Coupons. Gift cards. Loyalty points. These tried-and-true tools of the retail trade might not be as sexy as other forms of marketing. But together they account for more than $165 billion in purchasing power ($110 billion in gift cards purchased, $48 billion in loyalty points earned, and more than $5 billion in product coupons redeemed). That's almost as much as total e-commerce sales. These instruments share a common objective: to influence purchase decisions by equipping consumers with incremental spending power for specific brands and retailers. But consumers use them independently and individually (combining their value, when possible, takes a lot of manual effort), and store them in different places — often in drawers or folders where they lay forgotten and unused. This is changing as coupons, gift cards, and loyalty points all become digital — and, more important, mobile. Mobile enables all of this purchasing power to converge in one place, and potentially be used interchangeably and collectively, always within easy reach for consumers. What does this mean for retailers and brands? The mistake would be to think that they can keep doing what they have always done, but just add a little digital to it. Instead, retailers need to think about coupons, gift cards, and loyalty points not only as three separate tools, but as different forms of Branded Currency. Economists define currency as a store of value and a medium of exchange. All of these instruments are stores of value, and by going digital and mobile, they become far more effective mediums of exchange. The first wave of this convergence has made it easier for consumers to use their coupons or points for payment. Card-linked offers enable consumers to load coupons to their credit cards or loyalty accounts in advance of purchase. Valid offers are automatically applied as a credit when consumers' cards are scanned at the point of sale. Consumers like it because they don't need to remember or present individual coupons. Another approach is Shop-with-Points. As an example, Amazon enables consumers to use their credit card loyalty points as a way to pay for purchases on the site. Shoppers can see their balance and apply their points as easily as using a gift card or credit card. Where the first wave made possible convertibility, the second wave introduces much greater convenience. Mobile wallets, like Apple's Passbook, bring coupons, gift cards, and loyalty cards together in one place without the constraints of a physical wallet. This innovation is good, but it's a bit of a horseless carriage, still tied to the mental model of a wallet. Consumers still need to manually figure out which instruments can be combined and which cannot, prioritize them based on expirations, calculate the math on their own, and then present them at point-of-sale one at a time.The third wave will be the mobile portfolio manager, the automobile to the mobile wallet's horseless carriage, which marries the convertibility of the first wave with the convenience of the second. When you treat coupons, cards, and points as convertible instruments, fully leverage the power of digital and mobile technology, and add intelligence into the system, you get an entirely new possibility: calculating and comparing purchasing power, converting currencies, prioritizing usage, and dynamically creating scannable barcodes or other methods for combined payment. Soon consumers will be managing their Branded Currency the way they use Mint to manage their bank, credit, investment, and other financial accounts. There is a lot of talk these days about brands as publishers. But the successive waves of Branded Currency suggest that retailers will also need to think like bankers who mint their own currencies. Market leaders will be those who best help consumers manage and spend Branded Currency from their portfolios, offer the best exchange rates, create the most liquidity, and make the most efficient markets. Retailers who adopt and execute smart Branded Currency strategies will gain relative share of wallet and have deeper, more enduring relationships with consumers. Starbucks is perhaps the most advanced retailer in the area of Branded Currency. Most retailers treat their gift card program as an afterthought. Starbucks, on the other hand, has turned it into a hub for competitive advantage. In fact, CEO Howard Schultz considered the combination of mobile payments and social networking as central to the company's "blueprint for growth." In 2011, Starbucks launched Android and iPhone apps that enabled customers to mobilize and easily reload their plastic cards or purchase new digital gift cards. Most Starbucks customers use the gift card not as a present for others, but as an easy way to pay for purchases, redeem offers, and earn rewards. In effect, they transformed their gift card into a mobile payment/loyalty card and their mobile app into a wallet for their Branded Currency. Over 7 million people now use Starbucks' mobile app to make 4.5 million payments a week, accounting for at least 10% of Starbucks total U.S. revenue. Over 10 million Starbucks eGifts, the digital version of a gift card, have been sent just since 2012.
