Merchants are always looking for novel ways to incentivize consumers to shop, and shop more often, at their stores. A new report from 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 merchant type. "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." Smaller operations, such as horror shops, nail salons and family restaurants, can also take advantage of gift card giveways, Aufseeser added.
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 the most popular prepaid card offer continues to be the retailer-specific, closed-loop gift card.
Aite said 89 percent of merchants surveyed 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.
Aite also found the least popular offering 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; 11 percent indicated they plan to add GPR cards 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 drives 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 offers relevant to them. The mobile wallet is seen as the presumptive next step in loyalty marketing. However, the mobile wallet adoption curve for consumers is long, Aufseeser 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.
Aufseeser 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."
A retailer such as Starbucks with a large and frequently recurring customer base is a prime candidate for having its own wallet. For merchants who don't have this type of customer base, a dedicated wallet makes less sense, Aufseeser noted.
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