Your local store can give you a multi-million valuation, learn from Magicpin

There is an app called Magicpin that is luring students, in Delhi University, to take endless number of selfies. The precise number is 4,00,000 selfies, which have been uploaded in less than six months. Obviously there is a bait of rewards awaiting them, which makes it inescapable for a young student who loves deals and rewards. Here is how it works. The student posts selfies, taken in their favourite local shop, and also submits a photo of the bill, on the app. By doing so reward points reflect on the app, which can be, later, redeemed across a network of small retail business. The team of Magicpin believes this to be the next wave of offline retailing, which can bring intelligent loyalty dynamics to the hands of the small retailer. The plan is to eventually allow the retailer to understand his customer better and increase his margins through intelligence.

Loyalty programmes are big in large format offline retail. Seventy-five percent of the revenues of Shoppers Stop come from its FirstCitizen loyalty programme, which has more than four million registered customers. However, smaller family businesses are dependent on the loyalty of the catchment and are not dependent on any intelligence to convert a sale to extra margins. This was how Magicpin was born. Anshoo Sharma and Brij Bhushan realised that this was the long tail where the sum of the parts could be larger than the whole. Their experience as working professionals, in investment firms, made them study the Indian retail market and realised its potential.

The offline retail market in India will be reaching $1 trillion by 2020. A study by advisory firm Ernst & Young says the current market is close to $600 billion in size, organised retailing (including e-commerce) is less than 10 percent of the market. Ninety percent of them are semi-organised and are waiting to organise themselves and serve their target audience better. Why is this market important? Internet and smartphones have become ubiquitous and customers are there.

“We want to empower smaller businesses to understand their customers better,” says Anshoo, Co-founder and CEO of Magicpin. He adds that large companies like Meituan/Dianping in China and companies like Groupon in US have created value by connecting the offline world. “While the answer for India will be different, there is a large opportunity that got us excited to go after it,” says Anshoo.

The idea and how the business works

Magicpin solves the following problems for its merchants:

• A visual referral network: Brings out their uniqueness and gets the merchant’s customers to spread the word for them in the locality and among their friends.
• New customer acquisition: To both new and established merchants.
• Increase in utilisation: Build transactions in off-peak hours and liquidate excess inventory.
• Customer engagement: to bring back existing customers more often.
• Discovery: Trending events, interesting people, and relevant activities around your locality.
• Recognition: Get followers, likes, and comments for your taste in local activities.
• Savings: Through merchants, rewards programmes specially designed for Magicpin users

“Our business model is funded primarily by merchant and the brands,” says Anshoo. He adds that merchants and brands use the platform to engage or provide personalised offers to their customers. They pay a recurring platform fees and a per transaction charge for the business that Magicpin drives to them. “We are primarily a data and technology company, resulting in a very capital efficient cost structure that allows us to scale to a large customer and merchant base without significantly increasing our costs,” says Anshoo.

Related Story: Success of hyper local services

The competition

Within three months of its launch in Delhi/NCR, Magicpin has 150K active users. In less than five months, the company covered 30K merchants across Delhi NCR region, Bengaluru, and Jaipur.

Their competition Wooplr has raised $5 million, from Helion Ventures, and Voonik too has raised $5 million from Sequoia Capital. Both the platforms operate in the fashion lifestyle segmented to connect with fashion retailers and have created a social network with merchants and shoppers. While fashion is a niche area, offline consumption of services in the form of food and beverages, fitness, and beauty care present an opportunity for technology intervention too. In the end, even if technology penetrates one percent of offline retailing, the opportunity is as big as $5 billion in 2016. But these startups are yet to find a working business model and have to keep the small businesses interested in the power of data to transform their businesses.

“The challenge is to keep these businesses on the platform. Only if consumer conversion happens on a large scale will these businesses succeed,” says V. Ganapathy, CEO of Axilor Ventures.

Magicpin was incubated by Lightspeed with a $3 million Series A round in 2015.

“The two key drivers of the investment are the quality of the founders and the large opportunity in the hyper-local space. Their appreciation that deals alone are unlikely to be a sustainable strategy to connect consumers with merchants is a step in the right direction,” says Bejul Somaia, MD of LightSpeed Ventures. He adds that the quality of execution is ultimately a function of the team, which he believes is world-class.

Hopefully, the 12 million small businesses across the country will find this model sustainable for them. But there is magic to pin it to them.

Website: Magicpin