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Street Smarts:The Gifts That Keep on Giving

By Ed Freedman

Continuing education may be a never-ending pursuit, but it will yield never-ending rewards. I hope that you become an expert on at least one new product offering this year. My last column was focused on how to sell check services, and in this column I will explain how to sell gift and loyalty card programs.

Is there an MLS out there who's not aware of the fierce battle raging to attract new merchants and retain existing ones? Savvy professionals who arm themselves with a competitive edge will come out the victors; one of the sharpest and most powerful weapons to wield is a good gift card and loyalty program.

There are many ways merchants stand to benefit from offering gift and loyalty cards in their stores. These items can be a compelling reason for consumers to choose one merchant's shop over another, and merchants using these programs could help retain customers and increase shopping frequency. That translates into you retaining your merchants.

Gift and loyalty programs operate on stored value, which means profits. Take gift cards, for example. These are cash-generating products for merchants that double as mini billboards in consumers' wallets.

With loyalty programs, the goal is to acquire customers and keep them. Merchants can automatically track point balances and shopping activities for numerous reward and incentive programs.

And with merchandise credits, cards are loaded with the exact value of a returned product for store credit; like gift cards, these products keep cash in your merchants' stores and their customers coming back in.

How do gift cards work? Merchants can use in-store displays to promote their gift cards (much like other impulse-buy products found near the point of sale), and customers can purchase gift cards with cash, checks or credit cards for whatever dollar amount they want. That amount is recorded as the "stored value" in the merchant's database.

When a gift cardholder presents the card for full or partial payment of a purchase, the sales clerk swipes the card through the terminal like any other credit or debit card.

Data are transmitted to the merchant's platform via the magnetic stripe that identifies the card number and location of the transaction.

Some companies offer additional value or "reloads" of gift cards. The cardholder can have this done in person at the merchant's location or even by phone. Merchants can offer incentives to their customers to encourage reloading.

One such incentive I know of increases a card's stored value amount by 20%, when the card is reloaded; a $50 reload is recorded as $60 in stored value for the gift cardholder. Now that is truly giving.

For the most part, gift/loyalty cards operate in real time as a closed loop debit network. Card activation, sales, voids-even balance inquires-originate from the point of sale and are transmitted to the host platform.

Just as with credit and debit cards, the transaction is authorized and transmitted through the POS terminal, and a paper receipt is instantaneously produced as a record for both merchant and consumer.

I had the opportunity of speaking with two leaders in the gift and loyalty card space, Secure Payment Systems (SPS) and Valutec. I asked the companies the following questions:

  • MLSs need to have an edge when presenting new products to prospects and their existing merchant clients. What products would you recommend they include in their package?
  • What sets your products apart from others?
  • What are the major selling points of your products?
  • How would you recommend MLSs present your products?
  • How do MLSs benefit by selling your products?
SPS recommends that MLSs include gift, loyalty, check conversion or standard check guarantee in their merchant packages for both prospects and existing clients. MLSs should be aware that merchants have grown weary of typical bankcard sales tactics including postcards, pushy telemarketers and others promising the moon. SPS offers two distinct gift/loyalty card programs. One is a customized card program that provides an affordable, high quality and relatively inexpensive sales tool with proven results for both merchants and MLSs.

The other is one of the best generic card programs in the industry. The company calls it SPSelect, which offers an all-inclusive customizable program (merchants choose from a variety of pre-printed cards and type fonts to have their company name branded right on the card) at one monthly rate (as low as $12 per month), which includes marketing materials, gift card holders/hangers, display rack, signage and transaction fees. There are no statement fees, monthly minimums or additional fees for SPSelect. Steve Eazell, National Sales and Marketing Director for SPS, said the company's products are the "ultimate retention" tools or "merchant crack." Once merchants sign up with a gift card program and load the cards, it becomes virtually impossible for merchants to go elsewhere for their gift card program. This gives MLSs a lower attrition rate for all services sold and, at the very least, it gives MLSs more time to save the account if merchants are on the verge of leaving-a fact rarely known before it is too late.

Eazell said SPS' products are unique and affordable and the company offers superior customer support. SPS is certified on most point-of-sale credit card and debit card terminals including many restaurant ECRs (i.e Micros, Aloha and Digital Dining). And the company said it offers the only truly integrated check conversion and gift card program in the industry.

Valutec, another leading provider of gift and loyalty card programs, believes gift cards are the focus of merchant demand in the marketplace and this focus will continue to be the primary sales driver over the next few years. And, as the market matures, merchants will increasingly embrace other stored value applications such as loyalty and prepaid value cards as a means of building their business.

According to Valutec President Jack Lance, a big part of the value in MLSs using these products is his company's ability to get the job done right for a wide variety of merchant sizes and types.

Valutec has three startup programs designed for distinct merchant types and/or reseller sales objectives. It recommends MLSs consider all three:

  • Jumpstart provides a free 100-card package with no setup fees and a flat monthly rate for transaction processing. It is ideal for small merchants or for sales situations where the zero-cost package is used to enhance the total value of a larger product offer.
  • LaunchBox is a low-cost, 500-card startup package that provides the same "easy-to-sell" attributes of Jumpstart with the option of ordering custom-designed cards in the initial package.

  • The Custom program is intended for larger merchants or MLSs who prefer to build their own package combinations of cards and custom merchandising materials on an "a la carte" basis.
Valutec sells only through ISO and bank channel partnerships, so it is completely focused on the success of MLSs. They have an experienced team of dedicated employees who support the process from sale through setup and then continue providing expertise to merchants via 24/7 customer service.

MLSs have direct access to Valutec's toll free sales support line for quick answers to questions that may come up before, during or after a sale. Valutec's Merchant Setup team makes continuous follow-up calls during every merchant setup to insure that the details are handled.

Valutec's mission is to bring big-merchant product quality and systems capabilities to small and mid-size merchants at price points that merchants cannot achieve on their own. Their card products are the same high-end, press-laminated cards found at Starbucks or Barnes & Noble Booksellers.

Valutec believes the card is the first judgment merchants make about what they've purchased and it's always an advantage to ship them the industry's best. With its complete in-house design team, Valutec is a one-stop shop for just about everything merchants may need to implement, manage and promote their card programs.

The company has invested heavily in its processing systems over the past year. These systems are fully redundant, with continuous backup power generation, multiple firewalls, Web-based transaction processing, real-time transaction activity reports, and automated, multi-location funds management.

A new merchant-controlled program management interface allows merchants to directly change the functionality of their various card programs at any time via the Web.

Valutec said that gift and loyalty card programs are proven revenue generators for merchants. All of their programs include the ability for merchants to add loyalty card, prepaid and promotional card programs with no increase in base monthly cost.

Another selling point is the set up speed and ease. The Jumpstart and LaunchBox programs can get a merchant up and running with 100 to 500 personalized cards within 5 to 7 days of receiving their Merchant Setup Form.

The reason gift cards are such a "sticky" product is that when merchants sell gift cards, they don't know if the recipients will use the cards tomorrow, next month or three years from now, the company said.

The merchant has an ongoing need to keep all of those cards "live" on a long-term basis and is usually reluctant to change any aspect of their credit or gift card processing arrangement.

Valutec says small-merchant gift card programs generate sales commissions of $99 to $250 and provide a compelling reason for merchants to buy a new terminal. Residual income is significantly improved as well.

Under either of Valutec's flat fee programs, the average small merchant account generates $15 to $20 per month, which represents a 25% to 50% increase in residual profitability to the MLSs per merchant location.

After speaking with these two companies, I asked MLSs for their views on gift card and loyalty programs by posting the following questions on The Green Sheet's MLS Forum:

  • What benefits do you get from offering gift and loyalty card services?
  • Do you do it for financial gains or to improve customer satisfaction and retention?
  • If you don't sell gift and loyalty card services, what is the reason?
Here are some of the responses:

"I have found that it is a better way to approach businesses that are already accepting cards. Just another value added service that sets you apart from your competition. I would rather earn their business than allow someone who can offer gift cards to come in and take it away from me. Rule of thumb: 'If you don't offer it they will find someone who will.'" -MerchantFG

"We're just releasing our own proprietary, IP gift card system that we're offering to our merchants for FREE. No monthly cost and no transaction fees, with real-time Web reporting. In fact, the merchants can even print their own cards. We're doing so to add value and to beat up on our competitors that are offering expensive third-party solutions. FREE has a certain ring to it." -jbkatz

"One thing that merchants must realize is that gift cards are a long term vision, they must be aggressively marketed and incorporated into every bit of advertising-they won't sell themselves. Merchants wanting to just try it out with a minimum order of 100 cards or so are wasting their money and time. A 100-card order is not even enough cards to meet the minimum-processing requirement (around $25).

"I don't like to lead with credit cards, as everyone and their brothers have been there before you. Once you have a gift card or loyalty card program in place, it's almost a shoe-in for the credit card processing when the present agreement expires. Offer for financial gains, you bet. Improve customer service? Of course, but retention is the #1 goal." -credibex

"The biggest problem with gift cards is equipment. If there were a way to get it to work on a Hypercom, it would be great. Merchants are tired of paying for new equipment. I know a few companies have been able to do this. If the Hypercom worked liked the Talento where you can add additional services without getting the processor involved that would be great for the MLS. Hypercom has software that does this, but the MLS has no access to this software.

"And giving gift cards for free or anything free to the merchant does not build value with your merchant. They will end up in a drawer and not used. And selling them 100 gift cards is a disservice." -cc guy

I agree with both SPS' Eazell and Valutec's Lance that gift/loyalty cards are a great entree. A gift/loyalty card program is really a perfect way to get a conversation started with a merchant. It's something they see big retailers doing (i.e. The Gap, Circuit City, etc.).

It's a relatively new idea that, in all likelihood, they've not tried yet but want to. It gets a conversation moving easily since it's all about how they can increase their business. You immediately become a business consultant. This is a much better approach than starting the conversation with, "What's your current discount rate with your credit card processing provider?"

I agree that these programs can be terrific merchant retention tools. If properly sold, a gift/loyalty card program will become your own merchant loyalty program. Any merchant using these programs won't want to switch credit card processing providers. Period.

Finally, let me give you my opinion on a key issue. In the MLS Forum, ccguy commented, "...giving gift cards for free or anything free to the merchant does not build value with your merchant. They will end up in a drawer and not used. And selling them 100 gift cards is a disservice."

I agree with this statement. The secret to marketing gift/loyalty card programs is to get your merchant committed to the idea as well as the program. If you were an advertising salesperson for your city's local newspaper, you would not make a presentation to the owner of a retail store to run one ad for one day.

You'd likely figure out a budget for a six-month period of time, pick out a good-sized ad that will have an impact and then run it regularly (e.g. a few times a week, or every day, for six months). That's a plan that provides a higher level of success.

At the end of the six months, you can go back to that business owner with confidence about renewing the contract or increasing their commitment for additional newspaper advertising.

Well, gift card/loyalty products demand the same approach. These are advertising and marketing programs. All successful business owners know that to make any operation work, they must make a solid commitment to the idea. You need to use this approach when explaining gift card and loyalty programs to your merchants.

However, if they're not ready, do not sell them anything. Do not get them started for $10 or $50 or $100 with 100 cards. Tell them that you're a consultant and, in all honesty, you cannot recommend these programs to anyone who does not have a serious commitment because this is the only way to make gift cards and loyalty programs work.

It's a proven closing technique-the notion of "you can't have it." Yes, you want to be a salesperson with consultative selling techniques, but you also need to have a few tricks up your sleeve to make sales happen. This is a great one.

Learn the products and services. Come up with quality programs that will achieve results for your merchants. I guarantee that will translate into your own best merchant loyalty program.

I would like to thank both Valutec and Secure Payment Systems for their invaluable contributions to this article. My next column will focus on another hot topic at the value-added products water cooler-wireless payments. Look for my upcoming post on the MLS Forum. As always, I'd love to hear from you. Please send your comments to streetsmarts@totalmerchantservices.com.

"We shall not fail or falter; we shall not weaken or tire...Give us the tools and we will finish the job."

- Sir Winston Churchill

See you next time where the rubber meets the road.

Ed Freedman is founder and President/CEO of Total Merchant Services, one of the fastest-growing credit card merchant account acquirers in the nation. Ed is the driving force behind all business development activity as well as the execution of Total Merchant Services' marketing plan, including recruiting and training independent sales offices and establishing strategic alliance partnerships with leading vendors, so that Total Merchant Services can provide its customers with the highest quality and most reliable services available.

To learn more about Total Merchant Services, visit the website at www.totalmerchantservices.com. To learn more about partnering with Total Merchant Services, visit www.upfrontandresiduals.com or contact Ed directly at ed@totalmerchantservices.com

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