Summary:

The future of coupons is moving toward digital and mobile, something that startup SavingStar is taking full advantage of. The company told me it has hit half a million users since it launched its ecoupon product in April, putting it on a faster pace than Groupon’s.

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Coupons may not be as sexy as the recently popular daily deal, but it’s still a huge business and has helped companies like Coupons.com raise $200 million in funding. But the future of coupons, like other traditional print content, is moving toward digital and mobile, something that startup SavingStar is taking full advantage of.

The Waltham, Massachusetts–based company told me it has hit half a million users on a shoe-string marketing budget since it launched its ecoupon product in April, putting it on a faster initial pace than Groupon and Foursquare. SavingStar is banking on the enduring popularity of coupons and marrying it with smartphones and loyalty reward programs, creating a national ecoupon network that has some impressive reach with retailers.

More than 24,000 grocery store and drug store locations and 100 national chains have partnered with SavingStar, tying their loyalty rewards programs into SavingStar’s digital coupon platform. Users access the SavingStar website, iPhone app, or Android app and connect their account to their local store loyalty card programs. Then when they see a coupon they like on SavingStar, they add that to their account; when they buy the item at a participating store, they use the mobile app to redeem the coupon at checkout and their savings gets applied to their SavingStar account. When a user hits $5 in savings, they can get paid out their money directly to their checking or savings account, PayPal account , through an Amazon gift card, or make a donation to a charity.

Everyday rewards

David Rochon, SavingStar’s CEO, said the power of the program is that it is applying shopping innovation to grocery and drug store purchases, which is much more relevant to users than the typical daily deal.

Everyone is coming up with a program but most of them are for infrequent purchases. But the category we’re dealing with is the everyday rewards category. It’s about being a part of people’s lifestyle on a consistent basis,” he said.

He said consumers shop at a drug store 2.2 times a week and 89 percent of shoppers visit more than one grocery store a month. By collecting coupons from national brands and manufacturers on a platform that works with their existing loyalty programs and the smartphones many have already, it takes away the mess of clipping coupons or printing out coupons a la Coupons.com. He said a study commissioned by SavingStar found that 79 percent of men think coupons are a good way to save money and 70 percent of respondents under 35 want coupons on their smartphones.

The catch for consumers is that they don’t actually get the discount applied to their bill immediately. It must get processed, which can take a day or two, and sent to their SavingStar account and doesn’t get paid out until a user hits a certain threshold. But consumers are not deterred by that limitation, said Rochon, because they still see it as a tangible reward.

Retailer and manufacturer benefits

For retailers and manufacturers, the case for SavingStar is also pretty compelling. Rochon said the redemption rates of coupons can hit up to 22 percent, compared to 1 percent for traditional print coupons in newspaper. He said there are typically more than 360 billion coupons printed each year, almost all of them appearing in newspapers and almost all discarded. But for retailer and merchants, print coupons adds to the work flow of workers, who have to set them aside, and they also have to be aggregated and counted at some point.

For brands, ecoupons through SavingStar offer not only higher redemption rates and avoid the need for print coupons, they also offer a cost-for-performance model so companies only pay when coupons are redeemed. And it’s an effective way to get people to try a new product. Rochon said 55 percent of shoppers buy 100 products or less. But 85 percent of respondents in the recent survey said they would try another product if they had a coupon for it. Also, SavingStar is also able to help manufacturers craft more complicated offers such as $10 off of $30 spent on specific products, something it can calculate on the back end. That, in turn, can help a brand build a deeper relationship with specific users.

While brands understand that distribution of coupons through newspaper is growing more challenging, they needed a national network to keep offering deals. SavingStar is hoping to be that resource though it will continue to have competition from Coupons.com and others who are moving to more mobile coupons.

“We believe we can take Coupons.com one step further,” he said. “Instead of giving consumers the ability to print out coupons, we’re completely delivering everything digitally and we’re doing it on a national network of retailers.”

Expanding coupons to more users

In the future, SavingStar is looking at incorporating other reward programs so users can apply their savings to hotel or airline points, Facebook credits or gas rewards. The company is also looking in the next three or four months at offering a white label service that a big reward program like a hotel chain or airline can also integrate into their own system. And SavingStar is looking at increasing the frequency of the coupons, many of which are offered on a monthly basis.

SavingStar has got a good start in this space and seems to be leveraging assets like smartphones and loyalty programs well. I think this is a big opportunity that makes sense. People understand the value of coupons and reward programs. And they’re comfortable using their smartphones to find deals and discounts. It’s logical to get them to use their smartphones to apply digital coupons at the point of sale for the kind of purchases they make everyday . The challenge will be to line up more brands and manufacturers so that the coupons are varied, timely and attractive. SavingStar has a team of 10 salespeople, one-third of its overall team, though that will likely have to go up if it wants to attract more companies to its network.

But it has some solid backers including Flybridge Capital Partners, First Round Capital and IA Ventures, who along with angel investors such as Ron Conway have helped SavingStar raise about $10 million to date. The local commerce space is still heating up and there’s plenty of ways to activate more savings for consumers using discounts and smartphones.

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