The 2011 prospecting window is closing. Very soon, if they haven't already, merchants will go on lockdown as the holiday shopping season ramps up. Though time is short, it's not too late. Just as ISOs and merchant level salespeople (MLSs) want to land new business this autumn, merchants themselves are eager to find solutions that will give them an edge over competitors before the holidays arrive.
Nothing is assured in merchant services. However, the value proposition for prepaid and stored-value programs remains strong. As the holidays near and merchants turn over and over in their minds how to make that hoped-for holiday sales figure, conveying to them the benefits of gift card and loyalty programs could make the difference between a polite no and a merchant contract signed on the dotted line.
One intriguing selling opportunity available in advance of the holidays is SparkBase's Paycloud. It's a loyalty and rewards application that takes advantage of existing technology resident on smart phones to enable the contactless redemption of loyalty and discounts at merchant locations.
Therefore, it leverages a form of near field communication (NFC) technology without consumers needing to have smart phones with embedded NFC chips and merchants needing to invest in expensive upgrades of POS terminals.
Paycloud involves an app free for download to consumers' Apple Inc. iPhones and smart phones that run on Google Inc.'s Android operating system. The app transforms the devices into mobile wallets with the capacity to store and update individual merchant offers.
Merchants invest in inexpensive sensors that plug into the back of POS devices. To redeem offers, consumers with the Paycloud app open on their smart phones tap the phones on the sensors.
Paycloud scored technology innovation awards at the 2011 Electronic Transactions Associations' Annual Meeting & Expo in May 2011 and at the Midwest Acquirers Association conference in July.
According to Douglas Hardman, Chief Executive Officer at the Cleveland-based gift and stored-value account processor, Paycloud has been in pilot test at about 25 merchants in the Chicago suburbs of Lincoln Park and Andersonville since July.
In the first few days of the pilot, about 500 consumers downloaded the app. By the end of the first week, several thousand transactions had been processed, representing over $20,000 in offers redeemed. "It got a little bigger than we thought it was going to real quick," Hardman said. "The reception was just fantastic."
SparkBase is launching Paycloud nationally on Oct. 27, 2011, when the processor's approximately 140 ISOs will begin pushing the product to their merchants. By year's end, Sparkbase expects Paycloud will be live at over 3,000 merchants nationwide.
Getting merchants set up on Paycloud takes about 72 hours, according to Hardman. "So from the time they say yes to the time they have a sensor in their store working, and their app is working, and their artwork is live on our site, is less than three days."
Thus, merchants of SparkBase ISOs can be enticing consumers with discounts and special offers weeks in advance of Thanksgiving. "They're getting their programs fast, and when you walk into that store and you boot that app up, it's going to take you directly to their card and it's going to show you all of their current offers," Hardman said. "From your house you can see where the offers are before you leave.
"It's really replacing the act of swiping a card into the terminal. It's replacing the act of handing a card to a customer. We're replacing the need for a merchant to spend a lot of money on cards.
"It scratches a bunch of different itches and we think that this holiday season is really when people are going to understand the power of the mobile wallet, especially in and around stored-value."
Not on the leading edge of proximity payments but nevertheless constituting a profitable and growing trend in the agent realm, is closing merchants using card-based loyalty programs. "Merchants aren't really in tune anymore to the 'I can save you money' pitch," said Marc Brown, owner of South Florida-based BlueStar Loyalty.
"[With loyalty] you're leading with a product they're not getting three to five phone calls a week about. And that they're not getting bombarded with.
"They are starting to see it more and more out there in the marketplace and wondering why so many businesses are starting to use loyalty. So the product as a whole is getting a lot of street exposure at this point and time.
"When you do end up being the guy that knocks on their door, or rings their telephone, and you mention loyalty, they are at least willing to take that first meeting. And really that's the big key to getting started."
Using this strategy, selling basic bankcard processing services becomes more of an afterthought, with ISOs only having to match rates with the merchant's current processor. As the holidays approach and urgency grips merchants, the benefits of loyalty are enhanced.
"What I try to tell merchants, especially as we get closer to the holidays is, even though it seems like it's a little bit later in the process, a lot of merchants are going to get more people through the doors between that second week in November and the last week in December," Brown said.
BlueStar Loyalty can get merchants up and running with gift and loyalty card programs inside 30 days, according to Brown. From the agent perspective, Brown's solution is geared toward the one-call close and focused on how loyalty can more deeply "brand" consumers to individual merchants.
"There's a lot of automation to it," he said. "There's a lot of functionality to it that shows not only how they're going to get their existing customers coming in more often, but we show them how it's going to build them word-of-mouth marketing for their business, how it's going to prevent customer attrition, all different kinds of things."
Conventional wisdom holds that the best time to approach merchants is before Labor Day, when business is often at its slowest for merchants not involved in summer season-related sales, and they have time to plan for the holidays. However, believing it's never too late might be the better approach, since it worked for Adam Guthrie.
Guthrie is owner of Cardpay Systems Inc., a one-man shop in Southwest Florida. He has been selling BlueStar Loyalty solutions since late 2009. Using loyalty as his lead, he walked into a cigar bar this September and closed the account in three hours.
"My whole approach with it is times have changed," he said. "Traditional marketing doesn't work the same way it once did. How many people do you see out there that aren't holding a cell phone? And checking their emails? And checking their text? These are the people we're targeting to get into your business."
A crucial moment in Guthrie's pitch is when he discusses word-of-mouth marketing. He says, "Business owners tell us that it's their best form of advertising. Would you agree, Mister Merchant?" Usually, the merchant agrees, at which point Guthrie says, "OK, how do you track it?" Then Guthrie remains quiet, letting the question sink in.
Guthrie said the query tends to elicit a lightbulb moment for merchants as it makes them question how, in fact, do they track word-of-mouth marketing. "It is amazing the facial expressions you see on merchants when you hit them with that," Guthrie noted. "It's humorous at times.
"You kind of put them on the spot a little bit. But it gets them thinking: 'Maybe I need to be doing this [loyalty] to see how my word-of-mouth marketing is going.'"
By capturing cardholder data at enrollment, then at each store visit, merchants can leverage all kinds of loyalty information - such as average ticket sizes, shopping frequency, and days they came in and at what time - to develop discounts and two-for-one offers sent via email or text message to get customers to return, and to return more often.
"It's unlimited the amount of reports you can run, and you really can piece out your client base," Guthrie said. "It's amazing about the amount of information you learn about your customers."
Guthrie doesn't lead with gift cards because he has found the loyalty angle to be much more popular. He estimates that 90 to 95 percent of his merchants want the loyalty program, with the remaining percentage opting for gift cards. "I have a customer, and he did 1,000 loyalty cards in three weeks," Guthrie said. "I couldn't even print a second round of 1,000 fast enough for him."
Nevertheless, gift card programs should never be underestimated. If an agent asks a prospect about gift cards and is told, "Yeah, we've got gift cards; they're sitting in a box in the back room," that might be more a reflection of poor education by the merchant's current processor than of the value of those cards if they were displayed and marketed appropriately.
As Teri Llach, Chief Marketing Officer at Blackhawk Network, said - gift cards work. "There's just no doubt, given the sheer number of gift cards that are out there in these third-party retailers, that this works," she said.
The gift card mall concept invented by Safeway Inc. subsidiary Blackhawk has proven to be a key driver of gift card growth, according to Mercator Advisory Group. Llach said it has been documented that merchants who integrate malls stocked with closed-loop, retailer-specific gift cards enjoy increased sales.
"We know in grocery that when we put these programs in, we become either the number one or number two on a per-square-foot basis selling category in the store in dry goods," she said. "I'm talking about beating out salty snacks and soda."
The value to retailers is threefold: the cards take up a very small square footage in stores; the cards create no inventory on balance sheets; and name brand cards have proven especially popular with consumers, making stores that carry them a destination for shoppers looking to purchase gift cards for others.
"You're putting up great brands, like Best Buy, iTunes, amazing brands," Llach said. "They're hanging there, very small square footage with no inventory costs - a big, fat win."
Given the times we live in, gift cards have even become budgetary tools used to reduce living expenses. Llach said a trend has developed where grocery stores partner with gas stations for discount fuel offers.
For example, a customer that buys $200 in gift cards may get a 40 cent per gallon discount at a local gas station. "And that has become a real big win, win, win," Llach said.
Armed with this information, ISOs and MLSs with convenience stores and gas stations in their portfolios might be able to make their merchants' holiday seasons a little brighter.
As for mom-and-pop stores, Llach believes such businesses are missing out if they aren't selling gift cards. It might be a challenge to get them set up in time for the holiday season, as integration with the merchants' POS systems could represent a roadblock.
But Blackhawk has made it "easy as pie" to connect POS systems to "every processor known to mankind," Llach said.
Llach noted Blackhawk does not operate a reseller channel but has relationships with many U.S. wholesalers that could accommodate small retailers with tailored gift card malls. She said, "So the good news is, if I saw a mom-and-pop, I would say, 'Ooo, you're missing out because the Safeway across the street has this.' But I would also say, 'Guess what? You can get it. Contact your wholesale group, and you can get this. And that's a good thing.'"
The American mindset is a contradictory mixture of immediate gratification and procrastination. We want things now, not five minutes from now. But when we want it, we're often five minutes too late.
Hardman said, "Every year we preach to our ISOs, 'Guys, sell them cards now. I know they're not thinking about it in August, but they need to be.' What happens is they call November first, saying, 'Hey, we need gift cards for the holidays.' Well, Target is printing 40 million gift cards for the holidays.
"Do you think the printer is going to take Target's 40 million order or Joe's Mini Golf 500 order?
"So, what happens is they get put to the back of the line, and you end up with a ton of [upset] merchants and you end up with a ton of [upset] ISOs because they didn't think about this in advance."
Now is an opportune time to enroll merchants in programs that will help them make the most of the upcoming holiday season, as well as the year ahead. Remember, the right solutions might just be a vendor away.
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