Loyal Elmwood shoppers, get out your iPhones!

A new Berkeley company has started a neighborhood merchant loyalty program that they hope will entice people to focus their spending in the Elmwood district.

Gemz, which formally launched two weeks ago, is like a digital version of the Peet’s coffee card (buy 10 cups of coffee, get one free), only it can be used among a number of merchants.

The idea is that a shopper can download the Gemz app and then buy some wine at Vintage Berkeley and get some Gemz points electronically, take their laundry to C & C cleaners and get some more Gemz points, and then redeem those points for something, like a sandwich at Ashby Market or a new picture frame at Frame-O-Rama. Earned points can be used anywhere among participating merchants.

“You get your free stuff faster,” said Eoin Russell, a longtime web and mobile phone developer and one of Gemz’s founders. “Instead of having to buy 10 sandwiches to get the 11th one free you can go to a bunch of merchants.”

So far eight merchants have signed up for Gemz including the ones named above and Boss Robot Hobby, Filippos, College Cleaners and Bill’s Trading Post and Gem Gallery. Gemz officials hope to eventually bring in a large number of the Elmwood’s 117 merchants.

Numerous companies have sprung up in the couple of years to try and snare the local advertising market, estimated by some economists to be $100 billion a year. Most seem to be discount sites like Groupon, Living Social and Facebook Local, that send daily deals by email to hundreds of thousands of people.

But those kinds of sites can be expensive for small merchants, as they use deep discounts to lure in customers, many of whom regard the bargain as a one-time-thing. The coupons don’t necessarily create return business, which is the backbone of a small store’s economy, said Ted Shelton, one of Gemz’ founders

“The more we dug into Groupon and deep discount daily spaces the more it became apparent how terrible it is for local business,” said Shelton. “Yet it is being grasped by local business as a marketing technique because it’s effectively getting people in the door. … But many of the shoppers don’t become loyal customers. They don’t return to the shop.”

The Gemz founders, who include Shelton, a serial entrepreneur who lives in Berkeley, Sam Perry, a former Reuters journalist and frequent investor in Silicon Valley start-ups (who had a moment of fame when Oprah Winfrey cried on his shoulder at Grant Park in Chicago when Obama acknowledged he had won the presidency) and Russell, held a soft launch party last week at Vintage Berkeley to show off the Gemz app. People milled around, sipping a selection of either rose, Malbec, or Zinfandel wine and talked about doing business in a tough economy.

“It seem like it (Gemz) has gotten some traction,” said Matt Stevenson, the wine buyer for Vintage Berkeley. His store offers 1,500 Gemz points for every two bottles of wine sold and 18,000 Gemz points for a case. “Anything that rewards customers for shopping in your neighborhood, either with you or one of your neighbors can’t be bad. I am all about having a healthy neighborhood so we might as well incentivize people to do it.”

Shelton rolled out Gemz in the Elmwood district because it is close to his house and he frequents the shops. The company plans to expand into downtown San Carlos soon and is looking for another shopping community along the 680 corridor, he said. Gemz wants to test-market its product and collect data, both to help the merchants in the program and to have a track record they can bring to venture capitalists, he said.

Merchants will buy Gemz points for a certain amount from the company. When customers redeem those points, the company will buy them back, making about a 10% profit, said Shelton.

For those who don’t have an iPhone, Gemz will soon have a traditional paper loyalty card and will send out local deals via email.

Russell also thinks that Gemz offers an opportunity to create a third social network. People use Facebook to communicate with their friends and LinkedIn to forge professional relationships. Where is the place for neighbors to talk about where to find a good babysitter, what events are happening, where prices are best? There’s not a great mechanism for that, and Russell thinks Gemz might be the vehicle to do that.

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Frances Dinkelspiel, Berkeleyside and CItyside co-founder, is a journalist and author. Her first book, Towers of Gold: How One Jewish Immigrant Named Isaias Hellman...