Pay By Touch Smart Shop MRD

MARKETING REQUIREMENTS DOCUMENT
Project Name: Personalized Marketing - SmartShop
MRD Version: 1.0
Date: 1/23/06
MRD Due Date: 1/23/06
Beta Release Date: 9/30/06
v1.0 Release Date: 12/31/06

Product Team:
Name Role Email address
Hutch Carpenter Senior Product Manager hutch.carpenter@paybytouch.com

Authorizations
Product Marketing: Title: SVP Product Marketing
Signature: Date:
Product Engineering and Support: Title: VP Engineering
Signature: Date:
Program Management: Title VP Loyalty Solutions
Signature: Date:
Platform Management: Title VP Platform
Signature: Date:
Finance: Title VP Finance
Signature: Date:
Operations and Risk Management: Title VP Operations & Risk
Signature: Date:
Security: Title: VP Systems Security
Signature: Date:
Professional Services: Title VP Implementation
Signature: Date

FILE: PBT PAY-BY-TOUCH-SMARTSHOP-MRD-1232727738850688-1.DOC VERSION: 1.0 PAGE 1 OF 43

NOTICE OF PROPRIETARY PROPERTY

THE INFORMATION CONTAINED HEREIN IS PROPRIETARY AND CONFIDENTIAL TO . THE POSSESSOR AGREES TO MAINTAIN THIS DOCUMENT IN CONFIDENCE AND
NOT TO REPRODUCE, COPY, REVEAL OR PUBLISH IT IN WHOLE OR IN PART.

DOCUMENT HISTORY AND CHANGE CONTROL

Version Date Description of Changes Initiator Initials
1.0 12/18/05 MRD initiated HC
1.0 1/23/06 Initial draft of MRD published HC




EXECUTIVE SUMMARY
Many retailers, especially grocery stores, are improving the way they track customers' purchases -- and how they
reward those customers. Forget the old club card you must present with each purchase. quot;You're going to see retailers,
particularly the grocery companies, do more with the data they gather from customers,quot; says Mr. Fox, [professor of
marketing at Southern Methodist University]. quot;They're going to give you a special discount or give you more information
about what you bought or what's on sale.quot;
“Trends (A Special Report): Retail --- Upscale Experience, Downscale Prices”
Wall Street Journal, November 21, 2005

“Google is basically out to make every ad a targeted ad,quot; said Safa Rashtchy, an analyst for Piper Jaffray & Co. quot;That
started in search and that will go beyond search in display advertising and then offline.”
“Google explores radio ad sales; Search engine plans to buy dMarc of Newport Beach”
San Francisco Chronicle, January 18, 2006

Deloitte believes there are four umbrella challenges in Trade & Consumer Management that are of highest priority to
CPG manufacturers [including] Direct to Consumer Marketing: ‘How should we leverage information from retailer
loyalty programs to jointly market to the consumer?’
“What is Trade Promotion?”
Deloitte Consulting, August 5, 2004

se ds
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The three quotes above exemplify an m
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Companies have worked to get closer to
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the consumer in their marketing. Key to
Mass Targeted Personalized
this effort has been cycles of improvement
Marketing Marketing Marketing

in data gathering and technologies for
delivering content to individuals. For example, a major innovation for magazine publishers was the ability to
vary ads by subscribers’ locations, opening up channels for local advertisers. In recent years, Google has
taken marketing to another level with its AdWords. These catch consumers’ self-identified interests right at
a moment in which they are highly receptive to a message. Google’s recent announcement of its acquisition
of dMarc highlights the Web giant’s view about other areas ripe for more targeted marketing.
SmartShop is a product designed to take marketing even further along this spectrum, toward true
personalized marketing. Grocers and other retailers have established loyalty programs with an eye toward
improving their information capture and fostering a relationship with customers. The reality is few Merchants
have captured even a quarter of the potential of these programs. Consumer packaged goods manufacturers
(CPGs) are also keenly interested in developing better ways to market directly to individuals. Currently, they
have little ability to identify and reach
individuals most interested in the
products.
SmartShop will deliver a set of offers
(i.e. discounts) based on consumers’
actual purchases. Both Merchants
and CPGs will input the offers they
want to distribute. SmartShop will
handle the targeting and distribution
of these offers. Consumers will
receive their offers in an easy to
access and use process, completing
the loop for true personalized
marketing.




Pay By Touch will generate revenue on SmartShop primarily through fees received from the CPGs, with
some revenues from Merchants as well.
The revenue model for
SmartShop Revenue Opportunity Top 25 U.S. Pure Play
SmartShop can be
General Grocers
characterized as: General Food # General Estimated Merchant Merchant CPG CPG
Revenues Food Revenue Activation Redemption Activation Ad Offer Loyalty
• Merchants provide No. Grocer Stores Opportunity Fees Fees Fees Activation Program
(billions)

1 Kroger $ 51.1 2,532 $ 345,618,000 $ 19,749,600 $ 9,874,800 $ 197,496,000 $ 118,497,600
the customer data 
2 Safeway $ 35.8 1,802 $ 245,973,000 $ 14,055,600 $ 7,027,800 $ 140,556,000 $ 84,333,600
Albertsons (excl. drug stores) 
3 $ 34.7 1,797 $ 245,290,500 $ 14,016,600 $ 7,008,300 $ 140,166,000 $ 84,099,600
and distribution Ahold USA (excl. Bi-Lo) 
4 $ 18.6 1,033 $ 127,026,827 $ 7,258,676 $ 3,629,338 $ 72,586,758 $ 43,552,055
5 Publix $ 18.6 850 $ 126,637,875 $ 7,236,450 $ 3,618,225 $ 72,364,500 $ 43,418,700
infrastructure 
6 Delhaize America $ 15.8 1,523 $ 108,148,950 $ 6,179,940 $ 3,089,970 $ 61,799,400 $ 37,079,640
7 Meijer $ 11.1 158 $ 75,757,500 $ 4,329,000 $ 2,164,500 $ 43,290,000 $ 25,974,000

8 H.E. Butt $ 10.6 298 $ 72,345,000 $ 4,134,000 $ 2,067,000 $ 41,340,000 $ 24,804,000
• CPGs provide the 
9 Winn-Dixie $ 9.9 587 $ 67,710,825 $ 3,869,190 $ 1,934,595 $ 38,691,900 $ 23,215,140

10 A&P $ 7.8 638 $ 53,235,000 $ 3,042,000 $ 1,521,000 $ 30,420,000 $ 18,252,000
revenue dollars 
11 Giant Eagle $ 5.1 222 $ 34,807,500 $ 1,989,000 $ 994,500 $ 19,890,000 $ 11,934,000
SuperValu (excl. Save-A-Lot, Deals)
12 $ 4.8 262 $ 32,691,068 $ 1,868,061 $ 934,031 $ 18,680,610 $ 11,208,366

13 Pathmark $ 4.0 143 $ 27,149,850 $ 1,551,420 $ 775,710 $ 15,514,200 $ 9,308,520
The revenue model 14 Hy-Vee $ 3.9 192 $ 26,208,000 $ 1,497,600 $ 748,800 $ 14,976,000 $ 8,985,600

15 Stater Bros. $ 3.8 159 $ 25,935,000 $ 1,482,000 $ 741,000 $ 14,820,000 $ 8,892,000
acknowledges the critical 16 Aldi USA $ 3.5 630 $ 23,887,500 $ 1,365,000 $ 682,500 $ 13,650,000 $ 8,190,000

17 Wegmans $ 3.3 65 $ 22,522,500 $ 1,287,000 $ 643,500 $ 12,870,000 $ 7,722,000
role Merchants’ customer 
18 Raley's $ 3.2 134 $ 21,840,000 $ 1,248,000 $ 624,000 $ 12,480,000 $ 7,488,000
19 Roundys $ 3.0 125 $ 20,550,075 $ 1,174,290 $ 587,145 $ 11,742,900 $ 7,045,740
databases serve in 
20 Price Chopper $ 2.5 106 $ 17,062,500 $ 975,000 $ 487,500 $ 9,750,000 $ 5,850,000

21 Harris Teeter $ 2.4 140 $ 16,380,000 $ 936,000 $ 468,000 $ 9,360,000 $ 5,616,000
delivering personalized 
22 Save Mart $ 2.2 123 $ 15,015,000 $ 858,000 $ 429,000 $ 8,580,000 $ 5,148,000

23 Schnuck Markets $ 2.2 101 $ 15,015,000 $ 858,000 $ 429,000 $ 8,580,000 $ 5,148,000
marketing for CPGs. 24 Ingles Markets $ 2.2 197 $ 14,774,760 $ 844,272 $ 422,136 $ 8,442,720 $ 5,065,632

25 Weis Markets $ 2.0 157 $ 13,854,750 $ 791,700 $ 395,850 $ 7,917,000 $ 4,750,200
TOTALS $ 262.0 13,974 $ 1,795,436,980 $ 102,596,399 $ 51,298,199 $ 1,025,963,988 $ 615,578,393
The table to the right Source: Supermarket News Top 75; SEC filings; company websites
provides a sense of the
Pay By Touch revenue opportunity in the U.S. grocery market. The $1.8 billion is based on a fully mature
implementation of SmartShop in the top 25 grocers, in which it becomes a primary loyalty program for
Merchants. The revenue model is defined more fully in §1.2.
The primary revenue generation for SmartShop is via CPGs. CPGs spend $75 billion annually in promotion-
related funds, either paid through Merchants to run ads and discounts or directly to consumers, such as
coupon distribution. Much of this money is wasted on expensive physical production and distribution of free
standing inserts (CPG coupons) and Merchant ad flyers. Not only are these current mass marketing
vehicles expensive, they have a very low readership. This combination leads to inefficient use of dollars and
represents the opening for SmartShop to successfully penetrate the market.
SmartShop will leverage Pay By Touch’s differentiating strategic assets in realizing this revenue opportunity:
Pay By Touch Wallet: The Wallet is the centralized home for a consumer to manage and access her
different financially-related accounts, including SmartShop offers. Members can also be linked to
households for purposes of tracking spending.
Implementation at the POS: To track consumers’ purchasing, a company must have access to their
transaction history. With in-store implementations across a variety of merchants, Pay By Touch has an
incredibly valuable asset for the design and implementation of SmartShop. In addition to information
access, PBT is positioned to deliver offers to consumers at transaction time.
Biometric credential: Biometrically identifying Members solves two issues that can bedevil loyalty programs.
First, it takes the burden off the consumer to keep multiple cards in her wallet. Use of PBT for identification
automatically captures her loyalty account. Second, it eliminates the practice of providing a false loyalty
card ID, providing an immediate increase in the quality of data captured.
Multiple communication channels: Pay By Touch will have multiple touch points with Members. In-store
kiosks provide a vehicle for communicating offers to Members. MyPBT will offer Members a comprehensive
view of their loyalty programs and provide a venue for Merchants and CPGs to communicate offers to
Members. Email communications will alert Members to new offers. Mobile devices can alert Members to
relevant offers through a unique combination of identity, purchase history and location.




TABLE OF CONTENTS

1 INTRODUCTION............................................................................................................................................8
1.1 PURPOSE OF THIS DOCUMENT.......................................................................................................................8
1.2 OPPORTUNITY DESCRIPTION..........................................................................................................................8
1.3 OVERVIEW OF PROPOSED PRODUCT.............................................................................................................12
1.4 CUSTOMER VALUE PROPOSITION..................................................................................................................13
2 PRODUCT STRATEGY AND OVERVIEW.................................................................................................13
2.1 GOALS AND OBJECTIVES............................................................................................................................13
2.2 STRATEGIC ROADMAP................................................................................................................................14
2.3 COMPETITIVE ANALYSIS..............................................................................................................................15
2.3.1 Direct and Indirect Competitors.....................................................................................................15
Concept Shopping can be classified as an innovative offer targeting engine with supporting
infrastructure around it. POSnet, on the other hand, provides the supporting infrastructure needed to
deliver personalized offers, but without a proprietary targeting engine. POSnet is a member-owned
Limited Liability Corporation dedicated to the commercialization and operation of its electronic offer
management and point-of-sale clearing system. Pathmark is its largest customer..............................16
The company’s Retail Media Management™ is an open platform and electronic offer management
infrastructure that enables retailers to flexibly share their customer relationships with trading partners
providing the widest possible array of creative household-specific promotional offers through multiple
communication channels including direct mail, email, internet couponing sites, kiosks, service-counter
label systems, POS printers, mobile shopping devices and an innovative solution to in-store coupon
clearing....................................................................................................................................................16
In addition to robust, open platform offer management, POSnet provides settlement functionality. Its
aggregation of transactional data facilitates measurement and analysis of marketing results on a real-
time basis. POSnet’s settlement provides four critical requirements:...................................................16
2.3.2 Strengths, Weaknesses, Opportunities and Threats.....................................................................20
2.3.3 Differentiators.................................................................................................................................20
3 BUSINESS MODEL.....................................................................................................................................21
3.1 MARKET SEGMENTATION AND VALUE PROPOSITION..........................................................................................21
3.1.1 Merchants......................................................................................................................................21
3.1.2 CPGs..............................................................................................................................................24
3.1.3 Members........................................................................................................................................25
3.2 VALUE CHAIN STRUCTURE..........................................................................................................................26
3.2.1 Members........................................................................................................................................26
3.2.2 Merchants......................................................................................................................................26
3.2.3 CPGs..............................................................................................................................................26
3.3 COST STRUCTURE....................................................................................................................................27
4 USE CASES AND IMPLEMENTATION SCENARIOS................................................................................28




4.1 INTRODUCTION..........................................................................................................................................28
4.1.1 Use Case 1: Establish Member Household ID..............................................................................28
4.1.1.1 Description..............................................................................................................................28
4.1.1.2 Justification for Use Case.......................................................................................................28
4.1.2 Use Case 2: In-store SmartShop enrollment.................................................................................28
4.1.2.1 Description..............................................................................................................................28
4.1.3 Use Case 3: Web-based SmartShop enrollment...........................................................................29
4.1.3.1 Description..............................................................................................................................29
4.1.4 Use Case 4: Offer Activation..........................................................................................................29
4.1.4.1 Description..............................................................................................................................29
4.1.5 Use Case 5: Offer redemption.......................................................................................................29
4.1.5.1 Description..............................................................................................................................29
4.1.6 Use Case 6: Offer limit management.............................................................................................30
4.1.6.1 Description..............................................................................................................................30
4.1.7 Use Case 7: Biometric auth fails - kiosk........................................................................................30
4.1.7.1 Description..............................................................................................................................30
4.1.8 Use Case 8: Biometric auth fails – In Lane...................................................................................31
4.1.8.1 Description..............................................................................................................................31
4.1.9 Use Case 9: Offer reminder alerts.................................................................................................31
4.1.9.1 Description..............................................................................................................................31
4.1.10 Use Case 10: View SmartShop offer history...............................................................................32
4.1.10.1 Description............................................................................................................................32
4.1.10.2 Justification for Use Case.....................................................................................................32
4.1.11 Use Case 11: Export t-log, customer data and product hierarchy...............................................32
4.1.11.1 Description............................................................................................................................32
4.1.12 Use Case 12: Merchant selects and implements customer database marketing application.....33
4.1.12.1 Description............................................................................................................................33



4.1.13 Use Case 13: Merchant creates offer..........................................................................................33
4.1.13.1 Description............................................................................................................................33
4.1.14 Use Case 14: CPG creates offer.................................................................................................35
4.1.14.1 Description............................................................................................................................35
4.1.15 Use Case 15: Merchant creates Offer Pool.................................................................................36
4.1.15.1 Description............................................................................................................................36
4.1.16 Use Case 16: Offer Pool is distributed to customers...................................................................37
4.1.16.1 Description............................................................................................................................37
4.1.17 Use Case 17: Targeted Offer Pool is published..........................................................................38
4.1.17.1 Description............................................................................................................................38
4.1.18 Use Case 18: Merchant is paid for CPG fees and discounts......................................................38
4.1.18.1 Description............................................................................................................................38
4.1.19 Use Case 19: Merchants and CPGs use results of prior offers to set new offers for the future. 39
4.1.19.1 Description............................................................................................................................39
5 REQUIREMENTS DEFINITION...................................................................................................................40
5.1 INTRODUCTION..........................................................................................................................................40
5.2 MARKETING REQUIREMENTS........................................................................................................................40
5.2.1 PBT Wallet.....................................................................................................................................41
5.2.2 In-Store..........................................................................................................................................41
5.2.3 Merchant MIS.................................................................................................................................42
5.2.4 SmartShop Application..................................................................................................................42
5.2.5 Professional Services....................................................................................................................43
5.2.6 PBT Financial.................................................................................................................................43




1 INTRODUCTION
1.1 PURPOSE OF THIS DOCUMENT
This Marketing Requirements Document (MRD) is intended for internal distribution only. The MRD
describes how SmartShop aligns with the corporate goals of Pay By Touch and will meet the demands of
existing and future customers. It explains the value that SmartShop would bring to our various customer
categories and how it would help differentiate Pay By Touch from our competition. Marketing Requirements
are specified; these describe the functionality that is required in order to realize the goals.

1.2 OPPORTUNITY DESCRIPTION
Consumer Packaged Goods Manufacturers (CPGs) spend CPG $100 Billion Annual Spend
$100 billion annually in advertising, marketing and promotion Grocer Advertising and Promotions
efforts with grocers. $25 billion is spent on advertising.
Another $17 billion goes toward direct consumer promotions,
Advertising, 25%
which include free standing inserts (FSI). FSIs are the
Trade
coupons provided by manufacturers in consumers’ Sunday Promotion,
newspapers. $10 billion is budgeted as “account specific” 48%

promotional dollars. These are dollars that the CPG uses to
run consumer promotions through specific Merchants. The Consumer
remaining $48 billion represent trade promotion allowances Promotion,
17% Account Specific,
provided by CPGs to grocers. Because grocers are the 10%
critical distribution channels to consumers, they hold
considerable sway over CPGs. CPGs provide grocers Source: Cannondale Associates

significant dollars to ensure their products are placed in weekly ad flyers, displayed in-store and promoted
via discounts, or temporary price reductions (TPRs).
Two problems plague the current industry promotional
CPG Coupons
structure, one a more recent phenomenon, the other a
Total Distributed and Redeemed: 2002-2004
longtime issue.
345 billions 3.8

Over the past decade, the efficacy of CPG FSIs and
340 3.7
1.1%
335 3.6
Merchant ad flyers has steadily diminished. FSI
Coupons Distributed

Coupons Redeemed

330 3.5

redemption rates are now below 1% (see chart) and
1.1%
325 3.4

ad flyer readership is typically under 10%. Whether
320 3.3

the cause is increasingly harried households,
315 3.2
0.9%
310 3.1
promotion saturation or shopping at alternative outlets,
305 3.0

the result is less bang-per-buck for these vehicles,
300 2.9

raising the effective cost of advertising that does
2002 2003 2004

“make it through” to consumers.
CPG Coupon Distribution Coupon Redemption
Source: CMS, Inc.

The other problem for Merchants and CPGs is that promotional programs follow an indiscriminate one-to-
many distribution model. All shoppers are treated the same when it comes to in-store discounts. According
to Accenture research, consumers are unaware of 51% of items bought on sale. This translates to a loss of
margin with zero marketing value to the Merchant and CPG. A second issue is that “cherry picker”
customers only purchase items on sale from different Merchants, meaning the gross margins on their
average basket are significantly lower than those of loyal customers.
Both CPGs and Merchants are unhappy with current promotional models. To address shortcomings, the
approach has been to throw money at the problem. In 1999, manufacturers spent 14.0% of their sales on
trade promotion; by 2003 that figure had risen to 17.4%. Unsurprisingly, Cannondale Associates reports
that 84% of CPGs are dissatisfied with the return on their trade promotion dollars.




Pay By Touch Market Opportunity
By leveraging its strategic assets, Pay By Touch has
an opportunity to provide a solution that solves
several issues. SmartShop reverses the trend of Trade/Consumer Allowance
increasing costs in FSI and ad flyer production and Distribution of Spending
distribution by providing relevant offers that
consumers want and can easily access. TPRs can TPR/Coupon
TPR -
Offer
Coupon Dis
Current
be targeted to loyal, higher margin customers while Production & Distribution plays
Aware of TPR
Aware Unaware of TPR
Unaware

CPG coupons can find the most interested
consumers. The end state is more CPG trade TPR/Coupon -
End State Offer
Coupon Dis
promotion and consumer dollars applied toward Prod. & Distr. plays
Aware of TPR
Aware Unaware

driving profitable customer visits.
The basics of SmartShop that address the opportunity are:
• Targeting engine that distributes offers to Members based on their shopping history
• Weekly offer sheet that presents up to 20 offers to the customer
• Multiple low-cost communication modes that deliver offers right before Members initiate shopping as
well as earlier in the week

SmartShop Offer Sheet Example Structure

Merchant
Funded
Offers

CPG
Funded
Offers

Offer Ads Regular Offers

Members will receive weekly offer sheets with up to 20 different individual discounts. The first ten offers will
be those funded by the Merchant (trade promotion dollars). The second ten offers will be those funded by
individual CPGs (consumer promotion dollars). In the example above, there are two offers (Coca-Cola,
Haagen Dazs) that are set up as offer ads. These offers receive more real estate on the offer sheet and
allow larger, more dynamic graphics.




Pay By Touch Revenue Opportunity
Pay By Touch will charge Merchants a fee for every offer sheet activated by a Member, and a second fee for
every offer sheet for which a Member redeems at least one Merchant-funded offer. This revenue approach
can be described as a “pay for performance” model. Activation fee revenue requires SmartShop to deliver
offers in an easily accessible, timely manner. Pay By Touch SmartShop Opportunity Sources of
Redemption fee revenue requires SmartShop to Revenue
have a targeting model that consistently
distributes relevant offers to Members.
S
SourceDescriptionMerchant Activation FeeMerchant fee for
Pay By Touch will charge CPGs a fee for each e
every offer sheet activated by a MemberMerchant Redemption
CPG-funded offer activated by a Member. It FeeMerchant fee for every offer sheet in which at least one offer
w
should be emphasized that the CPG activation fee was redeemed by a MemberCPG Activation FeeCPG fee for
e
is per offer, whereas the Merchant fee is per offer every offer activated by a MemberCPG Ad FeeCPG fee for every
p
sheet. This model establishes CPGs as the premium placement ad offer activated by a Member
primary source of revenue for SmartShop. In
addition, Pay By Touch will earn a fee for each
offer ad upon activation.
The SmartShop revenue opportunity is measured on a store-by-store basis. The key revenue drivers are:
• Number of households served in a geographic area
• Percentage of households joining SmartShop
• Percentage of households activating their offers every week
• Percentage of households redeeming their offers every week

The table to the right is an example of the revenue SmartShop Revenue Opportunity
Single Store
opportunity available in a single store location. In this
scenario, the activation fee and redemption fee are set at Single Store
Households/Week 10,000
2.5¢ for both Merchants and CPGs. The CPG ad fee is set
SmartShop Membership 80%
at a ratio of three times the offer activation fee, or 7.5¢. SmartShop Households 8,000
With reasonable assumptions and full CPG participation, a Percent Receiving Offer Sheet 100%
Weekly Distributed Offer Sheets 8,000
single store implementation of SmartShop could generate Percent Activated 75%
$136,500 annually. Weekly Activated Sheets 6,000
Merchant Fee per Activation $ 0.025
As the table shows, the revenue model for SmartShop can CPG Fees per Activation (2.5¢ x 10) $ 0.250
CPG Ad Fees per Activation (7.5¢ x 2) $ 0.150 $ 0.425
essentially be described as: Activation Fees $ 2,550

• Percent of Activated Sheets Redeemed 50%
Merchants provide the customer data and Weekly Redeemed Sheets 3,000
distribution infrastructure Merchant Fee per Redemption $ 0.025
Redemption Fees $ 75

• CPGs provide the revenue dollars Total Weekly Fees per Store $ 2,625
Revenue per Year $ 136,500

The table to the left provides sensitivity
SmartShop Revenue Opportunity Fee
analysis on the fees charged to the Merchant
Sensitivity Analysis
and the CPGs. The ad fee is assumed to
Merchant Activation & Redemption Fee
maintain a 3-to-1 ratio to the CPG offer
Per Offer Sheet
Activation Fee Ad Fee 2.5¢ 5.0¢ 7.5¢ 10.0¢
activation fee. Based on the revenue model,
CPG 2.5¢ 7.5¢ $ 136,500$ 148,200 $ 159,900 $ 171,600
changes in CPG fees have a significant effect
Fee 5.0¢ 15.0¢ $ 261,300$ 273,000 $ 284,700 $ 296,400
Per Offer 7.5¢ 22.5¢ $ 386,100$ 397,800 $ 409,500 $ 421,200
on the revenue potential per store.
10.0¢ 30.0¢ $ 510,900$ 522,600 $ 534,300 $ 546,000




Grocer Market Analysis
SmartShop Revenue Opportunity Top 25 U.S. Pure Play
The table to the right lists
General Grocers
the top 25 grocers by General Food # General Estimated Merchant Merchant CPG CPG
Estimated Revenue Revenues Food Revenue Activation Redemption Activation Ad Offer Loyalty
No. Grocer Stores Opportunity Fees Fees Fees Activation Program
(billions)

Opportunity. The table 
1 Kroger $ 51.1 2,532 $ 345,618,000 $ 19,749,600 $ 9,874,800 $ 197,496,000 $ 118,497,600

2 Safeway $ 35.8 1,802 $ 245,973,000 $ 14,055,600 $ 7,027,800 $ 140,556,000 $ 84,333,600
includes only pure play Albertsons (excl. drug stores) 
3 $ 34.7 1,797 $ 245,290,500 $ 14,016,600 $ 7,008,300 $ 140,166,000 $ 84,099,600
Ahold USA (excl. Bi-Lo) 
4 $ 18.6 1,033 $ 127,026,827 $ 7,258,676 $ 3,629,338 $ 72,586,758 $ 43,552,055
general grocers. Discount 5 Publix $ 18.6 850 $ 126,637,875 $ 7,236,450 $ 3,618,225 $ 72,364,500 $ 43,418,700

6 Delhaize America $ 15.8 1,523 $ 108,148,950 $ 6,179,940 $ 3,089,970 $ 61,799,400 $ 37,079,640
mass merchandisers, such 7 Meijer $ 11.1 158 $ 75,757,500 $ 4,329,000 $ 2,164,500 $ 43,290,000 $ 25,974,000

8 H.E. Butt $ 10.6 298 $ 72,345,000 $ 4,134,000 $ 2,067,000 $ 41,340,000 $ 24,804,000
as Wal-Mart, Costco and 
9 Winn-Dixie $ 9.9 587 $ 67,710,825 $ 3,869,190 $ 1,934,595 $ 38,691,900 $ 23,215,140

10 A&P $ 7.8 638 $ 53,235,000 $ 3,042,000 $ 1,521,000 $ 30,420,000 $ 18,252,000
Sam’s Clubs, are 
11 Giant Eagle $ 5.1 222 $ 34,807,500 $ 1,989,000 $ 994,500 $ 19,890,000 $ 11,934,000
SuperValu (excl. Save-A-Lot, Deals)
12 $ 4.8 262 $ 32,691,068 $ 1,868,061 $ 934,031 $ 18,680,610 $ 11,208,366
excluded. 
13 Pathmark $ 4.0 143 $ 27,149,850 $ 1,551,420 $ 775,710 $ 15,514,200 $ 9,308,520
14 Hy-Vee $ 3.9 192 $ 26,208,000 $ 1,497,600 $ 748,800 $ 14,976,000 $ 8,985,600

15 Stater Bros. $ 3.8 159 $ 25,935,000 $ 1,482,000 $ 741,000 $ 14,820,000 $ 8,892,000
The Estimated Revenue 16 Aldi USA $ 3.5 630 $ 23,887,500 $ 1,365,000 $ 682,500 $ 13,650,000 $ 8,190,000

17 Wegmans $ 3.3 65 $ 22,522,500 $ 1,287,000 $ 643,500 $ 12,870,000 $ 7,722,000
Opportunity is based on 
18 Raley's $ 3.2 134 $ 21,840,000 $ 1,248,000 $ 624,000 $ 12,480,000 $ 7,488,000
19 Roundys $ 3.0 125 $ 20,550,075 $ 1,174,290 $ 587,145 $ 11,742,900 $ 7,045,740
the activation fee and 
20 Price Chopper $ 2.5 106 $ 17,062,500 $ 975,000 $ 487,500 $ 9,750,000 $ 5,850,000

21 Harris Teeter $ 2.4 140 $ 16,380,000 $ 936,000 $ 468,000 $ 9,360,000 $ 5,616,000
redemption fee at 2.5¢ for 
22 Save Mart $ 2.2 123 $ 15,015,000 $ 858,000 $ 429,000 $ 8,580,000 $ 5,148,000

23 Schnuck Markets $ 2.2 101 $ 15,015,000 $ 858,000 $ 429,000 $ 8,580,000 $ 5,148,000
both Merchants and 24 Ingles Markets $ 2.2 197 $ 14,774,760 $ 844,272 $ 422,136 $ 8,442,720 $ 5,065,632

25 Weis Markets $ 2.0 157 $ 13,854,750 $ 791,700 $ 395,850 $ 7,917,000 $ 4,750,200
CPGs. The CPG ad fee is TOTALS $ 262.0 13,974 $ 1,795,436,980 $ 102,596,399 $ 51,298,199 $ 1,025,963,988 $ 615,578,393

set at 7.5¢ Source: Supermarket News Top 75; SEC filings; company websites

The top six grocers represent 67% of the listed revenue opportunity. Each grocer’s potential revenue is
based on its number of stores and its average revenue per store. Average revenue per store is used as a
proxy for the number of households.
SmartShop offers Pay By Touch the potential for significant revenue. In the near term, landing two of the
top six grocers would represent significant market penetration. Alternatively, lining up a number of the
smaller players is another path toward penetrating the market.

The table to the left provides a
SmartShop Market Revenue Potential Fee Sensitivity
Analysis sensitivity analysis for the market
Merchant Activation & Redemption Fee
revenue sizing. This table carries
Per Offer Sheet
forward the fee sensitivity analysis
Activation Fee Ad Fee 2.5¢ 5.0¢ 7.5¢ 10.0¢
CPG 2.5¢ 7.5¢ $ 1,795,436,980 $ 1,949,331,578 $ 2,103,226,176 $ 2,257,120,774
from the per store revenue model.
Fee 5.0¢ 15.0¢ $ 3,436,979,361 $ 3,590,873,959 $ 3,744,768,557 $ 3,898,663,156
Per Offer
Again, CPG fee changes provide the
7.5¢ 22.5¢ $ 5,078,521,742 $ 5,232,416,341 $ 5,386,310,939 $ 5,540,205,537
10.0¢ 30.0¢ $ 6,720,064,124 $ 6,873,958,722 $ 7,027,853,320 $ 7,181,747,918
largest swings in revenue.

Consumer Packaged Goods Top 25 by N.
CPG Market Analysis
American Revenue
The table to the right lists the top 25 CPG companies, ranked by N. America Total
No. CPG Company Revenues Revenues
North American revenue. These companies represent the targets 1 PepsiCo $ 25.5 $ 43.5
for participation in SmartShop. Each company is a provider of trade 2 Procter & Gamble $ 25.3 $ 56.7
3 Kraft $ 22.1 $ 32.2
and consumer promotion allowances. According to a 2002 4 Coca-Cola $ 20.8 $ 41.4
Cannondale study, Manufacturers spend 16.9% of their revenues on 5 Conagra Foods $ 13.3 $ 14.6
6 Nestle $ 12.5 $ 76.4
trade promotion dollars. They spend an estimated 7.4% of 7 Unilever $ 11.4 $ 51.3
8 Sara Lee $ 10.8 $ 19.3
revenues on consumer promotions. 9 Dean Foods $ 10.5 $ 10.8
10 General Mills $ 9.6 $ 11.2
Larger CPGs offer multiple consumer brands sold by grocers. For 11 Kimberly Clark $ 9.0 $ 15.1
12 MasterFoods USA $ 8.0 $ 8.0
example, in North America, PepsiCo sells 118 different products 13 Land O' Lakes $ 7.7 $ 7.7
across its Pepsi Cola, Frito Lay, Gatorade, Tropicana and Quaker 14 Kellogg Co. $ 6.4 $ 9.6
15 Dole Food $ 5.3 $ 5.3
brands. Procter & Gamble sells 75 different product brands in five 16 Campbell Soup $ 4.8 $ 7.5
broad categories. Landing larger CPGs provides access to (i) more 17 Hormel Foods $ 4.6 $ 4.8
18 Cadbury Schweppes $ 4.5 $ 12.8
promotional dollars; and (ii) more products to target to Members’ 19 Hershey Foods $ 4.4 $ 4.4
20 H.J. Heinz $ 3.8 $ 8.9
varied tastes. In lieu of landing large CPGs initially, a series of 21 Clorox $ 3.7 $ 4.4
smaller CPGs can achieve the desired outcome of significant 22 Colgate-Palmolive $ 3.2 $ 10.6
23 Del Monte Foods $ 3.1 $ 3.2
promotional dollars and a large number of products for the Member 24 J.M. Smuckers $ 1.4 $ 2.0
database. 25 Wm. Wrigley $ 1.3 $ 3.6
Source: Hawkins Strategic; SEC filings; Yahoo Finance




1.3 OVERVIEW OF PROPOSED PRODUCT
SmartShop will deliver highly relevant, SmartShop Product Architecture
personalized discounts to Merchants’
customers. For example, if a Member
C next-generation
regularly purchases baby items, the offers D E
communication
targeting
staging
may include a coupon for Pampers. Regular engine

purchasers of coffee may see Folgers offers. electronic offer
delivery at POS
email
F
The product requires four inputs to provide Offer/Rule library
B -----------
these personalized offers: manufacturer retailer
collaboration
platform
1. Member identification web

2. Household purchase history
shopper
A
3. Merchant product hierarchy identified
kiosk
datacenter
4. Merchant & CPG offers
Members must activate their offers prior to H
web reporting mobile
-----------
their being available for discounts at the settlement
POS. This ensures that the Member is G
aware of the offer being made. After the
offers are tendered at the POS, SmartShop maintains a tally of discounts taken, providing settlement
services for Merchants and CPGs.
The major functional components of SmartShop are described below:
A. Data Center: Member household purchase histories, or transaction logs, are imported from
Merchants’ databases. Information includes UPCs, price per UPC, and the total amount paid.
B. Offer/Rule Library: Merchants and CPGs input their offers on different products. Offers indicate a
dollar or percentage off, limit on total customers per offer, a list of eligible UPCs, offer effective
period, Member assignment rules and digital assets (logos) associated with the offers.
C. Targeting Engine: LoyaltySuite provides the analytical engine for distributing the offers. It
statistically evaluates the transaction logs to identify customers likely to be interested in a given
offer, incorporating the Merchants’ and CPGs’ designated distribution strategies.
D. Communication Staging: After the various offers are distributed to Members, they are uploaded to
the Staging Server. The server is the source for offers presented to the various communication
channels. A flag is maintained for each Member indicating whether they have viewed the offers.
E. Communication Channels: Members view their offers in four different ways. Email notices are sent
weekly. Offers can be viewed on MyPBT portal. In-store kiosks catch Members right as they initiate
shopping trips. Members can view their offers on-the-go via mobile devices.
F. POS: The POS component consists of two elements. First, SmartShop will monitor the UPCs
scanned at checkout. Once the eligible UPCs are identified, SmartShop will transmit the discounts
to the ECR for application to the Member’s checkout total.
G. Settlement: SmartShop will track all offers redeemed through the system. This information will be
aggregated on a regular basis (e.g. weekly) for use in electronic settlement of funds between CPGs
and Merchants.
H. Web Reporting: Merchants and CPGs will be provided with metrics outlining the performance of
their offers. Customer segmentation will be integrated in the reporting of these metrics.




1.4 CUSTOMER VALUE PROPOSITION
SmartShop will deliver value to four different constituencies:
•
Merchants Innovative loyalty program that fosters an ongoing relationship with customers
• Deliver customers offers on the products they care about
• Reduced cost for production and delivery of coupons
• Ability to target best customers to improve overall gross margin
•
CPGs Ability to get messaging much closer to their end customers than ever before
• Reduced cost for production and delivery of coupons
• Target customers of rival CPGs for offers
•
Members Receive much more relevant coupons than what arrives in the Sunday paper
• Ability to redeem coupons is greatly simplified versus current search-clip-n-carry model
• Through increased use of coupons, purchasing power is extended
•
PBT Revenue from CPGs and Merchants
• Increased utility for the Wallet
• Increased Member enrollment and usage through a stronger Merchant “push” strategy

2 PRODUCT STRATEGY AND OVERVIEW
2.1 GOALS AND OBJECTIVES
The goal for SmartShop is to become Merchants’ primary loyalty program. A single, highly effective loyalty
program simplifies administration, reduces costs and keeps customers’ focus on their relationship to the
Merchant. Achieving this goal does not require a radical departure from current industry practices. Rather,
it requires re-channeling existing discounts into a customer-specific model. The initial market entry will be
selling SmartShop as an augmentation to an existing loyalty program or as a trial program for grocers
without existing programs. Over time, as the value of SmartShop is realized, grocers will increase their
reliance on it as their primary loyalty program.
Essentially, SmartShop will be Merchants’ CRM application for managing their customers. As such,
SmartShop must be built with a whole product approach. Models for product development and service
delivery include Siebel and Salesforce; Amazon.com and Netflix; and Visa and PayPal. Because
SmartShop will touch multiple points of Pay By Touch and Merchants, the objective is to keep the level of
customization as minimal as possible. Otherwise, the solution risks being expensive, long to implement
and not scaleable.




2.2 STRATEGIC ROADMAP
SmartShop represents the first step on the road toward Pay By Touch’s Personalized Marketing product
suite. Personalized Marketing leverages the PBT biometric credential to provide Members with relevant
offers and information related to their purchases and interests. The graphic below provides a high-level
strategic roadmap for Personalized Marketing.

Personalized
Marketing

Media
Network
- Advertising

Online
- eCoupons

SmartShop
Mass Merch
Drug
Pet
C-Stores

SmartShop
Grocers

SmartShop: Provide consumers with highly relevant discounts, on the products they like to regularly buy.
Initial release is targeted toward the grocery industry. Subsequent verticals for expansion include mass
merchandisers, drug stores, pet discounters and convenience stores.
Online: Create eCoupons which the consumer can load into their Pay By Touch wallet by clicking on internet
ads. The eCoupons are then redeemed upon purchase via the Pay By Touch wallet at both brick & mortar
merchants and online merchants.
Media Network: Extend the distribution points already in place for in-store, online and mobile communication
of SmartShop and Online. Establish infrastructure for scheduling and distributing messaging to Members
based on their individual preferences.




Pay By Touch Smart Shop MRD

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