Pay By Touch Smart Shop MRD

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The SmartShop MRD develops the business case, market analysis and high level product requirements for the SmartShop recommendation system. SmartShop was deployed in grocery stores, providing customers with personalized discounts on products, based on their shopping history. These were discounts only available via the SmartShop program, only to to specific shoppers.

I was the product manager for SmartShop.

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Pay By Touch Smart Shop MRD

  1. 1. 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 FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 1 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  2. 2. 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 FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 2 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  3. 3. 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. quot;You're going to see retailers, particularly the grocery companies, do more with the data they gather from customers,quot; says Mr. Fox, [professor of marketing at Southern Methodist University]. quot;They're going to give you a special discount or give you more information about what you bought or what's on sale.quot; “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,quot; said Safa Rashtchy, an analyst for Piper Jaffray & Co. quot;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 se ds en or The three quotes above exemplify an m S o io p W TV l Ad .c ai s ho Ad ad rs ne on s k overall trend in consumer marketing. ite e tS tM zi ye or gl lR le az ar Fl bs ga og ec ca oo tw Am r Sm e a Go Ne Di Ad Lo G Companies have worked to get closer to M W 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 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  4. 4. 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 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  5. 5. 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 FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 5 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  6. 6. 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 FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 6 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  7. 7. 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 FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 7 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  8. 8. 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. FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 8 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  9. 9. 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. FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 9 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  10. 10. 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 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  11. 11. 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 FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 11 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  12. 12. 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. FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 12 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  13. 13. 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. FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 13 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.
  14. 14. 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. FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 14 OF 43 NOTICE OF PROPRIETARY PROPERTY THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.

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