Technology capitalizes on convenience, high-traffic areas
SHANGHAI - Don't waste time clipping discount coupons from the community newspapers or flipping through the mail to find them.
On-demand discount coupons are here in Shanghai.
The idea of dispensing discount coupons at vending machines in busy subway stations dawned on 39-year-old Zhang Yibin one day when he was standing in line at a McDonald's restaurant in downtown Shanghai.
Zhang, who has a PhD degree in computer science from East China Normal University, saw many customers buying lunch at a discount with coupons. He found it slightly unfair to customers like him.
To address the issue, he dreamt up a new business that borrows on radio-frequency identification (RFID) technology.
RFID is the use of an object or RFID tag applied to or incorporated into a product, for the purpose of identification and tracking using radio waves.
Zhang used the technology beginning in 2006 by issuing cards the size of a matchbox, though much thinner, to clients to retrieve discount coupons from proprietary vending machines in certain subway stations.
Zhang called the cards "Velo", which is derived from the word velocity in physics, "to illustrate the speediness of our service", said Weng Ruikun, business director of the Velo Card Company.
After a slow start, the Velo card business has taken off since the end of 2008.
Weng attributed the company's growth to the decline in the Shanghai stock market after the outbreak of the global credit crisis. "There was an avalanche of requests for our cards in late 2008 when the leading stock indicator nose dived to below 2,000 points from over 6,000," he recalled. "I suppose people have become more price conscious in hard times," he said.
As Weng recalls the business reached its turning point when the number of cards issued passed the 400,000 mark in late 2008, and major fast-food chains such as McDonald's and KFC, began to take notice. So far, the company has issued in excess of 3.5 million cards. They are particularly popular among young people in Shanghai, said Weng.
The number of participating merchants has grown to 4,000. Other than the fast food chains, business taking part include English-language schools, personal care salons, hairdressers, clothing outlets, cinemas, department stores, fitness centers, bars, karaoke clubs and travel agencies. "Every week, we have new merchants joining our list," Weng said.
Velo has more than 1,300 discount coupon vending machines in selected subway stations, shopping malls and supermarkets in Shanghai. Since 2009, the company has expanded its coverage to include Beijing and Nanjing, Jiangsu province, increasing the total number of machines to 2,000.
Weng said that the company is planning to not only add locations in Shanghai but also further expand to other cities across the country.
With a big, bright screen, Velo coupon-dispensing machines are designed to be eye catching. A cardholder can scroll through the list on the screen to pick the merchant he or she plans to patronize and obtain the discount coupons. There is no limit as to how many a cardholder can pick at any one time.
The company earns its income from fees paid by the participating merchants. The rate of payment is in proportion to the number of coupons issued. Weng declined to disclose income figures.
But he said that the number of coupons dispensed from all its vending machines in 2009 totaled 80 million, up 400 percent from 2008. Weng said he expected growth to continue. In April alone, 11 million coupons were retrieved from Velo machines.
According to statistics from Business Value, 17 to 18 percent of the coupons distributed from Velo machines were actually used by consumers. More popular restaurants can expect to see customers to bring in 30 percent of the coupons dispensed, while the average usage rate is 1 percent.
Many merchants are seeing the promotional value of the Velo model. Burger King, for instance, did a promotion in Shanghai in 2008 by distributing coupons for free burgers with Velo. "We offer our merchants great flexibility in designing their promotional campaigns," Weng said.
Jin Xin, the co-founder of Mol'digital advertising agency, saw rated Velo's success from a different perspective.
"The Velo card is unique as it initiates a promotional idea in which consumers actively ask for discount coupons. In addition, since every card is registered through a mobile phone, there remains great potential for the Velo Company to provide more services," Jin said.