In this SNN Q&A, I spoke with Steve Levely, CEO of Ackroo Inc. (TSX-V: AKR) (OTC Pink: AKRFF) to discuss the company, as well as, the gift card and loyalty processing markets.
SNN: Overview of Ackroo Inc., and where does the name come from?
SL: Ackroo provides gift card and loyalty processing solutions for the North American retail and hospitality markets with a focus on the SME segment. As a processor, we both authorize and capture the processing data of a gift card, loyalty and/or promotional transaction through point of sale devices that we integrate our platform into that are utilized at a merchants place of business. In other words, when you swipe or scan a gift card, loyalty or promotional “card” into a payment device at your favorite merchant, a company like Ackroo authorizes that transaction and collects the data from it just like payment processors do for debit and credit transactions.
As a technology provider, we then provide all of the real time data from those transactions back to the merchant to allow them to reconcile, manage their accounting, and also to provide them critical marketing data about their customers.
As a solution provider, we provide our customers all of the required support and counsel on how best to utilize the technology.
Where our name comes from is the word “accrue” as in accruing customers or revenue or rewards, however we spelled it in a unique way to help draw further attention to our brand.
SNN: Explain a typical program for one of your customers: how it works, details of benefits?
SL: Every customer of Ackroo’s is a gift card customer first. We provides our platform (whether it be through a payment terminal, via the web or via direct integration of a POS software solution) to allow merchants to:
- Collect valuable reconciliation, accounting and marketing data
- Provide a login for consumers to check their balances via the merchants website
Ackroo then designs and fulfills the physical cards required. We provide all of the technical and program consulting support required. Our customers then look at utilizing our other features like e-gift (online virtual gift cards), loyalty (currency based rewards platform), promotions (time based rewards), distribution (utilizing Ackroo merchant networks to sell their gift cards like using our PhotoGIFTCARD mall or one of our partners like Blackhawk Networks) or coalitions (ability to do group and/or co-branded programs). Some merchants choose to use all of the features out of the gates others look to utilize the others over time.
The benefits for all of these solutions are meaningful. Here are just a few:
- Automating paper to plastic (or virtual) to reduce fraud, improve branding image, reduce accounting time required, and increase revenues as statistics show automated gift card and loyalty programs are much more successful then paper certificates and punch cards.
- Marketing insight. Having easy to access consumer data allows marketing departments to better understand and target their ideal customers at the ideal times.
- Maintaining margins by reducing discounting and replace with loyalty rewards. A 10% instant discount goes right out the door and is spent somewhere else. A 10% loyalty reward has to be spent back at the retailers business. If the consumer doesn’t return nothing was given away and if they do return they are buying more product. A win for the merchant.
- Distribution offers additional opportunities for merchants to sell their product in another retailer.
SNN: What is the Company’s business model? Does your model include recurring revenues?
SL: Ackroo is a SaaS based business model with recurring revenues and up front and on-going one-time revenues. With 60% of our revenues being recurring it makes for a very solid business model to scale from.
The average customer life span is at least 5 years and attrition is less than 10% so a very sticky business as well.
Our cost to acquire vs. lifetime value ratio is less than 25%.
In short Ackroo makes a one-time fee to setup and train the merchant, provide them their initial collateral required (cards etc.), plus in some cases provide custom development. Ackroo then makes recurring monthly fees for processing transactions, supporting the merchant and developing our platform. Ackroo also makes additional one-time revenues via card and collateral re-orders, other custom development, and based on certain monthly plans overage fees should merchants exceed their allotted transaction volumes - similar to a cell phone plan.
SNN: Who are the Company’s target markets?
SL: Today we are focused on the general Canadian market. So any and all merchants in Canada, however, our sweet spot is SME - so less than 100 locations. We have begun entering the US market as well and will focus in that region more as we add on channel partners in that region and further execute our business model north of the border. We also have entered the Caribbean market via a regional reseller. We continue to work with the point of sale providers in that area to better position ourselves for scale in this region and once that work is complete we will put greater focus on this region as well.
SNN: How do you market your technology services? How does the Company optimize its leads?
SL: All of our primary marketing is via our channel partners, specifically, our referral partners, which represents over 200,000 merchants and growing across Canada alone. We work with their sales and marketing teams to drive awareness and opportunity for Ackroo. Email campaigns, mail outs, and general sales team awareness.
Our referral channels are our primary source of leads outside of customer referrals. The Company today has barely tapped the surface of what is possible from a channel lead perspective from our current partners never mind that we continue to add more referral partners into the business. A true channel management approach is needed to grow the lead volume as today the company is closing over 25% of all leads sent to Ackroo from our primary channel partners.
As we work to drive more leads into the business, our organic growth will very positively be impacted. We do have future plans to do other marketing initiatives, but the above is our core strategy today.
SNN: Who are Ackroo’s competition and what is the Company’s competitive advantages?
SL: In Canada, Ackroo has approx. 5 main direct competitors plus a number of smaller boutique players and non-direct competitors. In the US market, there are 10 times the competitors, which is why we are putting our channel partnerships in place. Our goal is to further validate our go to market strategy before we fully enter this market. For the direct Canadian competitors, Ackroo works to differentiate in several key ways:
- We are very focused on driving value and substantial return on investment to the small to medium sized business segment. Where many of our competitors are focusing purely on large merchants and will support the SME segment as they come across it we actually are focused where they typically are not.
- All we do is gift card and loyalty processing. We do not sell other merchant solutions.
- Distribution – we not only partner with distribution partners that sell our customers gift cards for a profit share we own a distribution partner in PhotoGIFTCARD
- Consolidation – Ackroo is working to consolidate the marketplace
Our strategic partnerships: We have and continue to select strategic partners that we believe are an extension of our brand and are aligned with our go to market goals
- Multi-currency – manages gift card, loyalty and promotions today, but has the ability to add other currency types as well
- Multi-lingual – today supports French and English and is built to support any language type that is left to right, but in time also right to left
- Developer friendly – built with an open architecture to allow and encourage other platforms to integrate with Ackroo from POS solutions, to social media, to any general software application
- Self-serve and feature rich – Analytics dashboard, campaigns management, reporting and more all of which are built to work self-serve for the merchant.
- Lower cost provider – due to our self-serve type platform we are able to provide our robust platform that is affordable for even the smallest retailer
- We do not have minimums in regards to card order quantities and locations to support
- Ackroo is the only publically traded Gift Card and Loyalty processor in Canada. Assist the Company with M&A activities and scale via access to capital.
SNN: What is your background?
SL: I myself have a long business development background. My first job out of school was in sales where for 4 years I was a straight commission sales person selling office equipment. A very difficult job that I was quite successful at, and helped position me for other opportunities. Since then, I have worked in the telco, software and marketing services space primarily in sales leadership roles. I have also helped a few small start-ups get going, but it wasn’t until Ackroo that I was fully invested in a start-up and helping to build a small business full time. I was looking to get into the gift card and loyalty space after spending a year in the marketing services world and was looking to start up a company of my own through a VC group that I know, but instead I was introduced to the original founding management team at Ackroo in early 2012. My initial role with the Company was as a consultant, which a few months later lead into me joining the group full time as their VP of sales driving our coalition business. The Company had a platform that managed coalitions of merchants so my role was to help commercialize that part of the business. As time went on I also took on commercializing our local merchant business, which was a platform for general merchants and later our Dealer Card business which is a platform designed for car dealers. I became the EVP of sales and marketing in 2013 to lead all platforms, commercialize and grow the business. We had a successful 2013 on a lot of fronts and then in 2014 as we looked to restructure the business to support our cash flows and our growth I was promoted to CEO. I have now been in the role for 16 months and am more excited now than ever before about what our future looks like.
Company website: www.Ackroo.com
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