Summary:

Chicago-based Boomerang is kicking to the curb its initial local-merchant approach to social gifting. Instead it’s focusing on what it believes is a much bigger opportunity: tapping into the viral marketing potential of online gift cards.

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photo: Shutterstock / Worytko Pawel

Last time we checked in with Chicago’s Boomerang they were one of a growing number of social gifting companies looking trying to distinguish themselves by centering on local businesses. But in the last year, Lightbank-backed Boomerang has decided to change course, shifting its focus from consumers giving gifts to the merchants and publishers supplying the gift cards.

What Boomerang realized was that standing in the middle of consumer-to-consumer gift transaction was not the greatest business model, CEO Zach Smith said. It depends on massive scale, and other companies like Sweden’s Wrapp and Facebook’s Karma were coming to dominate the market while Boomerang tried to scale its local-merchant strategy.

Zach Smith, CEO of Boomerang“There’s a huge opportunity in social gifting, but it’s not in selling gift cards to consumers,” Smith said. “It’s in building viral ads.”

Smith discovered that businesses loved the idea of gift cards for spreading their brand awareness and luring in new customers, but they wanted communicate with customers directly — not just be an option in a growing menu of gift cards, Smith said. So Boomerang has been increasingly obliging them. It hasn’t abandoned its peer-to-peer gifting service, but it’s using it primarily as means of redistributing direct-to-consumer gift-card promotions.

Here’s an example: A customer like chocolatier Ghirardelli will send out an e-mail to its customer list embedded with a stylized $5 gift card redeemable on the company’s site or at one of its stores. If customers accept, they click a link where they’re taken to Boomerang’s site and given an electronic or printable gift card. Customers are then given the option to share that card with, say, five friends through on Facebook or over email.

There are some compelling reasons why brands like this approach, Smith said. First, one in five customers who receive a Boomerang promotion from a partner redeems their gift cards on the spot to buy goods online. “What other ad unit on the planet gets a 20 percent engagement rate?” Smith said.

Then there’s the viral distribution platform. People who receive the initial promotion re-gift the card on average to 3.1 friends. Though engagement rates can fall after that first wave, customers can spread a practically compelling gift card well beyond their initial friendship circles, creating what amounts to an ad hoc viral marketing campaign across a social network, Smith said.

Screen Shot Boomerang gift cards

The key is getting those gift cards into consumers hands (or inboxes), rather than depending on a consumer to initiate peer-to-peer transaction. To that end, Boomerang has been looking for more avenues to distribute those cards. It’s been working with a few online market research and promotion companies like Lab42 and Jebbit to make Boomerang gift cards rewards for completing questionnaires or engaging with their marketing content. This week Boomerang took the Rewards program out of beta, offering it to all comers.

One casualty of Boomerang’s new strategy, however, has been its initial focus on local business. National brands allow Boomerang to scale nationally. And while consumers say they like the hipness and flexibility of giving gift cards to a local bakery or coffee shop, Smith said, 90 percent of the gifts they actually give are for national brands like Starbucks(sbux) and Fandango.

Boomerang still offers gifts FOR about 100 local businesses in four cities, though most of them are in hometown Chicago. While Smith said it would continue to support those customers, it’s not pursuing any new ones. The startup has found that there is budding market for paid gifts — where customers actually buy a gift card rather than pass on a free promotion. But Smith said it’s not a business Boomerang will likely pursue for the simple reason that daily deal companies like fellow Chicagoan and Lightbank prodigy Groupon (see disclosure) have that premium coupon market locked down.

Having raised $1 million in July, Boomerang is still a small operation, working out of the Lightbank collective co-located in Grouping’s Chicago HQ building. Last month it had 300,000 unique users, but thanks to its new viral marketing approach, the company is growing quickly, adding some big national brands to its roster, including the Gap, Barnes & Noble and Wine.com.

Disclosure: The author’s spouse is employed by Groupon.

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