If you’re a business owner researching the pros and cons of developing a mobile app or thinking about a mobile loyalty solution, here are a few very important things to guide you in your decision making process.

1. Smartphone Penetration

Before making a significant investment in mobile technology for your business, it’s important to know how many consumers in your area have smartphones. If you live in the Silicon Valley (home to our HQ) or a “technologically current” city, you might assume that everyone has a smartphone. Truth is, smartphone market penetration in the US has only just reached a little over 50% of cellphone users. Sure, certain cities may have slightly higher usage rates, but the fact remains, there are less people with smartphones than you think!

2. Growing Selectivity in App Downloads

Let’s say you believe your business is in an area with higher than average smartphone penetration. Now it’s important to evaluate the chances your customers will actually download an app on their phone. Over the last few years we’ve seen the market flood with new apps. With millions of them available to smartphone users, people are becoming much more selective in the apps they choose to download to their phone. Just like no one likes a cluttered desktop, data is revealing that no one likes a cluttered iPhone either. If you think your app will deliver enough real value to your customers that they’ll go out of there way to put it on their phone, then maybe an app is for you. Want to find out? We suggest asking your customers!

3. Low Usage Rates

The only way you’re going to see real results from your mobile app, or mobile loyalty program, is if there are significant repeat users. Just like with any loyalty program (including punch cards) if no one’s using it, how do you expect to reap any of the benefits? A great customer loyalty program ultimately comes down to customer adoption rates. The higher this number is, the more you’ll be able to understand your customers, reach out to them in meaningful ways, and create a strong loyal following. We’ve seen hundreds of loyalty apps come and go in the past few years.

The main thing we’ve learned from their experience is that not enough customers want to use a mobile app for their loyalty program. Take Starbucks as an example. This past year they launched a mobile app with both mobile payment and loyalty components. They consider it a success having only around 5% of their customer base currently using it. Seeing as a company with huge financial resources like Starbucks is still very much experimenting with a mobile app, and experiencing less than stellar adoption rates, perhaps it might be a little too early for a smaller business to invest significant resources into this technology. Let the giants use their re$ources to test it out first…

4. Slowing Down Your Line

What do you think is faster, pulling out a card or pulling out a phone, launching, and then using an app? This is kind of a no brainer… With mobile payment and loyalty solutions popping up all over the place, many analysts claim that they’re a solution to a problem that just doesn’t exist. If a mobile app made things a lot faster, sure, that’s helpful to everyone. As of now, this isn’t the case. At Fivestars, we pride ourselves in being able to create longer lines of customers for the businesses we work with. The last thing we want to do is create a new customer service issue for them because we’re slowing down the lines!

5. Fraud

Ever wonder why FourSquare never built out a loyalty solution? That’s because people can checkin to businesses even if they’ve never walked in the door! Having a loyalty solution that relies on checkins, rather than points tied to purchases, presents a very serious issue for business owners. You need to be absolutely certain you’re only rewarding customers that are truly loyal to your business. Checkin based loyalty solutions that have little to no employee – customer interaction present a much higher risk for fraud. What if a customer goes to the counter and only asks for a (free) glass of water? Going further, how do you know customers aren’t doing this on a regular basis, or even multiple times per visit? Do these activities really warrant points towards a reward from your business? We don’t think so…

Navigating the onslaught of new technology for small businesses is a difficult task. We know you get bombarded with hundreds of companies claiming to offer the next big thing (if you have no idea what I’m talking about, just wait, they’re coming for you). It’s too easy to get caught up in the hype and make a hasty business decision without doing the necessary research. Our advice, truly look into your options and don’t feel bad if you previously tried a “solution” that didn’t work for you. There actually are young companies out there that are doing amazing things and delivering real results to local businesses. To us, a good loyalty solution should be 3 things: Simple, Powerful, & Proven.