Feature: Vouchers & gift cards: Prepay day

If you use vouchers in your corporate incentive schemes you will know they work. People’s behaviour can be influenced by the promise or provision of a choice-based gift. If it’s your business to motivate, reward or incentivise people then you will be an expert in using gift vouchers and cards to do this.

But the world of prepay opens up a plethora of other uses that incentives managers need to know about. Prepay is defined as anything that exchanges value now for more value later. And of course value is made up of much more than just money. Gift cards are prepay cards and gifting by consumers is one application of prepay. Gift cards used by businesses for incentive and motivation purposes are another application. Tim Sloane, director of debit advisory services for Mercator Advisory Group, has identified 33 different applications for prepay. What are the remaining 31?

At Prepaid08 in June in London, a conference run by Clarion, Giftex Prepay is leading a stream on retailers’ use of prepay, and you can learn a good deal about them there. Here I will only be able to tell you about two best-practice examples. The first is the use of prepay for businesses to incentivise changes in consumer behaviour.

It’s strange where you find examples of best practice. For instance, the world’s most innovative gift card programme is not run by a department store retailer or fashion house. It is run by a 100 per cent franchised quick service restaurant where a full meal costs less than a fiver – Subway.

Our best-practice example is Mitre 10, a leading home improvement retailer in New Zealand. The company’s progressive management team, on the encouragement of one of the Giftex Prepay Network’s members, Leigh Mardon NZ, launched a gift card in mid-2007. Sure, the cards sold pretty well at Christmas, but it was on Boxing Day that they launched an incentive campaign to die for.

Here’s how it works. Customers buying a 10 litre can of Dulux paint before the end of February received a Mitre 10 gift card to the value of NZ$15 (around £5). The gift card, featuring an image of Dulux’s can of paint, could be used at any Mitre 10 store before the end of March. The promotion was advertised at the end of radio slots and TV ads as well as in local press. There were 65,000 cards printed and, within two months, 50,000 had been issued to paint buyers. That’s 50,000 cans of paint.

By mid-March, 48 per cent of the gift cards had been redeemed prior to the end-of-March expiry date. That is at least 25,000 customers coming to the store to use the card. And the average transaction value when the card was used? NZ$57 on top of the NZ$15 card value. That is a total of NZ$1.5 million.

And the sweet part? The promotion did not cost Mitre 10 a bean. Dulux paid for the card and production. And the NZ$15 gift card did not cost them NZ$15, of course, because with margins of 50 per cent, this constituted a discount of NZ$7.5. Not bad to drive an additional customer visit and almost five times additional sales.

Now the team at Mitre 10 has not yet been able to determine how much of this was incremental business, and how much would have come in anyway. But a promotion that costs the retailer nothing and delivers 25,000 happy shoppers and NZ$1.5m in revenue is a result to be proud of. Let’s look at another example where the incremental spend was impressive. The application is called “third party distribution”. Or in consumer parlance, gift card centres.

Liquorland has won plaudits in New Zealand for its gift card programme. Its cards are sold through a local distributor called Gift Station. The team reviewed sales of cards through Gift Station’s destination retailers where the cards were merchandised. It wanted to find out how many sales were incremental, and how many were cannibalising sales that would have happened anyway. They found that 90 per cent of sales were incremental and 10 per cent would have happened anyway.

That is why in the US, third-party distribution now constitutes almost 20 per cent of all gift card sales, and in the UK, where 11 retailers now have gift card centres led by another Giftex Prepay Network member, InComm Europe, it is now above five per cent of all gift card sales, and heading north.

Prepaid08

Tony Craddock of Giftex Prepay is among speakers from around the world at Prepaid08, the conference and exhibition in London from June 23 to 25.

It covers all aspects of prepaid, mobile, contactless and online payment systems, including gifting, promotions and corporate incentives. Taking place at The Brewery in the City, it features panels and round tables.

The line-up of over 100 speakers is due to include:

• Andrew Johnson, director general of The Va
• Robert Courtneidge, global head of cards and payments at Salans
• Philippe Dufour, chief executive of PrePay Technologies
• John Goodale, director of TSYS
• Colin Greaves, operations director of Newcastle Building Society
• Kieron Guilfoyle, chief executive of 3V
• Matthew Howe, retail giftcard controller at Debenhams
• Bill Jones, retail sales and development manager at The Gift Voucher Shop
• Dave Kennedy, group managing director of The Gift Voucher Shop
• James Le Brocq, director of prepaid cards at Alliance & Leicester
• Jon Levenson, director of commercial partnerships at The Trafford Centre
• Siobhan Moore, associate for cards and payments at Salans
• Steve O’Donovan, regional divisional director at Travelex
• John Sylvester, director of P&MM’s motivation and incentives division
• Kevin Turnbull, chief executive of SpaFinder Europe, Middle-East and Africa
• Lisa Walker, director of prepaid EMEA at First Data
• Rich Wagner, chief executive of Advanced Payment Solutions
• Yvonne West, manager of Sainsbury’s Business Direct

More details at www.prepaid-conference.com