Parker Smith wrote a piece that got me thinking. In Foursquare: Democratizing the Loyalty Program, he posits that Foursquare could be the loyalty program provider to small businesses. I think he’s right.

Then I noticed these identical product benefits touted by the companies themselves, Foursquare and Jack Dorsey’s Square:

For example, foursquare can tell you how many times a customer has been to your venue or the frequency of their visits. Many venues are now using this data to reward their most loyal customers with freebies or discounts.

Foursquare

If you frequent a place that accepts Square, we’ll let them know you’re a repeat customer. That 10th cappuccino may be on the house, no paper coffee card required.

Square

Would you look at that? Are these guys going to end up competing with one another?

A few years back, I was the personalized marketing product manager at Pay By Touch, which offered the ability to pay for items with biometrics (i.e. your finger). Once you could identify the customer and her spending, interesting loyalty program solutions became available.

Which brings me to what Foursquare and Square are doing. Square is still in beta mode, so it’s hard to predict fully its uptake in the market. But let’s assume Twitter co-founder Jack Dorsey and his backer, Khosla Ventures, are on top of this opportunity. And Foursquare is growing quickly.

Each provides pieces of what would be needed for a small business CRM. The companies are independent, but I can see new value created if they were to work together.

There is no CRM for offline small businesses

At least, not for businesses that operate in the physical world. Dry cleaners, restaurateurs, retailers and other small businesses. They may have loyalty punch cards, but generally don’t have any programmatic way to track and engage customers.

But they could use CRM as much as a large business does. I like this customer lifecycle framework by Gary Hawkins in Customer Intelligence:

It shows the stages of a business’s customers: new, existing, declining, lapsing. And the ability to tier active customers also is valuable. Each tier has its own dynamics. There is much more to CRM than a simple frequency loyalty program. It’s a deeper level understanding of the customer base. Understanding the statuses of customers from this point of view is powerful marketing information.

Modern CRM is more than the analytics and outbound campaigns. The social CRM movement is gaining strength, and it’s incorporating many social network principles into the customer engagement process.

And it’s not readily available for small businesses that operate primarily in the “offline” world. Unlike the digital platforms of e-commerce, offline transactions are not measured. At least not beyond the credit card transaction for consumer transactions.

This is an area of enormous opportunity. The company that solves the CRM issue for the 4.3 million small businesses in the U.S. has an enormous opportunity in front of it.

Complementary CRM strengths of  Foursquare and Square

The two services each bring unique strengths to a small business CRM solution. Take a look:

Start with the commonality Diagram. Foursquare and Square both provide:

• Customer identity = who are your customers?
• Visit frequency = Foursquare check-ins, or Square credit card swipes

When you see them both tout free products for repeat customers, this is how they’d do it. Identity + frequency = loyalty punch card.

But what about the services’ other features?

Foursquare provides the social fuel:

• Social incentives: It’s fun to build up points relative to your friends, show off your Foursquare badges. And who doesn’t want to be Mayor of some local business?
• Social interactions: People use Foursquare to to broadcast their location. This lets other meet up with them. Or in the case of crowded venues, find someone else there.
• Game dynamics: This reporting in on your locations is an addictive game for many. It’s cool to get your first check-in daily bonus, to unlock a new location (hooray!) and oust someone as the Mayor of a place.
• Social media word of mouth: By following people on Foursquare or Twitter, you can see where your network hangs out. This raise awareness for businesses, an incredibly important benefit.

Here’s an example on that last point. Socialtext CEO Eugene Lee often tweets this:

I’m at Coupa Cafe (538 Ramona St, at University Ave, Palo Alto). http://4sq.com/IITeJ

I don’t spend much time in Palo Alto, and I’d never heard of Coupa Cafe. But you know what? If I find myself in Palo Alto needing lunch or a coffee, guess which place I’d specifically look for?

Square provides the transaction processing power:

• Dollar spend: Incredibly valuable information to track. Does someone come in a couple times a week, but spend heavily on food? Or do they frequent the cafe more often, but only buy coffee? Dollars spent is an important complement to simple visit frequency.
• In-the-flow process: Square captures it’s information in-the-flow. That is, you don’t have to do anything extra. You’re have to pay, it’s part of the normal process. Foursquare requires a check-in, which is outside-the-flow of regular small business-customer interactions.
• Transaction handling: By owning the transaction handling, Square can implement low-maintenance marketing programs. Businesses can create promotions tied to specific accounts, and execute them at the point-of-sale via Square.
• Merchant account process: The process of getting businesses signed up for these programs isn”t trivial. It is standardized, but there’s a lot to tackle to provide good service.Some early reports indicate that Square has a superior merchant account set-up process, which may be its best innovation.

The in-the-flow nature of Square should not be underestimated. Getting adoption for any service is tough, and removing whatever friction to participation that exists is a critical element. This commenter on a post about Foursquare makes a good point:

The sort of people who will stop and record their restaurant visits and who have friends who also stop and record their restaurant visits and then write reviews of same. And while that’s a prime demographic, I’m thinking it’s not nearly as large as you’d hope. Most people just don’t have the time or inclination to “play” FourSquare.

This is why putting the process of playing Foursquare in-the-flow would be valuable.

Making it happen

The challenge is in connecting a credit card transaction to a person’s Foursquare account. Then I realized Square’s intentions are much bigger than a simple transaction swipe. The company lets people set up their personal accounts on Square. I assume you will enter your credit card number online, and when that number comes through in a transaction, it’s associated to your Square account. Thus Square can manage loyalty punch card programs.

Well, why not associate your Foursquare account to your Square account? When you swipe your credit card at the local business, Square processes the transaction the way it normally does. But it also does something else. It prompts an update to your Foursquare account.

I’m not talking a Blippy–style broadcast of your credit card purchase amount. Rather, your location status is updated automatically on Foursquare. Just as if you’d updated from your iPhone.

The small business then gets the social part of the CRM program.

What do you think? Two great tastes that taste great together? Small business could use the combined elements of Foursquare and Square.

[Editor’s Note: Cross-posted at Hutch’s personal blog. –mrh]