The latest technology—driven by location-aware mobile devices, cloud computing and low cost apps—is helping drive sales back to bricks and mortar merchants.

For years, bricks & mortar merchants watched in dismay as sales were siphoned off by online retailers, who lured customers with convenience and cut-rate deals. Now, the tables are turning. The latest technology—driven by location-aware mobile devices, cloud computing and low cost apps—is helping drive sales back to physical stores.

Companies such as Groupon, with its daily deals, and FourSquare, with its place-based social media, showed independent merchants how the Internet could help them attract customers. The next wave of startups is focusing on keeping those customers coming back again and again with digital loyalty tools.

"I'm always looking for ways to attract new business, but especially to encourage repeat business," says Gaia DiLoreto, the owner of By Brooklyn, a store based in Brooklyn that sells products from old-fashioned chocolate syrup to stylish handbags made in the borough. "A regular customer is my best customer." She recently signed up with Perka, a Portland, Oregon-based startup that offers an easy-to-use app that lets customers earn rewards the more they buy. 

Disqus: Will digital loyalty programs encourage people to shop more at local merchants?

Perka is one of at least a dozen startups, including Belly, Tagtile and Punchcard, that have introduced tools to help small businesses reward frequent customers. Established players are getting into the game as well: FourSquare has long offered special Check-in Deals, while Groupon recently unveiled a Rewards program aimed at encouraging repeat visits rather than one-time deals. Google, meanwhile, acquired Punchd, a cloud-based loyalty platform that uses QR codes.

The offerings vary, but they all aim to replace the paper punch cards that merchants have used for decades—you know, the dog-eared cards you always seem to lose right before you've finally earned a free cup of coffee or pedicure—with apps that run on ubiquitous smart phones and digital devices. 

Best of all, these digital loyalty cards generate streams of data that give merchants a new window into their sales, customers and the effectiveness of their promotions—something paper punch cards could never do. Many merchants are surprised to find that as much as 70% of their revenue is generated by just 10% of their customers, says Rob Bethge, a cofounder of Perka. "If you can increase the frequency of their visits, even from once a month to twice a month, that can have a big impact," he says.

For merchants like DiLoreto, just being able to greet regulars by name can be a big plus. "People will spend more when they feel good, and knowing their name makes them feel good," she says.

Perka is simple to use. When customers come into a business, they "check in" from an app on their mobile phones, alerting the merchant to their presence. When they make a purchase, the merchant simply taps the Perka Merchant Validator app, which runs on a Perka provided iPod, iPhone or iPad, to issue a digital "stamp." Merchants track daily and weekly sales patterns from a visual dashboard on their pcs.

Perka works with merchants to create a custom rewards program. Customers of By Brooklyn, for example, receive a stamp each time they spend $20. When they collect five stamps, they get a $10 coupon. And the deals get sweeter the more they spend: the next five stamps earn a $15 coupon, and the next round a $20 coupon.

Down the street from DiLoreto's shop, Oaxaca, a taqueria, is offering Perka rewards including a ‘buy 10 tacos, get one free' deal. 

Leveling the Playing Field

Sophisticated loyalty tools used to be the exclusive domain of deep-pocketed corporations like airlines, Amazon or Starbucks. But the availability of low-cost building blocks has sparked a wave of innovation, and small merchants—and their customers—are benefiting. As Groupon's head of Merchant Services Zach Finley says, the company's rewards program aims to "put small, local businesses with limited resources on equal footing" with big boxes and online retailers. 

Online commerce is not going away, to be sure: Last year, 167 million consumers — 53% of the U.S. population — made an online purchase, according to Forrester Research. And by online sales are expected to hit $327 billion by 2016. But now, at least, Main Street merchants have a fighting chance.


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About Amy Cortese @locavesting

Amy Cortese is an award-winning journalist and the author of Locavesting (Wiley, 2011)