November 05, 2004

Prepaid Case Studies

As the category expands to include more offerings, retailers require a POSA solution. Nice article.

On a daily basis, the demand for prepaid products at retail increases. Mechants are finding that if they don't don't offer the latest and greatest, customers will go elsewhere. While many large retailers have already integrated a point-of-sale (POS) solution to sell prepaid telecom and other prepaid products, many smaller chains and independents across the United States are now jumping on the POS bandwagon and investing in technology. Many are realizing it's a necessity, not an option.

The emergence of prepaid wireless now drives the need for a POS solution that offers customers a choice of wireless providers and product offerings. The following case studies demonstrate the different ways in which providers are delivering customized solutions to ensure their retail customers can compete effectively.

Case study #1
Supplying the demand
Prepaid wireless forced the issue to deploy a POSA solution

Simple Network Inc. is a switched provider of international phone cards that built its success on servicing the ethnic phone card market specifically, callers to India and Mexico. By 2003, Simple was servicing 15 distributors throughout the United States and six internationally, which represented thousands of retailers. In November 2003, the company acquired SKP, a leading distributor that gave the company direct control of 1,500 retailers.

At that point, Simple was receiving many requests from retailers for expansion of their prepaid lines to include the rapidly growing category of prepaid wireless. Until then, Simple's business had been entirely "cash and carry," with retailers paying in advance for live phone cards.

But with the dollar amounts associated with carrying six leading wireless carriers' brands, each with retail denominations ranging from $10 to $100, even retailers who were demanding prepaid wireless were reluctant to pay in advance the high dollar amounts needed to carry the inventory.

"For years, we ignored POSA, despite requests from some of our accounts," says Kulwant Shahi, vice president of Simple Network Inc. "But since prepaid wireless has become so popular, POSA is now a requirement."

Shahi reviewed the list of POSA providers, performed due diligence and selected KwikSystems. The reasons that he cites for the selection include reliable and proven technology that is "retailer friendly." "KwikSystems' solution can be used on the retailer's own existing equipment, so there are no special terminals to lease or buy, and the reporting system lets me track the details of every sale by store location," Shahi says. He adds that since the introduction of POSA in April 2004, there has been a sales increase of 10 percent.

"By the end of this year," Shahi says, "we will have more than 15,000 locations on POSA. It is clear that point-of-sale activation is a must for anyone who wants to stay in this business."

No limitations

Shahi says that POSA allows for the introduction of new prepaid products including prescription and health care discount cards, emergency roadside assistance, residential long distance calling, prepaid MasterCard, gift cards, online music downloads and online DVD movie and video games more than 20 products in all.

"The ability to display a wide range of cards on a single display rack any place in a store without the fear of card theft has made the products highly visible for impulse sales," Shahi says. "That alone generates higher sales revenue. Not all products are appropriate for all retailers, but having such a full line makes us an even more valuable source for our accounts. More and more of them are seeing that the benefits of POSA outweigh their original preference for cash and carry."

Nils A. Shapiro contributed to this story.

Case study #2
Team and conquer
Piggyback approach pays off in reaching Canadian market

When Vancouver, Canada-based Vendtek Systems Inc. created the e-Fresh suite of software applications to service prepaid telecom products, the initial play was licensing the software. When that proved a challenge, the company created the distribution subsidiary Now Prepay. "For us, it's all about the software application and not the hardware," says Doug Buchanan, president of Now Prepay. "Our goal was to deploy our software applications in a variety of terminals throughout Canada."

Buchanan explains that his company was not interested in building a sales team to go out to every retailer and sell terminals, so his company aligned with Tier 2 independent service organizations (ISOs), working with approximately 40 in the Canadian market. "We told the ISOs that we would provide a value-added software application that co-resides with the payment application in the POSA terminal and that we would share a percentage of our margin with them," Buchanan says.

At the current time, the prepaid offerings include prepaid wireless, prepaid long distance cards and prepaid internet. In December, the company will be offering prepaid music download cards. Due to banking regulations, Buchanan says prepaid MasterCard and Visa cards are not yet available in Canada.

According to Buchanan, the benefit for the ISOs is they could offer a single POS terminal that not only processes debit and credit, but prepaid telecom and other value-added services as well. From the start, Now Prepay had its sight set on reaching the independent c-store channel in Canada where prepaid telecom products sell well.

Many of the smaller retailers were limited in their prepaid wireless offerings and only able to sell single price points. Now Prepay is able to offer a wider selection as well as long distance cards in every price denomination. "In essence, we offer retailers a limitless supply of inventory," Buchanan says. He explains that the retailers don't miss a sale, no monies are paid in advance, a stand-alone additional terminal is not required, and the staff can't pilfer. Once a terminal is installed, the churn rate goes down, and retailers experience revenue increase.

Besides c-stores, the ISOs call upon all retail locations carrying a credit card terminal. These include laundromats, gas stations, hair salons, school book stores, dance studios and even funeral homes.

Since teaming with ISOs 20 months ago, Buchanan says that Now Prepay has the most distribution points of any other competitor delivering electronically. "The benefits are that the ISOs can get into places we couldn't ourselves, and they provide customer service. It's more like a boutique approach."

Servicing chain stores, too

The company claims success as well working with the gas station chain Esso in Canada. Like most chains, they have a centralized payment system. Buchanan says the chain wanted to place more effort in the prepaid category, but integrating prepaid software into the central system would mean working with the chain's IT department, which would take two to three years. "Once you start placing prepaid applications alongside payment applications, there are rigorous certification issues with banks in Canada," Buchanan says.

Esso decided to offer prepaid products independent of the central system, and to date, Now Prepay has placed inexpensive terminals in 400 stores and plans to furnish approximately 2,200 stores within one year.

Payment through a PC

For retailers using Windows PC and an internet connection to activate phones or process payments, Now Prepay provides a software application that sits on the desktop. From it, merchants can sell products from the PC and print out a receipt from a local printer. Buchanan says the retailers love it because they're using existing hardware and an existing internet connection; there's no need for an additional phone line.

He says cellular stores are a natural fit because they activate cell phone service online. "Carriers are encouraging the cellular dealers to use a virtual solution and have provided dealers a list of software vendors, including Now Prepay. So we're being proactive and contacting these dealers as well," he says.

Buchanan is optimistic about the opportunities yet ahead in Canada. "There are three companies competing in Canada including Now Prepay. Of the three, we're No. 1 in terms of distribution points. All combined, we're barely covering 10 percent of the available market," he says.

U.S. plans?

Buchanan says Now Prepay is not yet ready to tackle Canada's southern neighbor. The company is currently working on a strategy to enter the United States that is unlike the Canadian formula. "We know it would be costly to implement a grass-roots approach and strike up supplier relationships," Buchanan says. "I'm in the process of putting a strategy in place to grow our business quickly, which we hope to do in one year, and we plan to strike up strategic partnerships to do this."

Case study #3
Newfound profits
No more cards locked away each night

More than a year ago, Giant Retail Stores, which consists of 123 retail service station/convenience stores in New Mexico, Colorado and Arizona, realized it was unable to properly service prepaid telecom products. Mike Polo, director of marketing for Giant Industries Inc., says that before the chain selected a POSA solution, the only telecom products offered were the live long distance phone cards along with the Verizon FreeUp recharge cards. "We had very little success selling them," Polo says.

Since the implementation of a POSA solution from Q Comm and PosaTech, sales have soared in the category. "Now that I offer prepaid products through a POSA system, it's the No. 1 SKU, doing tens of thousands of dollars for the store," he says. "The live inventory system was dependent upon a store manager ordering when we ran out or making sure all the cards were locked in the safe every night. It just wasn't conducive."

Polo had researched many POSA systems but wanted to wait until he found a system that was user-friendly at store level yet provided flexibility to add new products in the future. "With our system, I have one generic plastic thermal card that I run through the machine. Depending upon the code, it comes out as that product whether it's prepaid wireless, a phone card or prepaid MasterCard.

And speaking of the prepaid MasterCard, Polo says his stores have had tremendous success selling it. "When we first started selling these, we weren't sure they would sell, but now it's one of our most popular items in the product mix."

Polo says he promotes the prepaid MasterCard by using point-of-purchase displays inside and outside the store, and he has brochures that describe the product as well. Upon purchase, the customer receives the temporary thermal card, which is only good for making online purchases or purchases by phone. Within seven to 10 working days, the customer receives an embossed, personalized MasterCard.

Today, customers at Giant stores can select prepaid programs from TracFone, AT&T, Verizon and T-Mobile, among others, as well as U.S. long distance and Mexico phone cards. Polo says the chain also offers the CashX card, a Visa card for use to make purchases online, as well as a $10 Giant prepaid gift card. The c-store has also added prepaid ring tones, prepaid internet and a prepaid service that offers online traffic school instruction.

"While I have sold these offerings, after selling products for more than a year," says Polo, "it's clear to me that 99 percent of sales will be the wireless long distance and, more and more, the prepaid MasterCard programs."

Polo says that either he finds new products or he is pitched new products. Once he's ready to add a new product,

Q Comm's IT department creates a program interface with the product provider. Currently, he's looking to add a roadside assistance card, among others.

His advice to providers who call upon c-store category managers includes: Bring a system that is logistically easy to execute at the store level; bring the retailer a core group of offerings that represent the vast majority of the business wireless, long distance and a Mexico card; have a simple gift card solution; and educate the retailer on the benefits of offering a prepaid MasterCard program, which he sees as a huge growth area.

According to Polo, Giant's management is extremely pleased with the results of implementing a POSA solution. "The money we're getting from this the revenue and the gross profit dollars is entirely incremental. We were selling some long distance before and some other recharge cards, but the tremendous growth relative to that has dwarfed our expectations," Polo says.

Case study #4
POSA without limits
Multitude of new wireless programs reveal the need for a robust solution

As a software provider offering electronic payment processing services, most of AirTel's prospects and clients already are using a POS terminal solution. What they're realizing, says Osvaldo Rodriguez, president and CEO of AirTel Wireless, are the limitations with their current POS solution. "Customers are limited to the products that are sold through the credit card terminal due to its memory capabilities," Rodriguez says. "With the growth of the prepaid industry, and the amount of products coming out, it's hard for the other POSA terminal companies to keep up with the products and add them to the system.

"What we're hearing," he says, "is that retailers are forced to decide which products are not selling for them. They have to take them off the terminal and replace them with a product that might sell. With us, even if you only sell one product per month, at least you're selling it and not eliminating it."

Differentiator

AirTel's solution replaces a credit card terminal with Windows-based POS software running on a PC. An AirTel customer chooses either a web-based or a software-based application. Rodriguez explains that the web-based solution requires high-speed internet, so retailers best suited to that solution include wireless stores, check cashers or travel agencies. C-stores favor the software application that loads on a PC and requires a phone line (same as with a terminal).

"Ninety percent of the stores we service are wireless stores," Rodriguez says. He says that represents more than 2,500 store fronts, from independently owned single stores to franchises comprised of 100 to 200 stores.

"These stores know they need to expand their current solutions because there are so many new wireless products coming out, including programs from mobile virtual network operators (MVNOs)," he says. It's thanks to these new products, Rodriguez says, that retailers are learning about the limitations in their current terminal systems. "Customers are coming into the stores looking for product and, in most cases, these products are not offered in the retailer's POS system."

AirTel can service more than 100 products and currently offers prepaid wireless, long distance, prepaid MasterCard, ring tones and home dialtone. The company is looking at other new services including prepaid roadside assistance, prepaid prescriptions and prepaid legal services, among others.

Solution for RadioShack

Recently, AirTel was able to help numerous independently owned and operated RadioShack stores located in central Massachusetts to deliver additional prepaid wireless programs to their customers that the corporate RadioShack office was not able to provide.

"The owner of these RadioShack locations wanted to add other prepaid products," Rodriguez says. He explains that the client selected the software-based solution that offers many features including phone activation and the bill payment module. According to Rodriguez, the owner is so pleased with AirTel's solution, he's recommending to the RadioShack corporate office to consider offering it nationwide in its stores.

Case study # 5
Prepaid preferred
Product expansion brings in new customers and more sales

Six months ago, c-store Fairway One Stop #5 located in Winston/Salem, N.C., was only able to sell three prepaid wireless cards. Shortly after, the store converted to a POSA system provided by Spectrum Wireless, the store's wholesaler. Nine prepaid wireless cards are now available including Omni, TracFone, Page Plus, Cingular and Liberty, among others.

Adding POSA has increased business, says Ronald Couthen, manager of the store. "It has brought us new customers to the store because of the new products that are available," Couthen says. He says that placing signage inside and outside the store has also helped bring in new business.

Couthen says the store has experienced a significant increase in the sale of prepaid telecom products since the introduction of a POSA solution. Part of the reason is because the products are attracting different customers. With new customer traffic coming in the store, Couthen says, he's also selling more prepaid vs. postpaid plans. In fact, he says three out of five customers select prepaid. "Customers like managing their minutes," he says. "The bills fluctuate too much, and the customers aren't happy when they receive high bills at the end of the month."

He says his average recharge load is $15 to $20, and the customers like recharging their existing cards to add more phone time because they can keep the same PIN. Couthen is aware of other prepaid products, such as the prepaid MasterCard, but so far, he's not yet added nontelecom products.

Other benefits have resulted, Couthen says. "It takes approximately 15 minutes to complete a prepaid phone sale," he says. "While they're waiting, they're looking at other products such as accessories." These include earpieces, leather cases, chargers and batteries. He says that leads them closer to the grocery area of the store where they may also purchase more while they're in the store.

To keep up with the latest prepaid wireless offerings, Couthen does a lot of reading, and he relies on Spectrum, with whom he stays in contact regularly to discuss industry trends and customer needs.

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Posted by Craig at November 5, 2004 02:32 PM