Jun 24, 2011 (10:06 AM EDT)
Foursquare, American Express Deal: Template For Future?

Read the Original Article at InformationWeek

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The deal American Express announced with Foursquare this week could be important for both companies, but perhaps more important for revealing a profitable pattern of mobile interaction.

American Express customers who register their cards on the Foursquare Sync page will qualify for special deals in which a discount will appear automatically as a credit on the card holder's account. This eliminates all the hassle of redeeming mobile coupons, while giving stores and restaurants the social media benefit they're looking for--a way of inducing consumers to tell all their friends where they are shopping and eating.

American Express kicked off the feature with deals from two nationwide chains--$20 back on a $50 purchase at Sports Authority and $10 back on a $75 purchase at women's apparel retailer H&M--plus specials at several New York restaurants. In a blog post, Foursquare said more promotions would follow soon.

Edward P. Gilligan, vice chairman of American Express, told the New York Times a test run at the South By Southwest conference in March got participants in the Foursquare promotion to spend 20% more than American Express card holders who did not have access to the deals. That is a "higher response rate than anything else we're doing," Mr. Gilligan said, noting that the response to promotions through other channels such as email is relatively low.

I tend to doubt the response will be quite as large over the long run, and outside the tech-crazed environment of South By Southwest, but it's easy to see why those results got American Express's attention.

Foursquare is not making any money off this deal--no advertising fee or percentage on the transactions, at least not yet. The goal is apparently to prove the concept and figure out how to make money off it later, as seems to be the rule in social media. As the largest location-based social network, having recently topped 10 million registered users, Foursquare has a chance of growing its market power to where it will be able to start dictating more favorable terms.

Gilligan said one of his company's goals was to attract a younger demographic, who presumably will conclude that American Express must be cool (or whatever the kids say these days) if it has a Foursquare app. I think the American Express cash-back deals could also be just the thing to catch the attention of older folks, as well as people of any age who haven't seen the point to Foursquare before now. Sure, some people like getting crowned mayor in the Foursquare system of rewards badges. But everyone likes saving money--particularly if it's easy.

I must give a hat tip to CIO.com mobile tech blogger Al Sacco's explanation of the convenience factor, versus trying to show a coupon on your cell phone to a store or waitress who is likely to respond with a blank look. "I've literally passed up foursquare deals I've unlocked in the past, because I didn't want to have to explain them to clueless bartenders," he wrote. Love the image.

My wife doesn't tend to run up a big bar tab, but she does clip coupons. I can't imagine her messing with Foursquare just for fun. But if it would save us $10 off dinner at Fridays? Oh, yeah.

If I was running a store or restaurant chain, I'd be thinking about doing something similar without cutting American Express in on the deal. Instead of sending a mobile coupon to be displayed on the user's phone, maybe it makes more sense to encourage regular customers to register a loyalty card with Foursquare and award points toward future purchase for a check-in. Or, better yet, get the cash register programmed to recognize the credit card of a consumer who has checked in for a mobile offer, and give the discount immediately.

In any such scenario, credit card holders do have the advantage of being able to offer customers a chance to register once for many different deals. I can also see a play for a loyalty program like American Airlines AAdvantage, which already awards points for patronizing restaurant and hotel partners as well as for air travel.

If American Express makes this work, expect every credit card issuer and loyalty program operator to be checking in on Foursquare's doorstep.

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