VSKP MENU

Merchant Front Office Apps - Setting the Foundation

AUTHORS:

Dave Yuan

Founder and Partner, Tidemark

Tilting at Windmills? Maybe. (Illustration by Picasso, 1955)
This is Part 1 of the Consumer Demand Series.
Introduction
Part 1: Merchant Front Office Apps - Setting the Foundation
Part 2: Creating Demand with Merchant Facing Apps
Part 3: Consumer Apps (coming soon)
Part 4: The Big Leap to Two-Sided Marketplace (coming soon)

Solving the key job to be done ensures initial demand from and adds to your account control with your merchant customer. The closer your product gets to the target stakeholder, the more opportunity you have to create a control point with them. 

A merchant’s key jobs to be done are straightforward: attract new customers and retain existing customers. While providing anything to a merchant that helps with these tasks is good in isolation, a VSV will want to provide an offering that can simultaneously create consumer value. I’ve found that consumer value is most often created by frequent engagement, high utility, stored value, or data that can be used to personalize future interactions. Most powerfully, you can look for opportunities to engage with the consumer in a branded fashion. For example, in a point-of-sale system, a consumer may start to recognize the Square or Toast logo that is often prominently featured at a merchant’s cash register.

In the table below, I’ve compiled a variety of common front office applications that merchants use to create sales/demand, and their longer-term strategic value relative to consumers. While there are many robust horizontal competitors for each category, a VSV benefits from the integration with its core offering. Mix in industry specific nuances, and you have strong differentiation to allow victory over your horizontal foes. 

Let’s walk quickly through each of these categories and give a few more details on why they matter.

Common front office applications used by merchants to create demand

Ecommerce

The first application adopted by merchants tends to be messaging (e.g. email or text) because communication is usually where most merchants need the most help. After that, a web presence almost always follows—e-commerce or online booking is usually the follow-up to messaging. An ecommerce platform is an ideal offering for the VSV as it captures data across transactions, customers, products, and payments. 

Online booking allows a merchant to transition from a passive business (waiting for a customer to walk in the door or to call) to a proactive business by finding and driving demand via online advertising. This is a big and important change! It moves a business from something that merely reacts to the whims of the market to something that forges its own destiny. 

We’re already starting to see ecommerce embedded in all parts of the consumer experience. “Order and Pay at Table” by Toast allow consumers to engage with a restaurant digitally as part of the in-person dining experience. Podium allows merchants to transact and collect payments in the flow of service, marketing, and follow-up communications. According to our in-house research, 25% of Brazilian ecommerce flows through messaging environments like Whatsapp. I love these new e-commerce modalities because they: 

  1. Augment the consumer's in-person experience with digital engagement.
  2. Create additional monetization for the merchants.
  3. Position a VSV’s value proposition closer to consumer demand. 

CRM

The biggest issue that merchants face with customer acquisition is not being able to determine new versus existing customers. This is critical as marketplaces—the largest online channels—charge for new and existing customers equally. Merchants generally are willing to pay the take rate online marketplaces command (and even higher!) for truly new incremental customers, but they resent (and can’t afford) to pay takerates on their existing customers.

A CRM that actually measures net new customers can solve that issue. The ideal CRM is a dynamic repository for all customer data, not just an in-house email list. It can be enriched by payments data, allowing for unique customer identifiers, basket and SKU data, Wifi and reservation systems, and service delivery data points. This idea was the driving force behind Olo (a restaurant channel manager) acquiring Wisely (a CRM/analytics tool for restaurants) for $187M in 2021. 

VSVs are the right organization to build this product for merchants because they already have ownership over the data that a typical CRM would struggle to access. By making the setup and attribution dead simple, VSVs can offer a product that horizontal providers can’t match. 

Channel management

In verticals such as hotel and food, or in geographies like Latam, online marketplaces dominate. As a result, merchants need channel managers (e.g., Siteminder in hotels, Olo in food, and Dutchie in cannabis) to list their inventory on multiple online channels while simultaneously maintaining a single source of truth for inventory management. (Disclosure: Siteminder was a portfolio company at my prior firm and Dutchie is a Tidemark portfolio company.) Channel managers also allow merchants to add big pools of demand quickly and easily. For example, a local hotel in San Francisco can tap into overseas Chinese visitors easily and scalably by putting listings on Ctrip via its channel manager. When a VSV offers this product, they can offer immediate proof that they are providing the demand merchants crave.

The phone

The phone is the front door to local merchants. Many service businesses have high demand peaks where they lose orders because they fail to answer the phone. New phone offerings allow merchants to transition phone interactions to digital interactions via text back, or provide on-demand assistance in taking orders. The VSV can either reroute the calls to a call center, or provide an AI chatbot that connects with merchant’s customers via text. In either case, the VSV gives the company demand that otherwise would be missed.

Conclusion

Front office applications are good expansion opportunities even if the VSV doesn’t go any closer to consumers. However, the key is to prioritize those options for creating demand for your merchants (Part 2 of this series) and create landing wedges and extend to the consumer (Part 3). If you play your cards right, you will be that much further towards creating a two-sided consumer marketplace (Part 4).

Consumer Demand Series
Introduction
Part 1: Merchant Front Office Apps - Setting the Foundation
Part 2: Creating Demand with Merchant Facing Apps
Part 3: Consumer Apps (coming soon)
Part 4: The Big Leap to Two-Sided Marketplace (coming soon)

CASE STUDIES RELATING TO THIS CHAPTER:

SiteMinder: Extending into Consumer Demand

AppFolio: A Case Study on Consumer Extension Options

208

Consumer Demand 1
0
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
This chapter is part of:

Extend through the Value Chain

Win THE CATEGORY

Win

Expand OFFERINGS

Expand

EXTEND THROUGH
THE VALUE CHAIN

Extend

Case Studies and Reference

Case studies and reference

New to the VSKP?

Get the VSKP delivered to your inbox.  Each week, we'll send one strategy essay along with related case studies to help you make sense of it all.

Sign up for VSKP weekly delivery
SHARE:

The information presented in this post is for illustrative purposes only and is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by Tidemark or any of the securities of any company discussed. Companies discussed in these posts may include current Tidemark portfolio companies and/or prior investments made by Tidemark employees while at other investment firms. These companies identified above are not necessarily representative of all Tidemark investments, and no assumption should be made that the investments identified were or will be profitable. The information in this post is not presented with a view to providing investment advice with respect to any security, or making any claim as to the past, current or future performance thereof.

Keep up with the VSKP

Sign up to receive new content as soon as it's released.

Thank you! Your submission has been received.
Oops! Something went wrong while submitting the form.