Friday, May 9, 2014
In the never ending quest to increase revenue and keep customers loyal, merchants are always on the lookout for novel ways to incentivize consumers to shop, and shop more often, at their stores. A new report from Boston-based consultancy Aite Group LLC spotlights prepaid card strategies that have proven to be effective in promoting loyalty and incremental lifts in sales.
The April 2014 impact note, Prepaid Mania: A Merchant Affair, said merchants are beginning to push gift card programs more aggressively, and with good reason. Aite reported that the U.S. prepaid card sector is now a $200 billion market, comprising roughly 5 percent of all retail purchases. And merchants have keyed onto this trend.
"They really embrace it," said report author Madeline Aufseeser, Senior Analyst at Aite. "When you see what has happened with prepaid cards from a retailer perspective over the last couple of years, we've gone from a couple of cards hanging on J hooks to major displays, sometimes multiple displays in a store. It's becoming like the cereal aisle or the soda pop aisle."
For ISOs and merchant level salespeople, the type of prepaid card, and corresponding program, should be predicated on the type of merchant. "I think there are certain strategies that are going to work in certain environments and other strategies that are not," Aufseeser said. "So, it depends upon the retailer and what they do and how they do it, and what their goals are."
Aite's research disclosed that 46 percent of merchants surveyed view gift card giveaways as a top strategy to implement over the next 24 months. Aufseeser said promotional programs via which merchants give away $5 gift cards, for example, have proven to be an effective strategy for certain types of retailers, including big-box stores, electronics retailers, quick service and casual dining restaurants, and department stores.
"Those kinds of merchants would fare very well by giving away a gift card as an incentive, because the consumer is going to come back," Aufseeser said. "If you give away a $5 gift card, the consumer is going to come back and spend seven or eight dollars. They're not spending five bucks."
Even smaller operations, such as horror shops, nail salons and family restaurants, can take advantage of gift card giveways. "As an inducement to get the customer to come back, they'll get that back in spades," Aufseeser said.
In partnership with gift card distributor InComm, Aite surveyed 35 executives at a variety of national and regional retailers in the fourth quarter of 2013. Aite found that by far the most popular prepaid card offer continues to be the retailer-specific, closed-loop gift card.
Aite said 89 percent of merchants surveyed now offer closed-loop gift cards, followed by 74 percent who offer open-loop, general-purpose reloadable (GPR) cards, and an equal number who sell their own branded, closed-loop gift cards. Open-loop, network-branded gift cards were also popular, at 71 percent of retailers.
In addition, Aite found that the least popular offering, by a far margin, was a merchant's own branded open-loop gift card product, with 74 percent of respondents saying they had no plans to offer such a product. Meanwhile, GPR cards were cited by retailers as the category they were most likely to add, with 11 percent of merchants saying they plan to add that offering in 2014 or 2015.
Aufseeser said 90 percent of consumers remain anonymous to the merchants they frequent. It is therefore the "holy grail" for merchants to be able to collect a little personal information at the POS about their customers. "Using a merchant-branded prepaid card supports that goal by providing insights to the merchant and ultimately drive more sales," the Aite report said.
Loyalty cards are a way to accomplish this, allowing merchants to marry cardholder data with purchase data to target customers with customer-specific offers. "The Target RED card is the prime example in the market today," Aufseeser said. "Because it's issued by Target, Target knows who those consumers are when they shop, and they can track not only the payments information but also the SKU [stock keeping unit] level data together." With that information, consumers receive more relevant offers based on their purchase histories, she added.
The mobile wallet is seen as the presumptive next step in loyalty marketing. However, "we're not there yet," Aufseeser said. The mobile wallet adoption curve for consumers is a long one, she stated. But when consumers are ready to make the transition, merchants must offer the right mobile solutions based on their type of business and the preferences of their consumers.
Aufsesser believes the mobile wallet ecosystem will consist of a combination of general-use wallets and merchant-specific ones. "I'm not going to want to have an application on a wallet for every single company I do business with," she said. "I might want to have a general one. And I might have one or two specific ones. But I'm not going to want my phone cluttered up with a whole bunch of them."
A retailer such as Starbucks with a large and frequently recurring customer base is a prime candidate for having its own wallet. However, for a merchant where recurring customers are less common, a dedicated wallet makes less sense.
"These strategies are very specific to the categories of merchant," Aufseeser said. "I think it is incumbent upon the ISOs to understand who their merchant is and who they cater to and what their specific needs are."
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