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How to Raise $2 Million for Coupons Printing?

A personal ad with 100 percent exposure is a dream of any advertiser

A personal ad with 100 percent exposure is a dream of any advertiser. Smart Checkout Project has combined online and offline technologies, developed a system for shoppers analyzing by check and loyalty cards, and now promises to advertisers that their promotions and special offers will be targeted only to whom they are really interesting. System is already installed in "Magnit", "Dixie" and "Coin" supermarkets. And now Smart Checkout intends to cover all major Russian retail chains. Ex-Minister of Communications, Leonid Reiman’s and IBS top manager, Sergei Merkulov’s Fund have invested $2 million in the project and is ready for another $10 million tranche.

 Marketing discover

 Smart Checkout is a project of Open, the major marketing and communications agency (formerly AGN-group, founded in 1998 in Yekaterinburg, by graduate of the Ural State University journalism department, Alexander Nikolsky). Namely, Smart Checkout is a project of one of the Open holding companies – the Open Group. The above-mentioned specializes in BTL marketing and organizes promotions including those, the girls who hand out promo leaflets at exhibitions and metro. Most of these advertisings the recipients safely transport to the nearest trash can.

 In attempt to increase the advertising campaigns efficiency, the Open Group leaders have discovered an American company, Catalina Marketing, which successfully targets promotional offers for shoppers in major US retail chains for several years. For example, printing promo coupons on the checkback side targeted the offer for a specific customer. The scheme is as follows: special software is installed on the cash desk; it’s a small box scanning the product codes and barcodes on the payment or loyalty card. The information is then processed, and on the basis of shopping basket, the purchase frequency, payment method (card or cash) data, the discount coupon for those goods is issued (or is directly printed on the checkback side), for which the customer performs potential target audience. 

The proposed model has been quite effective: it was launched in the US in early 1990, and in the course of 5 years, such companies as Campbell Soup, Coca-Cola, General Mills, Hershey, Kraft, Nabisco, Nestle, Pillsbury, Quaker Oats, and Tropicana “subscribed” to it. At the present, the Catalina Marketing “boxes” are installed in 80% of US supermarkets and in other countries.

 Smartcheck output

 Smart Checkout software was coded in Open Group: in 2008, company hired the full-time developers’ team and formulated requirements listwith them. Within three years, in August 2011, SEO - a graduate of the Ural Economic University, Alexander Shurov (pictured),with experience in Exxon Mobil and Xerox – was hired for project. At the same time the technology patented in Russia. Open Group invested in Smart Checkout development approximately $3 millionin total.

 Smart Checkout maintained the Catalina Marketing model: the software is installed on the store cash desks and allows to tracking the customers purchases: the check composition and amount, payment method, etc.

 "We identify the customer’s loyalty card, and if retail chain has data on shoppers purchases, we can use the information on previous purchases, during sales promotions" - Alexander Shurov explains.

 Cash desk software configuration includes specific color mini-printer that prints special offer coupon in four seconds - the buyer gets coupon with the cash receipt.

From test to sales point 

Negotiations with potential clients-retailers began in 2010, even before the official Smart Checkoutstart, Alexander Shurov says. Primarily, in order to implement potential customers wishes in the course of development, secondly, the system has to be tested somewhere.

 Retail chain “Magnit” became the first partner who agreed to pilot project in Krasnodar, by Smart Checkout launch time. The negotiations with the company had been conducting about a year and a half, and as a result, the “beta-polygon”was launched and worked four months.    

"Everything worked out and functioned properly: customers took the coupons and used them in stores. We reached the goal: we checked everything in terms of equipment and technology, trialed all, and were ready to enter the commercial operation ", - Alexander Shurov says.

The project started in September, 2012. The first Smart Checkout commercial client was "Victoria" supermarkets chain. It was an independent retailer during negotiations, but as long as we finalized the contract, it joined the "Dixie" group.  The project was launched in all “Dixie” group stores in Moscow. In the words of Alexander Shurov, there were no objections from "Dixie": all concerns about technical details were withdrawn during the "Magnit” "pilot".

In 2013, the contract was signed with "Monetka", and in August 2013, Smart Checkout project is launched in Ural Federal District. We are currently negotiating with other retail chains. At the moment our project clients are the largest domestic and foreign companies: Procter & Gamble, Mars, SCA, Melson's Group, «Hlebprom", and «MB Group Impex." "By the time of contract with “Monetka” we have realized that weare ready to enter the federal level and need investor", - Alexander Shurov says.

Investor targeting 

First we planned to raise capital on our own. Alexander Shurov studied investment funds in the Internet, sent out presentations, attended special events, met with investors. But after four months, the Smart Checout team has realized that so it doesn’t work.

Shurov began to make inquiries, and his friends advised him consulters (sometimes disparagingly referred to as "packers” on the venture capital market) of ADJ Consulting. In late 2011, the contract was signed with the company, and in 2012, there were about 10 meetings held between Alexander Schurov and investment funds, one of which was Prostor Capital.

"At first we were introduced to a Prostor Capital investment analyst, - Alexander says. - I presented him our project. During two weeks fund analyzed the information and then answered: yes, it is interesting".

Next were meetings with retail chains members to prove the fund that clients were really interested in project and were willing to pay for it. Then was a meeting between all shareholders, after which the budget for deal began to draw up. “Further everything is as usual: the signing of contract, the expectation of funding, the signing of deal documents, the getting funds," - Alexander Shurov says.

Deal structure looks like this: Smart Checkout gets first $2 million for the project in chain stores from TOP-5 Russian food retail. In spring, 2014 it is to be a second round in amount not less than $10 million for scaling the project from TOP-10 retail chain. Eight months passed from the time of first meeting with the fund until the first transfer: we started to receive fund on account in August, 2013. "Our superior goal for 2014 is to cover about from 1,500 to 2,000 stores," - Alexander Shurov says.