purchase histories. The offers are funded by CPGs and are delivered to shoppers via in-store kiosk, the
web and email. For a Merchant, the solution is nearly all upside, as the CPGs fund the offers from their own
promotional budgets, not trade allowances. CPGs gain a direct line to customers most interested in their
products. Concept generates most of its revenue from the CPGs.
CPGs commit a certain dollar amount for a defined period,
Program Architecture Overview
$10,000 for six months for example. They set parameters
for offer distribution, and then let the system go on “auto
Users
Concept Shopping Retailer HQ In-Store
pilot”. Based on pre-defined rules, it distributes the offers to
Reporting Image s
•Ad Products
Campaign
•Targeting/Tactics
Manager Campaign
•Offer UPCs
Data Feeds
Manager
the Merchant’s customers until hitting the total dollar amount
Data Feeds/Engagement
HH Map
CSI Engine
Redemptions;
Gateway
Ad channel
or the end of the active period.
State Machine Tlo g
Engaged,Targeted offers
engagement
Engaged,Targeted offers
Pro duc t
Shopper Targeting
Data
In-store engagement
Concept
Shopping
Concept Shopping’s innovation is a targeting model that
Tlog Essence
Data
Store
Center
Offer Arbiter Controllers
incorporates a customer’s prior product purchases as well as
Discounts
requested
sdb/EME
their responses to different discount offers. If a customer
POS
Server
Targeted Web channel Engaged Discounts
offers sent
engagement
Engaged, Targeted offers
Web Shop
previously redeemed a given discount on Pampers, for
Messaging N
Engagement
Ad Server Scan
Personal
Engagement
Offer
Engaged, Web channel
instance, the discount will be the same or less the next time.
Dispenser
Targeted offers engagement
In-store Messaging
Web-based
Personal Permission
Modified
Shopper
If the customer didn’t redeem, the next discount is higher to
Messaging
Web Page Email
Retailer provides
induce the sale.
5
© 2005, Concept Shopping, Inc.
Concept Shopping has been in business for several years (approximately 7). It was tested at Safeway,
which never committed to the solution. Concept is currently running pilots and expanding within Albertsons,
deployed under the Avenu name in Jewel Osco stores. Concept currently partners with kiosk-provider
Tactical Retailing Solutions (TRS) for the Jewel-Osco pilot. However, it is likely a new provider for kiosks
will be selected in the first half of 2006 as Albertsons expands the program.
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POSnet
Concept Shopping can be classified as an innovative offer
targeting engine with supporting infrastructure around it.
POSnet, on the other hand, provides the supporting
infrastructure needed to deliver personalized offers, but without
a proprietary targeting engine. POSnet is a member-owned
Limited Liability Corporation dedicated to the
commercialization and operation of its electronic offer
management and point-of-sale clearing system. Pathmark is
its largest customer.
The company’s Retail Media Management™ is an open
platform and electronic offer management infrastructure that
enables retailers to flexibly share their customer relationships
with trading partners providing the widest possible array of
creative household-specific promotional offers through multiple
communication channels including direct mail, email, internet
couponing sites, kiosks, service-counter label systems, POS
printers, mobile shopping devices and an innovative solution to
in-store coupon clearing
In addition to robust, open platform offer management, POSnet
provides settlement functionality. Its aggregation of
transactional data facilitates measurement and analysis of marketing results on a real-time basis.
POSnet’s settlement provides four critical requirements:
• Validation: POSnet central systems extract redemption details from retailer point of sale systems
and perform validation routines to verify that the rewards issued at checkout are in agreement with
requirements contained in the central database.
• Automated invoicing: A weekly process aggregates daily point of sale redemption activity into a
single invoice transmission document for each funding CPG-sponsor.
• Weekly payment: The issuance of weekly CPG-sponsor invoices, retailer receivables reports and
joint settlement documents occurs each Monday following weekly close. Through a concentration
account managed by Bank of America, CPG payments are collected by ACH transfers executed on
Monday, allowing for funds transfer to retailers on Wednesday.
• End-to-end audit trail accountability: Retailers (and third parties the retailer authorizes) can readily
follow the disposition of any redemption forward through the settlement process, and/or trace any
settlement document or invoice back to the precise original point of sale redemption transactions.
The following table summarizes other companies in the loyalty solutions space.
# Company Description Degree of Relevance Offer Communication Program Management
1 dunnhumby dunnhumby is the analytics Combining existing Tesco mails out offers to its In the U.S., dunnhumby is
(Tesco, Kroger) engine and consultancy customer data with a customer base. Unclear how working directly with Kroger
behind Tesco’s renowned breadth of consumer Kroger is leveraging its and offers its services to
customer-specific loyalty lifestyle and attitudinal data dunnhumby-generated other retailers through the
and marketing program. worldwide, dunnhumby programs. With ties to two of JV. The lack of information
Kroger has established a provides its clients with the largest grocers in the and track record for
JV with dunnhumby to unprecedented world, in-store communication implementations earns
target the U.S. market. understanding of the of offers seems to be within dunnhumby a difficult rating
behavior and motivation of reason. for Program Management.
customers. This
information underpins the
creation of both
communication programs,
such as direct marketing,
and targeted products,
services and promotion that
enable clients to create
value for their customers
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# Company Description Degree of Relevance Offer Communication Program Management
and improve the lifetime
value of each customer.
2 Valassis VRMS Provides a leading CRM MarketEXPERT is effective To date, MarketEXPERT User must create build
database solution to at developing lists of users primarily make use of offers in MarketEXPERT for
merchants; primary customers based upon direct mail for communicating targeting, then build same
customers are attributes or shopping differentiated information or offers in Target-EXPERT for
supermarket. behavior. offers to customers. POS delivery.
TargetEXPERT has been
integrated to NCR, IBM, and
Retalix POS systems.
3 Retalix/ Retalix is a leading Sagarmatha provides an Offers developed by Retalix can output offer
Sagarmatha provider of POS software automated offer generation Sagarmatha can be information to be utilized at
to supermarkets. system which supports communicated via kiosk; a kiosk or web page, but it
Sagarmatha offers a one-to-one marketing. Its however, Retalix does not does not provide for actually
sophisticated targeting Personal Promotion Builder provide for this functionality communicating the offers;
engine. In December (PPB) gives retailers a currently. Thus, the Retalix that work is the
2003, Sagarmatha signed sophisticated and solution can put offers in front responsibility of the retailer.
an MOU agreement with automated data mining of the customer right before This solution also requires
Retalix to market and sell technology and sale but does not provide a that the retailer utilize
Sagarmatha’s Personal personalization solution. whole product solution for Retalix systems throughout
Promotion Builder system. doing so. its IT infrastructure, from the
Retalix is currently building POS to the back office to
the combined loyalty the CRM component – an
system for a European expensive solution for many
client and will then make retailers.
the solution available to
other clients.
4 Catalina Catalina Marketing is the Catalina can offer retailers All offers are delivered at the With a highly successful
global leader in providing limited ability to target POS, after the customer has track record and
behavior-based shoppers, utilizing the paid, in the form of paper implementations in over 170
communications on a retailer’s customer data, coupons which must be grocery and drug retailers
mass scale, targeted to based upon category brought back into the store on nationwide, Catalina has
individuals as individuals. behavior or shopping a future visit to redeem. deep experience in aiding
The company has been activity in departments. retailer Program
challenged financially over Relevance is driven by the Management.
the past several years and CPGs that participate – if a
has refocused on its core customer does not
business; selling purchase a particular
couponing to CPG brand, the degree of
companies at the POS for relevance is diminished.
the purposes of
encouraging brand
switching by consumers.
5 NCR Copient A hardware, software and Copient is a promotion Marsh Supermarkets The solution interfaces with
communications based tool; that is, retail implementation of Copient is a existing POS systems to
\"promotion execution\" clients build promotions screen that presents offers to enable discounting
system, the Copient based upon purchasing the customer at checkout. functionality, while working
Solution offers retailers a dependencies; a shopper These offers become in concert with retailers’
consolidated platform that may receive an offer activated and available the existing CRM and back-
enables content triggered by the shopper next time the customer shops. office accounting
management, targeted purchasing a specific item. The customer is provided with applications. Copient is
marketing, offer For example, Copient may the offers on the receipt as a able to display promotional
automation, customer issue an offer to a shopper reminder for her next messages in-aisle and at
account management and for buying salsa if the shopping trip. the checkout via their
enterprise/store shopper purchased chips. display devices. As Copient
communications. Marsh Its offer targeting system is is owned by NCR, it will
Supermarkets is the only driven from a product likely be challenged to
known retail company to perspective, not driven by provide its solution to
have implemented the providing relevant, retailers utilizing an IBM,
Copient solution. important offers to each Retalix, or other competing
customer. It is not POS system.
designed to execute
targeting of a specific
number of relevant offers
per shopper.
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# Company Description Degree of Relevance Offer Communication Program Management
6 Grocery Grocery Shopping Network Offerings include Customers’ personalized e- GSN provides the
Shopping of Minneapolis has “personalized” e-flyers, in flyers are emailed out every functionality to parse the
Network developed software that which GSN simply parses Wednesday. Merchant’s existing ad flyer
connects consumers with the current weeks’ ad flyer into items that would be of
retailers and for products the shopper interest to customers based
manufacturers via the has purchased before. on their purchase histories.
Internet. Beginning next Program Management
month, consumers who primarily consists of
visit the websites of exporting of the t-log data
participating supermarkets and producing the weekly
will be able to make ad flyer.
personalized shopping
lists, research product
information and receive
coupons and other
promotions based on their
previous purchases.
7 SAP Triversity Triversity is a retail Triversity’s CRM product, The functionality of Allegiance The targeting of offers in the
software company based Allegiance, is a customer- can be further enhanced CRM solution is a manual
in Toronto providing POS centric solution designed through the addition of various process. Data transfer is
systems, back office for retail. It gives retailers Triversity services, including through File Transfer –
systems, and a CRM the ability to capture and Promotion Delivery. Note, Batch and Trickle. A multi-
database solution that can analyze customer and however, that Triversity does platform file and message
support targeting and transaction data, and then not provide a complete transfer solution that
delivery of offers to use that data to build infrastructure for promotion automates the daily
customer segments. stronger, more profitable communication. Based on consolidation process for
Triversity focuses on and longer-lasting customer known information, it is multi-site and multi-channel
specialty retailers as its relationships. assumed offers are retailers through two
customer base. communicated by retailers via information transfer modes:
external methods (mail, file transfer for off-line batch
In Sept. 2005, SAP email). file transfers, and
announced the acquisition continuous data trickle.
of Triversity.
8 Loyalty Lab San Francisco-based Loyalty Lab’s “Standard The primary delivery mode for
Loyalty Lab has been
Loyalty Lab is a provider of Package” includes Dynamic Loyalty Lab’s offerings is via
architected as a highly
on-demand retail loyalty Segmentation. This email. In addition, rewards
modular software-as-a-
and customer includes segmentation can be tracked by the service. This approach
management solutions. Its based on demographic, consumer via a web interface.
simplifies implementations
flagship Customer geographic, RFM, prior with retailers’ existing
Relationship Manager purchases, and survey systems. However, Loyalty
Suite allows retailers to response. This Lab is challenged to provide
create and manage loyalty segmentation would allow tight integration into a
programs, email some limited degree of retailer’s POS system
campaigns and relevancy. providing for the electronic
promotional offers from a delivery of offers at the
single desktop. POS; while moving in this
direction with mall
Primarily offers points- merchants, large chains are
based loyalty solutions. beyond the company’s
present capability.
9 S&H S&H Greenpoints is an Classic Greenpoints has no Customers can receive a Merchants must pay the
Greenpoints updated version of the old customer-specific message related to their program fee and implement
greenstamps program. relevancy. However, the Greenpoints as they go the Greenpoints technology
Shoppers enroll at company has introduced through check out. This in store. Thereafter, the
participating stores, use SHPROMO™. The message sustains their loyalty program essentially runs
their loyalty card each time promotion system is a until the next shopping trip. itself. Greenpoints offers a
they shop, collect points sophisticated engine that range of additional
based on purchasing, and allows each promotion to consulting services tailored
can redeem points for gifts. track consumer behavior for Merchants’ unique
across multiple shopping marketing programs.
trips and makes
sophisticated decisions
real-time. Each
communication has the
ability to be unique and
personalized for each
customer.
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# Company Description Degree of Relevance Offer Communication Program Management
10 Dorothy Lane Dorothy Lane (DLM) is Coupons are targeted, with 8-10 offers are delivered via As a homegrown solution,
Market included as an example of different customer groups the mail to customers. DLM developed this
a Merchant building its receiving different batches approach over time. The
own solution that directly of coupons and different system does require
competes with SmartShop. levels of discounts regularly updating of offers,
-depending on what the but Program Management
Club DLM is a loyalty card, data tells DLM executives at this point is probably no
which DLM uses to capture about which customers like more a burden than would
t-logs and to deliver what. And the more the be putting together weekly
relevant offers. In October customer spends, the ad flyers.
1995, DLM ran its last better the deal.
newspaper ad and began
focusing its marketing
efforts on keeping and
pleasing the 30 percent of
its customers who supply
80 percent of its profits,
and especially pleasing the
1 percent who account for
11 percent of the take.
11 Safeway Safeway is included as an None Offers are presented on the Club Card is relatively
example of a Merchant shelf as the customer shops. straightforward to manage.
building its own solution There are no requirements
that indirectly competes to develop customer-
with SmartShop. segment strategies, so the
program runs relatively
Safeway’s Club Card is efficiently as a storewide
used to run a two-tier promotion.
pricing approach.
Customers are presented
discount offers on the
shelf, and receive their
discounts once they
present their Club Card at
the POS. The Club Card
acts as an inducement for
customers to present their
cards at checkout, but
there is little in the way of
special offers to
individuals.
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2.3.2 Strengths, Weaknesses, Opportunities and Threats
Strengths Weaknesses
Pay By Touch Pay By Touch
• •
Biometric access to loyalty program increases its Currently lacks most elements needed to provide
usage by removing the need to present a card SmartShop
• •
Biometric ID increases data quality Not PBT’s sole business model, putting product
development in competition with other product
• In-store presence (in-lane, kiosk) for PBT service
initiatives
facilitates introduction of SmartShop
SmartShop
SmartShop
• Acquired product built for a single store
• Highly relevant offers to Members increase
implementation, significant work required to
consumer interest in retailers and brands
make scalable for the market
• Multiple communication channels to ensure
• Merchants may have concern turning over their
contact with customers
loyalty programs to a relatively new,
• Requires an evolution in Merchant business inexperienced loyalty provider
models (channel existing offers more directly to
• Merchants may have concern in making
individuals) rather than a revolution
biometric auth the only way to access their
• PBT in-house expertise in developing customer- primary loyalty program
specific marketing programs
Opportunities Threats
Pay By Touch Pay By Touch
• •
Through biometric enablement and a suite of RFID cards can include loyalty card information
solutions, PBT can serve as the primary provider as well as payment mechanisms
to Merchants of revenue-generating products • Smart cards can include loyalty and payment
• Increase Wallet utility with a unique value-added mechanisms
financial instrument for Members
SmartShop
SmartShop • Inertia – Merchants retain existing loyalty
• Customer-specific discounts are an emerging programs
trend (Top 10 retail trend in 11/21/05 WSJ • Large market player – e.g. Catalina – decides to
article) aggressively pursue this business model
• CPGs are looking for ways to form direct • Start-up develops a competitive offering – e.g.
relationships with customers Concept Shopping
• Hosted software is increasingly being used by
companies
2.3.3 Differentiators
SmartShop will offer a whole product, such that Merchants will be able to target their offers based on t-logs,
communicate through multiple channels, deliver discounts to customers at the POS and reconcile offers
between CPGs and Merchants. Few competitors offer a complete solution to the market. In addition, Pay
By Touch offers its intrinsic strengths in the offering.
Relative to its most direct competitor, Concept Shopping, SmartShop is more consistent with current
industry practices regarding the distribution of discounts: Merchant and CPG control over the offers, weekly
cycles for distributing offers. Concept Shopping’s approach does require more faith in its targeting model
due to the opaqueness of its model.
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3 BUSINESS MODEL
3.1 MARKET SEGMENTATION AND VALUE PROPOSITION
3.1.1 Merchants
Merchants will benefit in three ways from SmartShop:
• Increased revenues and profits by re-orienting their promotions into customer-specific models
• Reduced costs for advertising
• Generate revenue from CPGs for coupon placement
Increased Revenues and Gross Margins
The top value to Merchants implementing SmartShop’s customer-specific promotional model will be an
increase in sales and profits, achieved through changes in three components of Merchants’ economic
models: higher average customer baskets, increased transaction volumes and higher gross margins.
The table to the right describes a typical customer Actual Supermarket Customer Data Decile
Spending and Markdowns
segmentation for Merchants. The best customers
provide the largest share of revenue, at the highest Markdown
# Decile Decile % of Total
Decile % of Total as % of
gross margins. The worst customers generate the Customers Spending Markdown $ Markdown
Spending
10 2,671 $ 10,161,647 59.5% $ 813,439 49.1% 8.0%
lowest spending while taking a disproportionate share 9 2,671 $ 3,113,702 18.2% $ 326,487 19.7% 10.5%
of the markdown dollars. The goal of customer-specific 8 2,671 $ 1,564,890 9.2% $ 188,791 11.4% 12.1%
7 2,671 $ 891,308 5.2% $ 116,982 7.1% 13.1%
marketing is to move more customers into a profile 6 2,671 $ 544,806 3.2% $ 77,408 4.7% 14.2%
5 2,671 $ 345,851 2.0% $ 52,698 3.2% 15.2%
consistent with the top deciles. These would be the 4 2,671 $ 218,307 1.3% $ 35,685 2.2% 16.3%
most loyal customers. Those customers that do not 3 2,671 $ 132,857 0.8% $ 23,580 1.4% 17.7%
2 2,671 $ 73,003 0.4% $ 15,051 0.9% 20.6%
respond with an improvement in their average basket 1 2,671 $ 27,984 0.2% $ 7,984 0.5% 28.5%
Total 26,710 $ 17,074,355 100.0% $ 1,658,105 100.0% 9.7%
will not receive a disproportionate share of the
markdowns. Source: Customer Intelligence, Gary Hawkins
In his book Customer Specific Marketing, Brian Woolf relates the experience of Gregerson’s Foods. In April
1994, Gregerson’s initiated its Club Greg card, offering its best customers special discounts while sharply
decreasing the in-store temporary price reductions. 18 months later, CEO “Greg” Gregerson described the
program results to Woolf: “Our same-store sales are up 5%, and our gross profit is up over one full
percentage point! Differentiated marketing works!” Woolf reports similar results for a variety of retailers
implementing customer-specific marketing.
The table to the left models the increases for the top 25
Merchant Value Proposition Modeled
Lift in Gross Profit SmartShop grocers if they achieved one fifth the benefits that
General Food SmartShop
Gregerson describes. The lift in gross profit is based on a 1%
Revenues Lift in
No. Grocer Gross Profit
increase in same store sales and a 0.2% point increase in gross
(billions)
1 Kroger $ 51.1 $ 103,222,000
margins.
2 Safeway $ 35.8 $ 72,316,000
Albertsons (excl. drug stores)
3 $ 34.7 $ 70,025,890
Ahold USA (excl. Bi-Lo)
4 $ 18.6 $ 37,596,218
Higher sales result from customers’ increased loyalty, driven by
5 Publix $ 18.6 $ 37,481,100
6 Delhaize America $ 15.8 $ 32,008,920
consistent delivery of relevant offers that are easily accessible.
7 Meijer $ 11.1 $ 22,422,000
In addition to increased household share of wallet, the Merchant
8 H.E. Butt $ 10.6 $ 21,412,000
9 Winn-Dixie $ 9.9 $ 20,040,420
experiences an increase in the number of customer transactions.
10 A&P $ 7.8 $ 15,756,000
11 Giant Eagle $ 5.1 $ 10,302,000
SuperValu (excl. Save-A-Lot, Deals)
12 $ 4.8 $ 9,675,598
The increased gross margins are based on a more targeted use
13 Pathmark $ 4.0 $ 8,035,560
14 Hy-Vee $ 3.9 $ 7,781,503
of trade and consumer promotion dollars. By fostering an
15 Stater Bros. $ 3.8 $ 7,676,000
increased loyalty with the customer, the Merchant will gain as
16 Aldi USA $ 3.5 $ 7,070,000
17 Wegmans $ 3.3 $ 6,666,000
the customer not only buys the on-sale items, but she buys the
18 Raley's $ 3.2 $ 6,464,000
19 Roundys $ 3.0 $ 6,082,220
majority of her household needs when they are not on sale. At
20 Price Chopper $ 2.5 $ 5,050,000
21 Harris Teeter $ 2.4 $ 4,848,000
the same time, by reducing the wide distribution of TPRs, many
22 Save Mart $ 2.2 $ 4,444,000
customers will buy items at full price.
23 Schnuck Markets $ 2.2 $ 4,444,000
24 Ingles Markets $ 2.2 $ 4,372,896
25 Weis Markets $ 2.0 $ 4,100,600
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Reduced Advertising Costs
The second benefit is a reduction in the cost to produce and distribute promotions to customers. At a high
level, the weekly ad circulars and newspaper advertising can be thought of as reminding the best customers
about the offers from their favorite store, and attracting new customers who shop elsewhere. Once a
Merchant switches to a customer-specific approach, mass media advertising is no longer the primary
communication vehicle. Direct-to-consumer modes become more important: email, web, kiosk, direct mail,
mobile device. These modes are less expensive than traditional media; combined with a reduction in print
media advertising, Merchants are able to increase profits.
The table to the right outlines an example of the savings SmartShop vs. Mass Distro of Ad Flyers
a Merchant could expect with SmartShop: Hypothetical Savings – Single Store
Current SmartShop
Households: The number of households (HH’s) per Loyalty
Mass Distro. Mass Distro.
Customers
store is set as 10,000. Households 14,286 14,286 8,000
• Ad Flyers/HH/week 3.00 1.50
70% of HH’s in a given locale are deemed to Total Weekly Flyers 42,857 21,429
shop with a Merchant, meaning 14,286 HHs Ad Flyer Cost-per-Thousand (CPM) $ 125 $ 125
Weekly Ad Flyer Cost $ 5,357 $ 2,679
are in a Merchant’s geographic coverage Kiosk Printouts/HH/week 0.50
Total Weekly Kiosk Printouts 4,000
• 80% of a Merchant’s actual customers are Printout CPM $ 30
assumed to belong to SmartShop Weekly Kiosk Printout Cost $ 120
Offer Activation/HH/week 0.75
Total Weekly Offer Activations 6,000
Weekly Ad Flyers: Typical distribution of ad flyers Activation Payment to PBT CPM $ 25
follows a 3-to-1 model. Weekly Activation Cost $ 150
Offer Redemption/HH/week 0.38
• Ad flyers cost $125 per thousand (12.5¢ ea) Total Weekly Offer Redemptions 3,000
Redemption Payment to PBT CPM $ 25
• Ad flyers are distributed via subscriber Weekly Redemption Cost $ 75
Subtotals $ 2,679 $ 345
newspapers, newsstand papers and in-store Total Weekly Costs $ 5,357 $ 3,024
Total Annual Costs $ 278,571 $ 157,226
• With SmartShop, Merchants cut their
distribution in half as customers receive discounts information via other modes
Kiosks: SmartShop customers will often walk into a store, biometrically identify themselves at a kiosk and
print out their offer sheets.
• Kiosks deliver the weekly offers to about 50% of SmartShop customers. 50% of HH’s don’t get
kiosk printouts because they miss a shopping week or print them out at home from the web.
• Costs per offer sheet are estimated at 3¢: roughly one cent for the paper plus two cents for
maintenance and depreciation
Activation and Redemption: Activation occurs when the customer views her offers via the web or kiosk. It
signals that the customer has actually taken in the information presented, a key goal for Merchants.
• PBT will earn 2.5¢ per activated offer sheet ($25 CPM), and another 2.5¢ per offer sheet for
redemption of any offer at the checkout ($25 CPM)
• 75% of HH’s are assumed to view their weekly offer sheets, with email generating the strongest
prompt to Members’ activation
• Half of activations are assumed to result in redemption at the POS
Communications: Digital communication of offers (web, email, mobile) is an expense incurred by PBT.
Several pioneers in customer-specific promotions have reduced their conventional advertising without a loss
in revenues. Brian Woolf notes the following in Customer Specific Marketing:
“One fascinating discovery with differentiated marketing is that traditional print advertising can be cut with no noticeable
adverse impact on sales! Both Gregerson’s Foods…and Ukrop’s…have cut their newspaper and other print advertising at
least in half. Meanwhile, others, such as Morgan’s Tuckerbag…Dorothy Lane Market…and Green Hills Farms…have
eliminated print advertising completely! This works because different customers are targeted with different offers, and
newspapers and circulars are poorly suited to communicate these new variable, targeted offers.”
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CPG Payments for Offer Placement
Merchants currently receive trade allowances from CPGs to CPG Trade Promotion Dollars
Merchant Allocation
offset the cost to produce and distribute ad flyers, as well as to
address other elements of Merchant promotions. The table to Est. Dollar
the right outlines the average Merchant allocations for every Distribution Pct of Total Amounts
dollar of trade allowance they receive from a CPG. On average, Consumer Discount 56% $ 0.86
44% of a CPG’s trade allowance to a Merchant goes toward Merchant Profit 24% $ 0.37
offsetting expense (e.g. ad flyer production) or straight to the Merchant Expense 20% $ 0.31
Merchant’s bottom line. Based on an average discount amount Total 100% $ 1.54
of 86 cents, that translates into 68 cents going directly to the Source: Deloitte Consulting; TNS Marx FSI Trend Report
Merchant per redeemed discount.
FSIs, on the other hand, are costs borne by CPGs without Merchant involvement. However, with
SmartShop, CPGs are now leveraging the customer data of Merchants and the distribution infrastructure
(i.e. kiosks) of Merchants. This change affords an opportunity for Merchants to charge CPGs an offer
placement fee. As demonstrated in the next section, CPGs cost for distributing offers via SmartShop will be
significantly less than the equivalent distribution via FSIs. So the CPGs arguably have money to spend on
offer placement fees.
The structure for determining these placement fees can vary depending on the source of the offer: trade
promotion dollars or consumer promotion dollars:
Trade promotion offers: Trade promotion allowances are a negotiated amount between the Merchant and
the CPG. The working assumption is that Merchants will negotiate new fees with CPGs for their inclusion in
the SmartShop offer set.
Consumer promotion dollars: Because consumer promotion dollars are currently spent outside of the
negotiated agreements between Merchants and CPGs, there are different models that could potentially
govern the placement of CPG-input offers in customers’ offer sheets. The following are possible models:
i. Negotiated: Similar to the trade promotion-based offers, the Merchant enters into an agreement with
each CPG that spells out the fees for offers distributed to the Merchant’s customers.
ii. Bid System: In this model, CPGs would bid for inclusion of each offer in the distribution to
customers. For example, General Mills bids 7.5¢ for inclusion of a Cheerios offer in the Offer Pool,
payable per customer offer activation or redemption. CPGs adjust their bids based on a number of
factors (e.g. importance of Merchant, prior offer results, special marketing initiatives, etc.). The
Merchant uses each CPG’s bid rate as a factor in determining which offers to include in the weekly
Offer Pool.
iii. No Fee: Merchants hold off on charging under this scenario. Rather, they view deep discount offers
from CPGs as the better play in driving increased traffic, higher average baskets and increased
gross margins.
Merchant ROI
Example Merchant ROI
The table to the right presents an example of the # stores 1,797 Cost per kiosk $ 5,000
Merchant’s ROI (i.e. Albertsons). The cash flow # HHs per store 10,000 3-yr kiosk maintenance 20%
# kiosks per store 2 POS changes per store $ 25,000
projections model out the cash in and cash out. Cash Year 1 Year 2 Year 3
in numbers reflect the three value propositions Household Adoption Rate 20% 50% 80%
discussed herein. For CPG Placement Fees, the Cash In
Gross margin pickup $ 17,506,472 $ 43,766,181 $ 70,025,890
assumptions are 2.5¢ for ten Merchant-input offer slots Reduced ad flyer costs $ 54,514,562 $ 136,286,405 $ 218,058,249
(ignoring the possibility of billing for the ten CPG-input CPG Placement Fees $ 35,041,500 $ 87,603,750 $ 140,166,000
Total $ 107,062,535 $ 267,656,336 $ 428,250,138
slots). Even so, the model shows a very quick payback
Cash Out
to the Merchant for SmartShop of less than one year. PBT SmartShop fees $ 5,256,225 $ 13,140,563 $ 21,024,900
Kiosks (2 per store) $ 17,970,000 $ 898,500 $ 943,425
Kiosk maintenance $ 1,198,000 $ 1,257,900 $ 1,320,795
POS changes to accept offers $ 44,925,000 $ 2,246,250 $ 2,358,563
Total $ 69,349,225 $ 17,543,213 $ 25,647,683
Net cash flow to Merchant $ 37,713,310 $ 250,113,124 $ 402,602,456
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3.1.2 CPGs
CPGs will benefit in three ways from SmartShop:
• Reduced cost for offer distribution
• Improved customer targeting
• Reporting and analysis
Reduced Cost for Offer Distribution
As described previously, CPGs have increased their issuance of FSIs even as consumers are redeeming
fewer coupons. The increased production and distribution costs combined with diminished consumer usage
of coupons represent a poor ROI for promotional spend. SmartShop offers a way to reduce the costs
associated with the distribution of coupons.
The table to the right outlines an example of how CPG Offer Distribution Savings Example
SmartShop costs less than FSIs. The premise of the
FSI SmartShop
example is to analyze the costs of getting 405,000 Measure Quantities Pct of Distro Quantities Pct of Distro
household redemptions. Distribution 45,000,000 100.0% 2,700,000 100.0%
Activation 4,500,000 10.0% 2,025,000 75.0%
Distribution: The count of households receiving the Redemption 405,000 0.9% 405,000 15.0%
offers. Cost $ 250,000 $ 50,625 (@2.5¢ per activation)
• For FSIs, a blanket distribution of 45 million
is required. All of these FSIs must be produced and distributed.
• SmartShop starts out with a distribution to 2.7 million households. There is no cost for this initial
distribution.
Activation: The number of households that actually “take in” the offer, recognizing what is being promoted.
• “Activating” an FSI is defined as reading it. The 10% rate is an estimate based on grocer ad flyer
readership.
• Activation of a SmartShop offer is set at 75%, the rate utilized in other calculations herein.
Redemption: The number of households redeeming the coupon at the checkout.
• For FSIs, the rate is under 1% of distribution, as noted previously.
• SmartShop redemption is estimated at 15% of distribution, or 20% of activations (15% / 75%). This
assumption translates into an average of two CPG offers redeemed out of every ten.
Cost: The cost required to get the 405,000 redemptions.
• A typical cost for distribution of 45 million FSIs is $250,000.
• The baseline cost for the SmartShop redemptions is tied to the number of activations. The
previously described cost of 2.5¢ is used here.
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Improved Customer Targeting
Through the analysis of a customer’s Four CPG Challenges in Trade & Consumer Management Deloitte
purchasing history, CPGs will be able to Consulting
distribute promotional efforts to the most
relevant customer segments. SmartShop • How can we focus marketing • Which type and level of account
investments on our highest are the most profitable and how
essentially serves as an agent for the CPG, value consumers? should we prioritize customer
investments?
• How should we leverage
allowing direct communication to information from retailer loyalty • How do we incorporate lessons
Account
programs to jointly market to the learned from past activities into
Merchants’ customers. Planning
consumer? future planning?
Obviously, discount offers are not the
Direct to Trade &
principal driver of customer purchasing Account
Consumer Consumer Management
decisions. CPGs invest significantly in Marketing Solutions
product attributes, production, distribution
and marketing. However, the SmartShop • What types of promotional events
• How should we collaborate
Collaboration and tactics are most effective?
with the retailer to improve
offer serves as a way to drive behavior, a & Exchanges
demand forecasts? • How can we get visibility to the
financial incentive that complements the quality of in-store execution?
• What supply chain productivity
gains can be achieved by
other product efforts. Through SmartShop, linking supply forecasting with
CRM information?
CPGs have a new, more powerful tool to:
• Reach and retain their highest Source: Deloitte Consulting, “What is Trade Promotion?”, August 2004
value customers
• Identify top potential customers for their products
• Target customers of competitors
Reporting and Analysis
A consistent limitation in trade and consumer promotion management for CPG Offers Reporting
Segments
CPGs is the lack of visibility. CPGs distribute coupons and provide TPR
funds, but have little information on the effectiveness of these promotions. Demographic
85% of CPGs rate trade promotion inefficiency as a very high issue. • Age
• Location
SmartShop will provide insight to CPGs on the effectiveness of their offers.
Offers will be analyzed on both demographic and behavioral bases. CPGs Behavioral
will know the impact of different targeting strategies. Over time, the CPG • Product purchase levels
can see the impact of changing the dollar amount of the discounts offered. • Purchase categories
• Consumer redemption rates
The goal of the reports is to give CPGs the data necessary to experiment
and refine their customer marketing strategies and to understand the ROI of their trade and consumer
promotion efforts. Longer term, these reports will be cross-merchant as Pay By Touch signs up new clients.
3.1.3 Members
Members’ SmartShop value proposition is driven by two benefits:
• Savings: Members receive discounts on items they regularly purchase.
• Convenience: Offers are delivered in an easy to access and utilize manner; no more hunting
through multiple FSIs and ad flyers, clipping relevant coupons and remembering to take them to the
store
These benefits are delivered to Members free of charge.
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3.2 VALUE CHAIN STRUCTURE
3.2.1 Members
The value to Members of SmartShop lies in its convenient delivery of relevant savings. These benefits will
be delivered as follows:
SmartShop Enrollment: Member enrollment in SmartShop should be seamless and with few additional
requirements beyond basic Pay By Touch enrollment.
Relevant Offers: Offers will be based on a Member’s household shopping history. This will require
frequently updated t-log data of high integrity. The targeting of eligible offers must result in consistently
relevant promotions for Members.
Offer Receipt: Receipt of the (weekly) offers should require a minimum effort on the part of the Member.
Members can receive their offers via the web, linking to the offers from a notification email. Upon entry to a
store, the experience of picking up the offer sheet must be quick – kiosks should be near the store entry and
the wait time to print out the offers should be measured in seconds. Members may also receive offers via
mobile device.
Offer Tender: Rather than fumble through a wallet or purse to present coupons for swipe at the checkout,
Members will automatically receive their discounts at the POS prior to paying. The receipt will display the
discounts received.
3.2.2 Merchants
The value to Merchants of SmartShop lies in driving increased transaction volume and average basket sizes
with higher margins through a lower cost promotion distribution network administered via easy program
management. These benefits will be delivered as follows:
Offer Setup: Authorized Merchant employee(s) will be able to enter new sets of offers into the SmartShop
system via web interface. In addition, Merchants will be able to target offers in such a way as to reward their
best customers while avoiding the “cherry picker” shoppers.
Targeting: The key to improving existing loyalty programs and reducing effective costs for distribution will be
highly effective targeting.
Messaging: Because SmartShop works through several customer touch points - email, web, kiosk, mobile,
POS, receipt - Merchants will want to ensure a consistent message to their customers. Limited Merchant
messaging will be included, formatted for the different communication modes.
Monitoring and Administration: Merchants will be able to track the distribution, activation and redemption of
offers on a daily basis. SmartShop will honor limits on Member purchases of items at discount. Merchant
changes to offers will be updated quickly. SmartShop will alert Merchant if two offers are entered for the
same product.
Offer Tender: As a Member transacts via Pay By Touch, a Merchant will be able to automatically apply her
discounts to the checkout total within the overall payment transaction.
Settlement: Critical to ensuring margins and earning revenue via CPG offer placement fees will be
settlement services provided by SmartShop.
Reporting: Data gained from running promotions to customer segments will be of immense value for
Merchants to better understand their customers and their promotions.
3.2.3 CPGs
The value to CPGs of SmartShop lies in directly reaching consumers most interested in their products
through a lower cost delivery mode administered via easy program management. These benefits will be
delivered as follows:
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Offer Setup and Targeting: Authorized CPG employee(s) will be able to enter new sets of offers into the
SmartShop system via web interface. In addition, CPGs will be able to target offers to consistent users of
their product; users of competitive products; and users with certain demographic and purchasing attributes.
Targeting: The key to improving existing loyalty programs and reducing effective costs for distribution will be
highly effective targeting.
Messaging: Because SmartShop works through several customer touch points – email, web, kiosk, mobile,
POS, receipt – CPGs will want to ensure a consistent message to consumers. Limited CPG messaging will
be included, formatted for the different communication modes.
Monitoring and Administration: CPGs will be able to track the distribution, activation and redemption of offers
on a daily basis. SmartShop will honor limits on Member purchases of items at discount. CPG changes to
offers will be updated quickly.
Offer Tender: As a Member transacts via Pay By Touch, her CPG discounts will be automatically applied to
the checkout total within the overall payment transaction.
Settlement: Managing the settlement process, with audit functionality, is a critical component to the value of
SmartShop.
Reporting: CPGs are keenly interested in understanding what drives different consumers to purchase their
products. SmartShop reports will provide customer-segmented data to CPGs for analysis of offers.
3.3 COST STRUCTURE
SmartShop is a product with a significant service component. As with any technology product, there will be
development costs – engineering staff time and possible new software/hardware investments. The total
scope of these costs will need to be determined. In addition, delivery of the product is well beyond a “plug-
n-play” implementation. Each Merchant’s in-store POS and overall system architecture will require varying
levels of customization. While many of the customization costs will be borne by Merchants, Pay By Touch
will have a responsibility to provide professional services to see the implementation through. In addition,
Merchants and CPGs who are new to the customer-specific marketing model may require strategic and
analytical consulting. Kiosks are a critical communication channel; Merchants are expected to bear the cost
of these including paper restock.
Once built and implemented in a Merchant’s environment, the following are currently identified costs for
SmartShop:
• Email: PBT will bear the expense for sending out emails to Members with their SmartShop offers
• Settlement: PBT may engage a settlement agent for clearing and payment services
• Customer Service: PBT personnel to handle issues and inquiries from Merchants, CPGs and
Members
• Sales & Marketing: SmartShop will be marketed to Merchants and CPGs (collateral, trade shows,
industry publications, sales trips)
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4 USE CASES AND IMPLEMENTATION SCENARIOS
4.1 INTRODUCTION
The following use cases describe interactions with SmartShop by Members, Merchants, and CPGs.
MEMBERS
4.1.1 Use Case 1: Establish Member Household ID
4.1.1.1 Description
PBT Members will be able to link themselves to other PBT Members via a common Household ID.
1. During enrollment or after enrollment, a Member will be presented the opportunity to identify any
other PBT Members with which they share a household.
2. The Member will enter the first name, last name and phone number of the shared Household
Member.
3. PBT will send a message to the other identified Member notifying him/her of the request to be linked
to a common Household.
4. The identified Member will approve or decline the request to be linked.
5. The originating Member will be notified of the approval or decline.
6. For approvals, PBT will establish a common Household ID between the two Members.
4.1.1.2 Justification for Use Case
In the retail industry – particularly grocery – customers are tracked at the household level. This is because
multiple members of the same household may do the shopping for the entire family. T-log data is tracked for
households, and offers will be distributed to all members of a household.
4.1.2 Use Case 2: In-store SmartShop enrollment
4.1.2.1 Description
During in-store enrollment into Pay By Touch, a Member will be automatically enrolled in that store’s
SmartShop program. Immediately after enrollment and activation, the Member will be presented a
SmartShop offer sheet for new customers.
1. Member enters the information needed to enroll in PBT, which is sufficient for setting up a
SmartShop account.
2. Member’s new SmartShop account is communicated both to PBT Server and to the Merchant’s
customer management database.
3. Member is presented New Member offer sheet at the kiosk, which she can print out.
4. Her discounts are immediately available at the POS when she goes through checkout.
4.1.2.2 Justification for Use Case
Leveraging the same information that is entered for PBT to do SmartShop enrollment prevents a Member
from having to re-enter the same data twice. In addition, Merchants are expected to be interested in getting
as many Members into their loyalty program as possible. Finally, by entering Members automatically into
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SmartShop, they receive immediate gratification in the form of discounts. This immediate gratification will go
a long way toward establishing a habit of using PBT by the Member.
4.1.3 Use Case 3: Web-based SmartShop enrollment
4.1.3.1 Description
During a web-based PBT enrollment or afterwards, a Member can sign up for all SmartShop programs for
which she is eligible.
1. After enrollment or during Member updating to her account, a page of SmartShop programs is
presented. The list of SmartShop programs may be governed by certain rules, such as proximity to
Member’s home address.
2. Member will check the boxes for the programs she wants to join. She will also indicate whether she
wants the loyalty programs to be tracked at the household or individual level.
3. Member’s new SmartShop account(s) are communicated both to PBT Server and to the Merchants’
customer management database(s).
4. Member is presented New Member offer sheet(s) on the web, which she can print out.
5. Her discounts are immediately available at the POS when she goes through checkout.
4.1.3.2 Justification for Use Case
Basis for this use case is similar to UC.2, except that the online enrollment environment increases the
number of programs that can be presented to the Member.
4.1.4 Use Case 4: Offer Activation
4.1.4.1 Description
Before a set of offers can be used at the POS, they must be activated. Activation occurs once the Member
views her offers online or at the kiosk, or clicks a URL in the offer email. Activation makes the discounts
available to the Member at the POS.
1. (a) Member activates offers by viewing them on the web or clicking URL in offer email
(b) Member activates offers by viewing them at an in-store kiosk
(c) Member activates offers by affirmatively replying to a SMS text message displaying the offers
2. PBT SmartShop server records the activation, making the offers “live” and eligible for redemption at
the POS.
3. When Member purchases offer-eligible products, her discounts are recognized by the Merchant
POS during checkout.
4.1.4.2 Justification for Use Case
Without activation, the value of discounts is entirely lost. Consumer will not see the discounts, and may not
buy the advertised product. Or if she does, she is buying a product she wanted anyway and the
Merchant/CPG just gave away money. The discounts are seen only after the transaction is concluded.
4.1.5 Use Case 5: Offer redemption
4.1.5.1 Description
At checkout, the Member will receive her discounts without any additional effort on her part.
1. Member purchases products listed on her SmartShop offer sheet.
2. Cashier scans the UPCs of products in the Member’s basket.
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3. UPCs eligible for discounts will be identified and matched to their discounts.
4. Discounts will be processed through the ECR and the transaction total will be reduced accordingly.
5. Member pays for her purchase.
6. The tendered discounts are communicated back to the PBT SmartShop server in real-time or near
real-time.
4.1.5.2 Justification for Use Case
Application of discounts at transaction time is a critical success factor. Members should receive discounts at
checkout to reduce extend their purchasing power and without real-time application of offers, Members
could re-use discounts multiple times.
4.1.6 Use Case 6: Offer limit management
4.1.6.1 Description
Offers will be established with limits, so as to manage the total amount of discount provided. After a
Member redeems an offer, the quantity of product eligible for the discount will be reduced by the number of
items purchased.
1. Member receives offer for $1.00 off cereal, limit 2.
2. She purchases three boxes of cereal.
3. She receives $1.00 off on two of the three boxes at the POS.
4. After completing the transaction, the PBT SmartShop server is updated with the purchase quantity.
The limit on the cereal is reduced, in this case to 0.
5. No more cereal can be bought at the discount for the duration of the offer period.
4.1.6.2 Justification for Use Case
If limits are not followed, the Merchant and CPG would pay out too much for the promotion and Pay By
Touch would risk liability for the error.
4.1.7 Use Case 7: Biometric auth fails - kiosk
4.1.7.1 Description
Member goes to kiosk to retrieve her offers. Biometric auth fails, leaving her unable to activate her offers
and use the offer list as a basis for shopping.
1. Member walks up to kiosk, places her finger on the reader.
2. The biometric fails after several attempts.
3. Member enters her 10-digit phone number.
4. The offers associated with the phone number (which is linked to the PBT Wallet) are returned to the
kiosk.
5. Her offers are now available for redemption at the POS.
4.1.7.2 Justification for Use Case
Biometric auth failures will continue to be an issue for a while. These failures can turn a Member off if she
must pay more for her purchases than she should.
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4.1.8 Use Case 8: Biometric auth fails – In Lane
4.1.8.1 Description
Member attempts in lane biometric auth to complete a transaction. The auth fails, making the SmartShop
offers inaccessible at the POS. While the Member can use other payment options, she is unable to tap her
offers. To prevent a potential blow-up situation that affects both the Merchant and PBT, the cashier needs a
reliable backup plan that quickly resolves the issue.
1. Member attempts biometric auth to complete transaction and receive her SmartShop discounts.
2. Auth fails, making the SmartShop offers inaccessible.
3. Member agrees to pay via the cards in her physical wallet, but still wants her discounts.
4. Member enters her 10-digit phone number.
5. The offers associated with the phone number (which is linked to the PBT Wallet) are returned to the
POS. Note that only the offers, no other elements of her Wallet are returned (i.e. checking account
info, credit cards, debit, etc).
6. Her offers are recognized for eligible purchases and the discounts are applied accordingly.
4.1.8.2 Justification for Use Case
The scenario above describes one possible way to address the issue of an in-lane failure of biometric auth.
The driver for this use case is that loss of the ability to get her discounts is a real loss of money to a
Member, caused by Pay By Touch. This cannot happen. In the noisy, fast paced environment of a store, a
cashier needs a quick, consistent way to handle this issue.
4.1.9 Use Case 9: Offer reminder alerts
4.1.9.1 Description
Members will be able to set their preferences for reminders regarding their offers. The alerts communicate
remaining offers to Members and the date of expiration for the discounts.
1. Member logs in to MyPBT.
2. She clicks on the Loyalty Programs tab.
3. She clicks a specific Merchant’s SmartShop program.
4. She clicks ‘Preferences’.
5. She checks that she wishes to receive reminders regarding her unexpired, unused offers.
6. She sets ‘Thursday’ as her day of the week to receive these alerts.
7. She checks ‘Email’ as one mode for receiving these alerts. The email address associated with her
Member Profile is used for these alerts.
8. She checks ‘Mobile’ as a second mode for receiving the reminders. She enters her mobile device
phone number.
4.1.9.2 Justification for Use Case
Offer reminders demonstrate the power of SmartShop’s digital communication modes relative to existing
undifferentiated mass distribution of ad flyers and FSIs. The reminders are a helpful way of letting the
Member know that she has discounts available to her for items she regularly buys, but that she may be at
risk of losing the offers if not used by the weekend. Merchants and CPGs are expected to view reminder
functionality as a powerful component of the SmartShop offering.
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4.1.10 Use Case 10: View SmartShop offer history
4.1.10.1 Description
Member will be able to see her history of Albertsons SmartShop Savings
offer redemptions via the MyPBT portal. Date Ref ID Location Description Quantity Savings
Tide Ultra, Liquid Laundry Detergent, 100 oz.,
1/27/2007 5478957 San Francisco, CA 1 $ 2.00
1. Member logs in to MyPBT. Save $2.00 off lowest shelf price
Palmolive Auto Dish Liquid, 45 oz., Save 80
1/27/2007 5478957 San Francisco, CA 1 $ 0.80
cents off lowest shelf price
2. She clicks on the Loyalty Stove Top, Stuffing, 6 oz., Final price after
1/27/2007 5478957 San Francisco, CA 2 $ 0.70
discounts, 89 cents
Programs tab. Heinz Gravy, 12 oz., Final price after discounts
1/27/2007 5478957 San Francisco, CA 2 $ 0.60
, 89 cents
3. She clicks her Albertsons Lipton, Iced Tea Single Serve, 16 oz., Save 30
1/27/2007 5478957 San Francisco, CA 6 $ 1.80
cents off lowest shelf price
SmartShop offers link. Hillshire Farm, Deli Selects, 6 oz., Final price
1/20/2007 5476911 San Francisco, CA 2 $ 1.00
after discounts, $1.79
Simply Potatoes, Mashed Potatoes, 24 oz.,
4. She clicks View History. 1/20/2007 5476911 San Francisco, CA 1 $ 0.50
Final price after discounts, $1.99
Chicken of the Sea Solid White Tuna, 6 oz.,
1/13/2007 5472078 San Francisco, CA 3 $ 0.75
5. She is presented with a list of her Final price after discounts, 89 cents
Hefty One Zip Bags 35 ct., Save 90 cents off
1/13/2007 5472078 San Francisco, CA 2 $ 1.80
transactions for the year-to-date. lowest shelf price
General Mills Lucky Charms Cereal 14 oz.,
1/13/2007 5472078 San Francisco, CA 2 $ 2.00
Save $1.00 off lowest shelf price
6. Her savings per offer are shown. Peter Pan, Peanut Butter, 18 oz., Save 50
1/13/2007 5472078 San Francisco, CA 1 $ 0.50
In addition, her SmartShop cents off lowest shelf price
SmartShop Savings (year-to-date) $ 12.45
savings for the year are summed.
4.1.10.2 Justification for Use Case
The transaction history is a form of audit for the Member. In addition, by showing the discounts received,
the value of shopping with the Merchant is reinforced, as well as the value of using Pay By Touch to access
SmartShop. This is a good example of how Pay By Touch extends a Member’s purchasing power.
OFFER ENTRY AND DISTRIBUTION
4.1.11 Use Case 11: Export t-log, customer data and product hierarchy
4.1.11.1 Description
Merchant establishes the t-log and customer data export files per PBT’s specs and transfers them weekly to
PBT’s SmartShop server.
1. Merchant is provided with export file requirements: data contents, formats (XML, delimited), etc.
2. Merchant utilizes existing export functionality of its database applications or hires a third party (e.g.
database vendor) to customize the export functionality.
3. After establishing the file contents and format, and the export functionality, Merchant sets up a
weekly export of files to PBT.
4. Merchant will receive confirmation information and any error reporting after each weekly export of t-
logs, customer data and product hierarchy.
4.1.11.2 Justification for Use Case
T-logs, customer data and product hierarchies are the fuel that makes SmartShop run. PBT will need to be
prepared for a variety of software applications that will contain the necessary data. The goal is a standard
methodology for the export of data that requires no import customization on the part of PBT.
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4.1.12 Use Case 12: Merchant selects and implements customer database marketing application
4.1.12.1 Description
Merchants without an existing loyalty program will need to implement a customer database marketing
application. The application tracks customers’ spending, and applies analytics to segment the customer
population. These segmentations are a basis for distributing offers to Members.
1. Pay By Touch identifies best partner(s) to provide this application.
2. Pay By Touch and Vendor exchange technical information.
3. Pay By Touch works with Merchant to advise in selection customer database marketing app.
4. Merchant installs customer database marketing app.
5. Merchant implements SmartShop.
4.1.12.2 Justification for Use Case
If a Merchant does not track customer purchases – i.e. via loyalty card – the fundamental value proposition
of SmartShop is invalid. Merchants without existing loyalty cards are the “low hanging fruit” for sales efforts,
but they will need technology to segment their customers and to track their purchases.
4.1.13 Use Case 13: Merchant creates offer
4.1.13.1 Description
Merchant enters an individual offer into the Merchant ‘Create Offer’ Screen
SmartShop application. Current Green Hills Implementation
1.Authorized Merchant employee logs in to
SmartShop Offer Builder, selects ‘Create Offer’.
2.Employee names the offer – this name is for
internal tracking purposes only. For example,
Merchant may want to create a Diamond
Customer Coke $1.00 Offer and an Opal
Customer Coke $0.50 Offer.
3.Employee selects the applicable UPC code(s)
for the promoted product(s). Selection may be
done via a hierarchical list of pre-loaded UPCs,
search or directly entered UPCs.
4.During the UPC selection process, associated
product images will be displayed. For each
communication mode (kiosk, web, email, mobile),
the Employee will choose the single image which
will be used in communicating the offer. Kiosk,
for example, may have a gray-scale image while
the web will have a full-color version.
5.Employee enters the Offer Description. This is
the text which provides the product(s) promoted,
along with any size information. The Offer Description can vary based on the communication mode
(web, kiosk, email, mobile).
6.Employee enters the applicable dollar discount per item, as well as the item limits for the duration of
the promotion.
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7.The offer distribution strategy is selected. Strategies essentially look for a reference group of
previously purchased UPCs to determine customer interest in a given offer. The reference group of
UPCs for an offer may be narrow or wide. For example, a narrow reference group for a Bud Light 6-
pack offer would be the Bud Light 6-pack UPC. A broad reference group for the Budweiser 6-pack offer
would be all beer UPCs. The basis for determining these reference groups is the Merchant’s product
hierarchy. A product hierarchy example is presented below. From this hierarchy, strategies are
executed. The available strategies are:
• Reward: Narrowest strategy. Offer is targeted to customers Sample Product Hierarchy
Beer Categories
buying exactly the UPC(s) listed in the offer.
• Category: A bit broader than Reward. The offer is distributed
based on customer purchases one-level up from the UPC level.
For example, the Bud Light 6-pack offer would be distributed to
frequent purchasers of any ‘Beer-Domestic’ UPCs.
• Introduction: Broader than Category. The offer is distributed
based on customer purchases two-levels up from the UPC level.
For example, the Bud Light 6-pack offer would be distributed to
frequent purchasers of any ‘Beer’ UPCs.
• Up-sell: Similar to Category, except that only purchasers of UPCs
at a lower price than the offer UPC(s) are targeted for
distribution. Alternatively, an Employee can create his own set of
reference UPCs for use in the Up-sell strategy.
• Custom: Freedom to create, name and save custom UPC
reference groups. Examples of custom strategies include: (i) distributing a baby food offer to
buyers of diaper UPCs; (ii) distributing a Wisk detergent offer to buyers of Tide; (iii) distributing a
Hamburger Helper offer to buyers of ground beef; and (iv) distributing an offer for a new organic
soup to buyers of other organic products.
8.The total number of offers to be distributed is entered. In addition, the customer segments and
lifestyle groups (from the Merchant’s customer database marketing application) are selected. Offers will
only be distributed to those customer segments/lifestyle groups, up to the distribution limit.
9.Employee saves offer; SmartShop creates a tracking ID for the offer.
4.1.13.2 Justification for Use Case
This is a basic requirement for the application – creating offers. The distribution strategies are a key
component of making the offers relevant to customers.
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4.1.14 Use Case 14: CPG creates offer
CPG Offer Creation Screen Mockup
4.1.14.1 Description
Field Name Value
Offer Name
CPG enters an individual offer into the
UPC Code(s)
SmartShop application.
1.Authorized CPG employee logs in to
SmartShop Offer Builder, selects Search UPCs UPC Hierarchy
‘Create Offer’. Offer Description
Offer Amount [$]
2.Employee names the offer – this name
is for internal tracking purposes only. Offer Text
Limit per Customer
3.Employee selects the UPC(s) eligible
Limit per Customer Text
for the offer. UPCs can be selected by:
Distribution Distribution Ad Offer Placement Bid Ad Bid
• Direct entry Albertsons
• Search Jewel-Osco
• Viewing the product hierarchies Piggly Wiggly
via a series of drill down menus Farm Fresh
Green Hills
4.Employee enters offer description, Strategy
amount and limits. Lifestyle Group
5.The distribution of the offer is entered. Availability Period Effective Date
The CPG is presented a list of eligible
Expiration Date
Merchants. The CPG can select the
Offer Description for Web
eligible Merchant banners and set the
Offer Description for Email
overall distribution limit per banner.
Offer Description for Kiosk
6.Employee selects the offer strategy, Offer Description for Mobile
customer segments and lifestyle groups
Offer Image for Web Select Image
for distribution.
Offer Image for Email Select Image
7.The offer will have an availability
period. These are the dates during Select Image
Offer Image for Kiosk
which an eligible Merchant may use the Ad Description for Web
offer for distribution to its customers. Ad Description for Email
8.The offer descriptions to be used in Ad Description for Kiosk
the various communication modes are Ad Description for Mobile
entered. Ad Image for Web Select Image
9.The employee selects the images to Ad Image for Email Select Image
run in the various communication
Select Image
Ad Image for Kiosk
modes. The system will serve up all
images available for the UPCs entered, allowing for an easy selection process.
10.Employee indicates whether the offer is available for a Offer Ad slot in the Offer Sheet. Merchants
may select any CPG offer checked as being ‘Available for Ad’ to fill one of the two premium Offer Ad
slots.
11.Employee enters the text to be used in the Offer Ad for different communication modes.
12.Employee selects or uploads the image to be used with the Offer Ad.
13.Employee saves offer; SmartShop creates a tracking ID for the offer.
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4.1.14.2 Justification for Use Case
CPGs are the primary revenue drivers for SmartShop. The ability to enter offers is a critical factor in the
product’s success. Use of the Customer strategy is expected to be quite popular with CPGs, and will require
CPG access to each Merchant’s product hierarchy.
4.1.15 Use Case 15: Merchant creates Offer Pool
4.1.15.1 Description
Create Offer Pool Screen Mockup
Merchant creates an Offer Pool. Offer Setup
Offer pools are the weekly Offer Pool Name Start End Target Publish
Week of Jan 22 - 28, 2006 01/22/2006 01/28/2006 01/18/2006 01/20/2006
aggregation of individual offers to Continue
be targeted to a Merchant’s Merchant Offer Library Merchant Offers
Distr Cust
customer base. Limit Strategy Limit
Dept Name Disc Strategy Segments Dept Code Name Disc Segments
116 Coke 6-Pk 12 oz 0.50 Reward DROPQ 117 466807 Bud Light 12-Pk 1.00 50,000 Reward DROPQ 2
116 Coke 12-Pk 12 oz 1.00 Reward DROPQ
116 Coke 2 Liter 1.25 Reward DROPQ
1.Authorized Merchant 116 Diet Coke 6-Pk 12 oz 0.50 Reward DROPQ
116 Diet Coke 12-Pk 12 oz 1.00 Reward DROPQ
employee logs in to SmartShop 116 Diet Coke 12-Pk 12 oz 2.00 Reward DR
116 Diet Coke 2 Liter 1.25 Reward DROPQ
Offer Builder, selects ‘Create 116 Pepsi 6-Pk 12 oz 0.50 Reward DROPQ
116 Pepsi 12-Pk 12 oz 1.00 Reward DROPQ
Offer Pool’. 116 Pepsi 2 Liter 1.25 Reward DROPQ
116 Diet Pepsi 6-Pk 12 oz 0.50 Reward DROPQ
116 Diet Pepsi 12-Pk 12 oz 1.00 Reward DROPQ
2.Employee enters information 116 Diet Pepsi 2 Liter 1.25 Reward DROPQ
CPG Offers
117 Bud/Bud Lt 6-Pk Cans 0.75 Introduction DROPQ
Distr Cust
for Offer Setup:
117 Bud/Bud Lt 6-Pk Cans 0.75 Reward DROPQ Merch
Limit Limit
117 Bud/Bud Lt 12-Pk Cans 1.00 Introduction DROPQ Manufacturer Dept Code Name Disc Strategy
117 Bud/Bud Lt 12-Pk Cans 1.00 Reward OPQ P&G 112 123450 Folgers Classic 1.50 250,000 Custom 5
117 Bud/Bud Lt 12-Pk Cans 2.00 Reward DR P&G 700 123451 Pampers Cruisers 2.00 100,000 Custom 3
• Offer Pool Name: 117 Bud/Bud Lt 24-Pk Cans 2.00 Reward DROPQ P&G 700 123452 Bounce Free 0.75 500,000 Introduction 5
117 Bud/Bud Lt 6-Pk Bottles 1.00 Reward DROPQ P&G 700 123453 Bounty White/Prints 1.00 300,000 Introduction 3
follows standard 117 Bud/Bud Lt 12-Pk Bottles 1.50 Reward DROPQ P&G 701 123454 Crest Whitening 1.00 500,000 Custom 3
117 Bud/Bud Lt 24-Pk Bottles 2.00 Reward DROPQ P&G 701 123455 Olay Generating 2.00 300,000 Reward 2
convention describing 117 Coors/Coors Lt 6-Pk Cans 0.75 Reward DROPQ P&G 701 123456 Always Ultra Thins 0.75 500,000 Introduction 3
117 Coors/Coors Lt 12-Pk Cans 1.00 Reward DROPQ Nestle 110 234560 Nesquik Powder 0.75 100,000 Reward 2
the period of activation. 117 Coors/Coors Lt 24-Pk Cans 2.00 Reward DROPQ Nestle 112 234561 Nescafe Coffee 1.00 250,000 Introduction 3
117 Coors/Coors Lt 6-Pk Bottles 1.00 Reward DROPQ Nestle 700 234562 Fancy Feast 0.25 500,000 Reward 10
117 Coors/Coors Lt 12-Pk Bottles 1.50 Reward DROPQ Kellogg 700 345670 Special K 0.75 200,000 Category 3
117 Coors/Coors Lt 24-Pk Bottles 2.00 Reward DROPQ Kellogg 700 345671 Nutrigrain Chewy Bars 0.75 200,000 Reward 5
• Start/End Dates: start
and end dates during which the Offer Pool is active.
• Target Date: date on which the SmartShop targeting engine will distribute the offers to the
Members; usually set with enough time to re-do the targeting if needed prior to the publish date.
• Publish Date: date on which the offers are viewable via the web and distributed via email.
3.Employee scans the CPG Offers. These are the offers made available by the CPGs for the upcoming
week. SmartShop automatically aggregates these offers to be included in the weekly Offer Pool for
targeting to the Merchant’s customer database. From this list, he has a sense of what offers will appear
in the Members’ offer sheets.
4.Employee then searches through the list of previously created offers in the Merchant Offer Library.
This list includes any new offers just created by the Employee.
5.Once he finds an offer he likes, the Employee drags the offer from the Merchant Offer Library to the
Merchant Offers box. The associated information (name, discount, strategy, etc.) for the offer is
automatically populated.
6.Once the Employee has added all the offers he wants, he clicks ‘Continue’.
7.SmartShop performs a duplicate UPC search. If two offers are found to contain the same UPC code,
the Employee is alerted to this situation. He can then accept the duplicate UPCs or make appropriate
adjustments to the Offer Pool.
8.After clarifying how to handle any duplicate UPC codes, the Employee clicks ‘Continue’ again.
SmartShop creates the Offer Pool and assigns an Offer Pool ID.
4.1.15.2 Justification for Use Case
Offer pools are the vehicle for distributing the selected offers to the customer database such that each
Member receives up to 20 apiece. The Merchant has no control over the CPG-entered offers. These are
handled by SmartShop’s targeting engine rules.
FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 36 OF 43
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4.1.16 Use Case 16: Offer Pool is distributed to customers
4.1.16.1 Description
After finalizing the Offer Pool, the Merchant Employee sends it to the SmartShop targeting engine for a two-
step distribution process.
1. Targeting engine receives the Offer Pool.
2. Offers, subject to their parameters (strategy, customer segments, distribution limits, discount
amounts), are preliminarily distributed to the Merchant customer base. Each customer’s purchase
history is statistically analyzed for likelihood of interest in a given offer.
3. Merchant Employee is presented 7th Street Software ReVision Screen
with a screen showing the
preliminary offer distribution. In
7th Street’s LoyaltySuite this is
called the “ReVision” screen.
The screen tells the Employee:
• Assigned limits per offer
• Number of eligible
households, based on
customer segments
assigned (e.g. Diamond,
Ruby, etc.)
• Modeled distribution of
offers, which tells the
number of households that
would receive a given offer.
• Markdown cost is based on
the modeled number of
households receiving the
offer multiplied by the
discount amount.
• Merchant Employee can use an on-screen slider (“ReVision” column in graphic above) to alter
the number of offers made available to change the modeled number of households receiving
the offer. He can only do this for Merchant-entered offers.
• CPGs will not be able to access the ReVision screen.
4. After he is satisfied with the preliminary distribution of offers, the Merchant Employee commands the
SmartShop targeting engine to execute the final distribution of offers. After this execution, the Offer
Pool is considered targeted.
5. The targeted offers per household are then forwarded to the SmartShop Server.
4.1.16.2 Justification for Use Case
The core engine of SmartShop is the targeting function. This targeting process is what makes the offer
relevant to customers.
FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 37 OF 43
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4.1.17 Use Case 17: Targeted Offer Pool is published
4.1.17.1 Description
The offers are made available for viewing by customers via three communication modes prior to the Offer
Pool Effective Date: email, web, mobile. Communication via the fourth mode, kiosk, occurs starting on the
Effective Date.
1. The kiosk, email and web display of the offers Proposed Offer Sheet Templates
will be based on one of three templates for each
1 Offer Ad
customer: 2 Offer Ads
No Offer Ads
• 20 regular-sized offers
• 19 regular-sized offers, 1 ad-offer
• 18 regular-sized offer, 2 ad-offers
2. Email and mobile distribution preferences are used as parameters for distribution of the Offer Sheet:
• Email address
• Mobile device number
• Preferred receipt date
4.1.17.2 Justification for Use Case
The communication of the offers is a critical component for Member activation and redemption of offers.
4.1.18 Use Case 18: Merchant is paid for CPG fees and discounts
4.1.18.1 Description
Merchants will accept the CPG-funded discounts at the POS for each Member. There will be a weekly
settlement of these discounts and the fees the CPG owes to the Merchant.
1. At the end of each week, SmartShop will tally the offers redeemed by Members:
• Tracked by offer ID
• Quantity of offers redeemed
• Total dollars provided by the Merchant in the form of discounts
• Total CPG Placement Fees and Offer Ad Fees owed to the Merchant
• Report displaying each Member activation by Member SmartShop ID, date, time and
communication mode; and each redemption by date, Member SmartShop ID, time, location and
transaction ID.
2. The Offer Activation and Redemption Report will be provided to the Merchant for their records and
for them to audit against their own records as appropriate.
3. The individual Reports will be provided to each CPG for their review and to prepare ACH batch
payment.
4. Money will flow from the CPGs to the Merchant in one of two ways:
a. CPGs will transfer the funds to Pay By Touch. Pay By Touch will then transfer the funds to the
Merchant one day later.
b. CPGs and the Merchant will work with a third party Settlement Agent. Pay By Touch will
provide the documentation to the Settlement Agent, who will validate the payments from the
CPGs to the Merchant.
FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 38 OF 43
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4.1.18.2 Justification for Use Case
Merchants must be made whole for the discounts they accept and the revenue they’ve earned.
4.1.19 Use Case 19: Merchants and CPGs use results of prior offers to set new offers for the future
4.1.19.1 Description
Over time, both Merchants and CPGs will learn what works and what doesn’t in setting targeted discounts
for products. From this information, they can improve the efficacy of their future promotions.
1. SmartShop’s reporting engine performs analytics on Members’ redemption of offers and their pre-
offer and post-offer purchasing behavior.
2. The analytics also provide insight based on customer demographics and purchasing characteristics.
4.1.19.2 Justification for Use Case
Information gained from running these promotions through SmartShop is a key value proposition for both
Merchants and CPGs.
FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 39 OF 43
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5 REQUIREMENTS DEFINITION
5.1 INTRODUCTION
SmartShop requirements are driven by:
• Existing SmartShop functionality as developed for implementation at Green Hills Market in
Syracuse, NY
• Loyalty Solutions business unit direction – Gary Hawkins, Joe Lampertius, Sterling Hawkins
• Market and product analysis performed by product management
5.2 MARKETING REQUIREMENTS
The graphic below outlines a high-level process flow for SmartShop.
SmartShop
High Level Process Flow
Member
Member Existing Member
Member shops in Update
enrolls in links Wallet to Member
email web
indicates Merchant Member’s
SmartShop Household ID for views
communication store MyPBT
during PBT SmartShop offers
Member
preferences transaction
enrollment account
Member accesses
kiosk mobile report
PBT for offers and
to pay
Offers are Reduce
Process
Offers are Offers are Tally weekly
statistically avail.
Update PBT
distributed ready for redemptions
Pay By matched to offers
Wallet auth
to Member viewing by
Touch Members’ and
accounts Members
Get
t-logs Wallet
offers
Merchant Offers
Merchant
Existing SmartShop - Merchant exports are Provide
prepares Calculate
customer enables t-logs and customer inserted
Y
Merch.
offers for CPG
DB? customer segmentation info into the reports
targeting remit. to
database POS
Merch.
Merchant uploads
N
product hierarchy Eligible
Merchant
Merchant UPCs
Merchant uploads
implements
ID’d, disc.
product graphics
customer
applied
database
Merchant prepares
POS for offer delivery Payment
Process
accepted
Merchant negotiates Merchant acquires pmt betw.
on total
with CPGs for fees kiosks for offer comm. Merch.
and
CPGs
CPGs negotiate with
CPGs
Merchant for fees Provide
prepare
CPG CPGs
CPG
offers for
CPGs upload product make
reports
targeting
hierarchies and graphics payment
Set-up Offer Distribution Redemption
FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 40 OF 43
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5.2.1 PBT Wallet
MR Description Use Priority
Case
MR 1.1 Household ID. Member ID is associated with a Household ID for UC 1 High
purposes of tracking purchases and distribution of SmartShop offers.
MR 1.2 Auto-Enrollment. Members can be automatically enrolled in different UC 2 High
Merchants’ SmartShop programs during PBT enrollment or later with UC 3
the click of a button. These IDs are added to their Wallet.
MR 1.3 View Offers Online. Member can view and activate her offers through UC 4 High
the MyPBT portal. She will see how many offers she has left after
redeeming any with limits.
MR 1.4 View Transactions Online. Member views her SmartShop offer UC 10 Medium
redemption history.
MR 1.5 Offer Reminder Alerts. Send alerts to Members after the initial UC 9 Low
communication of offers, letting them know they are available up to the
Expiration Date.
5.2.2 In-Store
MR Description Use Priority
Case
MR 2.1 Offer Transmission. Offers available to a Member shopping with a UC 5 High
particular Merchant are delivered to the store after the biometric auth.
MR 2.2 UPC Sniffer. Ability to track all UPCs in a Member’s basket during UC 5 High
check-out and identify those that are eligible for SmartShop discounts.
MR 2.3 ECR Discounts. Redeemed discounts, subject to purchase limits, are UC 5 High
transmitted to the ECR to reduce the sub-total. UC 6
MR 2.4 Redeemed Offer Transmission. At the conclusion of the transaction, UC 6 High
the redeemed offers are transmitted back to the PBT SmartShop
server.
MR 2.5 SmartShop Kiosk. Activate and deliver available offers to a Member at UC 4 High
the kiosk after she biometrically identifies herself.
MR 2.6 Backup to Failed Bio Auth – Kiosk. Member will be told after a failed UC 7 High
bio attempt to enter her 10-digit phone number. After entering the
number, her offers will be returned for viewing on the kiosk.
MR 2.7 Backup to Failed Bio Auth – In Lane. Member will be told after a failed UC 8 High
bio attempt to enter her 10-digit phone number. After entering the
number, only the SmartShop offers in her Wallet will be returned. No
payment instruments will be returned.
FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 41 OF 43
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5.2.3 Merchant MIS
MR Description Use Priority
Case
MR 3.1 Customer, T-Log, Product Hierarchy and Product Logo Export. UC 11 High
Merchant creates export files according to PBT published specs for
customer segmentation data, filtered t-logs, product hierarchy and
product logos. Files are exported to PBT SmartShop server via FTP.
MR 3.2 Write New Member SmartShop Enrollments to Merchant Database. UC 2 High
During PBT enrollment or afterwards, Members can automatically enroll UC 3
in SmartShop. These newly enrolled accounts will be written to the
Merchant’s customer database.
MR 3.3 Merchant Updates T-Logs for Offer IDs. Merchant adds fields that track UC 18 High
when offers are used in a transaction. UC 19
5.2.4 SmartShop Application
MR Description Use Priority
Case
MR 4.1 Offer Creation. Merchants and CPGs enter offers into the SmartShop UC 13 High
Offer Library. UC 14
MR 4.2 Offer Pool Creation. Offers from the Library are added to create an UC 15 High
Offer Pool.
MR 4.3 Offer Targeting and Distribution. Households likely to be interested in a UC 16 High
given offer are identified according to the targeting strategy and their
prior purchases. Offer relevancy contention (e.g. Coke & Pepsi
‘Introduction’ distribution strategy have equal relevancy to a HH) is
settled via a process TBD.
MR 4.4 Offer Communication. Send out Offer Sheet notifications to Members UC 17 High
based on their communication preferences (email, mobile). Present
Offer Sheet on web and kiosk, using standard templates.
MR 4.5 Track Offer Activation and Redemption. As offers are activated by UC 4 High
Members and redeemed at check-out, the SmartShop server will track UC 5
these activities and update in real-time. Offers with limits will be UC 6
decremented or inactivated after redemptions.
MR 4.6 SmartShop Administration. Merchants, CPGs and PBT will have the UC 13 High
ability to add and delete users. Users will have an assigned role UC 14
defining their privileges within the system. UC 15
MR 4.7 Reporting. Reports will be generated showing offer activation and UC 18 High
redemption activity. These reports will include straightforward details UC 19
regarding offer activity (for settlement purposes) as well as insightful
analytics describing efficacy of offers.
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5.2.5 Professional Services
MR Description Use Priority
Case
MR 5.1 Customer Database Marketing Application. Identify candidate UC 12 Medium
applications for Merchants that do not currently track customer
purchases. Understand their capabilities as they relate to requirements
for SmartShop. Leverage strategic partnership for business
development activities.
MR 5.2 Implementation Project Management. PBT implementation field team UC 2 High
works with Merchant on the in-lane, in-store and MIS requirements for UC 3
SmartShop. UC 5
UC 6
UC 8
UC 11
UC 12
MR 5.3 Strategic Consulting. PBT consultants offer practical advice and UC 14 High
strategic insight for using SmartShop, optimizing offer efficacy and UC 15
performing economic analysis. Consulting includes evaluation of UC 16
different strategies, customer segmentations, effects of different UC 19
discount levels and managing SmartShop vis-à-vis ad flyers/FSIs.
5.2.6 PBT Financial
MR Description Use Priority
Case
MR 6.1 SmartShop Contract. Develop terms & conditions for Merchants and All High
CPGs’ usage of SmartShop.
MR 6.2 Billing System. Develop functionality to track and bill for fees owed by UC 18 High
Merchants and CPGs to PBT and for CPGs obligations to Merchants.
MR 6.3 Settlement. Establish procedures for the transfer of cash from CPGs to UC 18 High
PBT, and the transfer of cash from PBT to Merchants. Set up separate
accounts and coordinate with Finance as required. Also, establish
relationship and procedures with a third party settlement agent.
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