Prepaid Commerce Strategies to Help Your Brand Grow

By Gerry Gilbert, Vice President, Product

How to use incentives and promotions to get the results you really want.

Prepaid Commerce combines gift cards and loyaltyDifferentiating your brand from competitors and delighting customers are two sure fire ways to succeed in the marketing-saturated retail industry. However, achieving this can be a huge challenge, pushing retailers to get creative in finding ways to cultivate and retain loyal customers. While traditionally retailers have turned to discounts and coupons as tools to accomplish this, this method can hurt profitability and depreciate a brand’s value, a lose-lose situation for everyone. Fortunately, there’s a great alternative for retailers looking for a fresh strategy to engage shoppers and drive sales: prepaid commerce.

Prepaid commerce combines the use of digital gift cards with incentives, rewards and loyalty programs (think Starbucks rewards or CVS/pharmacy’s ExtraCare program). This can be especially effective in the form of stored value on a gift card; one only needs to look at consumer spending habits for proof. Industry data shows that, on average, gift card holders overspend the card’s value by more than 45 percent, thus increasing revenue beyond the initial gift card purchase. This makes a little bit of “digital incentives” go a long way.

Additionally, gift card purchases typically involve two parties—the buyer and the recipient—which presents more opportunities for return visits to the store than a traditional promotion that is marketed to just one shopper. This is especially effective when executed as a promotional offer to incent shoppers. On the other hand, markdowns, discounts and coupons are rendered at a lower margin and leave little potential for future upside.

For example, a coupon for $20 off a purchase of $100 or more results in the sale of $100 in merchandise, while costing the customer $80. However, an offer of a $20 gift card with a purchase of $100 or more results in the sale of $100 in merchandise and a return trip to the store during the promotional period to take advantage of the $20 gift card. This builds both sales and customer loyalty through increased purchases and future store visits.

While this is all well and good, gift cards are just one part of the prepaid equation. In fact, there are many other successful commerce-related objectives that prepaid commerce can help retailers achieve. For example, employees can be motivated with gift cards; gift cards can be used in loyalty programs to reward customers or drive specific customer behavior; warranty claims on broken appliances, like a dishwasher, can be fulfilled with gift cards. Even customer service issues can be remediated with gift cards. Many merchants are already successfully using gift cards for each of these purposes. Increasing incremental customer visits both in-store and online and increasing gift card redemption rates.

Incorporating prepaid commerce into an overall business strategy is a more personal, measurable and cost-effective method for retailers to find, engage and retain customers. Here are a range of ways retailers are using prepaid commerce to their advantage:

  • Gift registries are a prime entry point for customer acquisition. A home goods retailer ran a campaign aimed at getting consumers to create a gift registry. Instead of its traditional discount approach, the retailer used a $25 prepaid card as the incentive. The campaign was a success and resulted in 5,000 new client acquisitions.
  • Some retailers rely on trade-in programs to drive customer engagement, and trading gift cards for pre-owned merchandise is an efficient and strategic way to drive new sales as well as repeat purchases. For example, a big box retailer ran trade-in programs for both mobile phones and video games, and found that consumers typically redeemed the gift card toward a new phone or video game purchase immediately.
  • An apparel retailer recently ran a gift card offer against a coupon offer with twice the value in a reactivation campaign. The gift card outperformed the coupon with a significantly higher response rate, net sales and margin.
  • As a way to drum up foot traffic during the slow post-holiday season, a major restaurant chain offered a promotional gift card for a free dessert when customers purchased $25 or more in digital gift cards. The post-holiday promotional card redemption period drove the gift card purchaser—not just the recipient—to the restaurant during a traditionally slow season. This prepaid commerce strategy resulted in increased digital gift card sales and drove visits to the restaurant during its slow season.
  • Some merchants issue digital gift cards to resolve customer service issues “on demand” and fulfill warranty and product replacement requests. This approach empowers retailers to build goodwill and to not only remedy the problem at hand, but prompt further engagement and future purchases from an otherwise unhappy customer.

Because shoppers can tie prepaid commerce programs to their smartphones (something that’s typically with them at all times), there’s never a worry that they forgot or misplaced a physical gift, loyalty or bonus card—it’s all right there on their mobile device. This also enables them to receive relevant offers and reminders of their stored value on the card. This is leading more retailers to explore mobile integration for their loyalty programs. In fact, according to a study from Juniper Research, 1.4 billion loyalty cards were mobile-only or integrated into mobile apps. The research company forecasts this will rise to three billion cards by 2020.

For retailer marketers, prepaid commerce is not only a nice-to-have, but it’s becoming a must-have given its ability to maximize profits without depreciating the brand. Now, more than ever, retailers should examine their customer lifecycle to see where and how prepaid commerce can enhance the customer experience, build loyalty and drive sales.

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