The rapid transformation of the telecommunications superhighway hasn’t come without its share of potholes, detours and a few roadkill carcasses.
Just five years ago, after all, longdistance cards dominated sales of prepaid items in the nation’s convenience stores, truck stores and travel centers. The proliferation of wireless phones and the vast network that supports them, however, turned that trend on its ear, according to David McClure, director of marketing for Petro Stopping Centers (El Paso, TX).
"The category for us originated-with the telephone and vending machines for our cards," says McClure. "Our truck stops used to have a huge number of pay phonesmaybe 20 pay phones and two or three card-vending machines per store. But in the last five years, the customer base has switched from cards with 800 numbers to cellular phones. We probably lost 90% of our long-distance revenue, and as that happened, prepaid sales in our vending machines dropped."
The consumer, the technology and the market have changed, but Petro has moved right along with them.
"We’ve since gone to wireless products sold over the counter," McClure says. "Some [truck drivers] have two phones: one for business and one for personal use. But that businesseven with the high price point of the wirelesshandsetsstill has not made up for what we lost in long distance."
But Petro has labored to further diversify its product mix and drive sales through the prepaid categoryin the store, at the pump and in the dining room. Petro, which has 62 locations in 31 states, has worked with Mundo Communications (recently acquired by Coinstar) to develop prepaid gift card programs for its stores and restaurantsreplacing all paper gift certificates. Cards are "dead" until activated at the point of sale, relieving the company of the burden of carrying live inventory and, therefore, leaving stores free to merchandise the cards throughout their facilities.
McClure says the restaurant card is a traditional gift card, redeemable only at Petro’s Iron Skillet restaurants, while the Petro Cash Card can be used anywhere on site. The gift cards can be loaded in increments of $10 and $25, while the cash card can be loaded with up to $500.
"We developed the program internally, and we run it internally," McClure says. "It was a very inexpensive way for us to get into the business, because our program is not a bundled approach; it’s a per transaction fee program. Every time we swipe the card there’s a transaction fee involved. We buy the cards and produce them at cost, while Mundo charges a transaction fee, as opposed to paying all the costs up front."
History in the making
Petro launched the new cards in the second half of 2004 and put on a heavy marketing push around the Christmas holiday season. It advertised in trucking magazines. It produced and bought some radio spots. It promoted the new prepaid cards on its corporate Web site. It sent out direct mailers to its "heavy users" group.
"Our initial few months of sales exceeded our expectations," McClure says. "Now we’re starting to see business-to-business sales pick up. Fleet trucking companies are giving them away as incentives for drivers, safety awards and anniversaries. Other companies are giving them away as gifts for employees."
Petro is right on trend. Gift cards are becoming the preferred choice for companies looking to motivate, retain and reward employees and customers, according to a new study commissioned by ValueLink. Roughly 40% of the 460 corporate incentive program decision-makers interviewed for the study said they had used gift cards (or gift certificates) as incentive items within the past year. What’s more, 41% of the study respondents said they would "definitely" or "very likely" use gift cards as incentives in the next 12 months. Another 18% responded "somewhat likely."
As it moves forward with its gift cards, Petro is also taking a look at other prepaid items, including a prepaid MasterCard and perhaps a " prepaid mall" concept, offering gift cards from other non-competing retailers. But the chain admits it’s being careful.
"We have fairly limited experience with gift cards," McClure says. "We’ll make some decisions from here to offer other competitive cards and programs. But we’re in the fuel and store and restaurant business, and we want to see how our own cards go.
"As for the prepaid mall," he continues, "if truck drivers are buying gifts for someone back home, it might make sense. But we’re looking at rolling out the MasterCard program some time this year; it really makes sense, especially when you have a credit-challenged customer base."
Sell for other retailers
No one could ever call the convenience store industry stingy. Convenience retailers are getting extremely generous, in fact, by allocating counter space, endcaps and other displays to items that can boost the bottom lines of other retail chains. And, no, they haven’t lost their minds.
Enter the "prepaid mall." Manufacturers like InComm (www.incomm.com) and Coinstar (www.coinstar.com) have developed comprehensive programs enabling convenience retailers to sell gift cards from other, non-competing retail chains.
It’s not uncommon to walk into a convenience store these days and see a point-of-sale display offering gift cards for Blockbuster, T.G.I. Friday’s, Olive Garden, Bass Pro Shops, Lowe’s and other major chains. The profit margin per sale typically is less than 10%, but even 5% of a $50 gift card salewhich probably isn’t that uncommon around the holidayswould make any convenience store owner grin with delight.
This development represents a tremendous opportunity for "host" retailers, as the retail gift card marketwith estimated sales of $79 billion in 2004is expected to grow to $132 billion by 2008, according to the Pelorus Group. Host retailers want the big brandslike the Dunkin’ Donuts (bad example) and Costcos of the world (okay, an even worse example)but they can also benefit from offering cards for local brands as well.
Some proactive "mall" providers pound the pavement to sign up local retailers such as department stores or sporting goods retailers to further customize lists of prepaid display "tenants." Arrangements may differ by provider, but retailers generally have the option to choose the cards they wish to carry and swap them out often to maintain an accelerated level of sales. Furthermore, the gift card partnersor the "guest" retail chains whose cards are being soldoften need to approve the host retailer to sell the cards.
Aggressive promotion remains the key to driving the growth of such a unique program. Chandilyn Fast, director of marketing for InComm, cites a case study in effective promotional efforts: Two chainsone with 1,100 stores, the other with 400both sold roughly the same number of gift cards over the same period of time. The difference, she says, was that the chain of 400 stores advertised the service on pumptoppers, at the stores’ main entrance, and on POS fixtures, thereby maximizing the "face time" for this highimpulse segment.