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CALLING THE MASSES

Prepaid phone cards have quietly entered mass retail distribution, and the supermarket channel especially offers a broad base of exposure for telecommunications products."We see tremendous potential within the grocery channel and expect that phone cards will be a huge profit center driving the nonfood category in the years to come," said William Kahn, vice president of corporate communications at

Prepaid phone cards have quietly entered mass retail distribution, and the supermarket channel especially offers a broad base of exposure for telecommunications products.

"We see tremendous potential within the grocery channel and expect that phone cards will be a huge profit center driving the nonfood category in the years to come," said William Kahn, vice president of corporate communications at SmarTalk TeleServices, Los Angeles.

According to William West, a principal with Atlantic ACM, a Boston-based consultant that tracks sales of prepaid phone cards, "Retail sales are growing at an average of 40% a year and by the year 2001 we predict they will have captured around 60% of the market." Presently, 40% of all prepaid phone cards are sold at mass retail outlets, including supermarkets and convenience stores, according to Atlantic ACM's latest statistics. Most of the remainder of distribution is in the premium/promotional sector, which used to represent the bulk of sales but now comprises 42% of the market. The rest of the sales come from fund-raising, 15%, and collectibles, 3%.

In the ever-expanding telecommunications galaxy, few products have made as big a bang in recent years as the prepaid phone card. Beginning with modest sales of $12 million in 1992, annual sales soared to $75 million in 1994 and skyrocketed past the billion-dollar mark by the end of 1996. Atlantic ACM predicts sales will reach $4.3 billion by the year 2000. And the category shows no signs of burning out anytime soon.

Among key factors driving mass retail phone-card sales is the introduction of point-of-sale activation, which significantly reduces the threat of theft and unlawful use. Cards are now shipped to stores in a "de-activated" mode and have no value until activated by authorized store personnel. There is no need to hide de-activated cards, which can be merchandised on floor displays or pegged in checkout lanes.

Suppliers, Sprint and Ameritech among them, also have developed automated inventory procedures that monitor the number of cards sold by supermarkets and other mass retailers. Inventory is automatically replenished when the supply is low. "Marrying point-of-sale activation with inventory management makes it much easier for retailers, who never have to worry about running out of cards," said Marlene Waltz, Sprint's director of prepaid cards.

Advances in technology also have made it possible to purchase phone cards through automatic teller machines and/or vending machines in some locations. While this new technology offers exciting possibilities for future sales, Waltz cautions that "those involved in the industry need to walk before we run. First we have to solve our No. 1 problem -- convincing more consumers that they need this product."

Phone-card marketers have become a lot more savvy in selling their products at retail. They are tapping into co-promotions with packaged-goods companies, tying into sports and media and executing retailer-specific incentives through customer-loyalty programs. Sprint attributes much of its success in boosting supermarket sales to innovative promotions and marketing campaigns aimed at scoring major points with both retailers and consumers. For example, during last year's National Football League season, Sprint joined forces with General Mills in a massive consumer sweepstakes offering the chance to win Sprint NFL prepaid Foncards randomly inserted in General Mills products.

Also available for purchase were specially marked packages of $10 and $20 Spree cards, which contained one of 12 limited-edition Spree NFL cards worth an extra 10 free minutes of long-distance time. Eye-catching point-of-purchase displays in supermarkets included 6-foot life-size standups of Marcus Allen, Dan Marino and Steve Young.

"By capitalizing on both the growing popularity of prepaid cards and the power of Sprint's NFL sponsorship, we sought to double consumer awareness of Spree and give retailers twice the sales momentum," said Waltz.

In another effort to encourage and reward its growing retailer network, Sprint presented its first annual "Spree Retailer of the Year" award in 1997 to Hy-Vee, West Des Moines, Iowa, with about 240 stores throughout the Midwest. In announcing the award, Sprint issued a statement "recognizing Hy-Vee's extraordinary efforts in partnering with Spree's co-op advertising campaigns and creating innovative store promotions to further demonstrate their commitment to the Spree product."

AT&T Prepaid Cards, Basking Ridge, N.J., also endorses the power of sports-related marketing, offering a series of National Basketball Association-themed phone cards for sale in supermarkets. The cards feature two NBA players from each of 29 teams. Another marketing venture designed to increase consumer awareness is the insertion of cards with five minutes of free calls in boxes of Kellogg's cereals. AT&T is also targeting the huge market of Trekkies and other sci-fi aficionados with its recently launched series of five Star Trek phone cards.

"We're looking to tap into a predisposed buyer set, and believe these cards should sell extremely well due to considerable consumer interest in pro basketball and the wide appeal of one of the most popular programs in TV history," said Sharon Robbins, director of marketing for AT&T Prepaid Cards.

Although AT&T only entered the prepaid phone-card arena last year, it is banking on its name recognition to give it a boost as it moves into the supermarket channel. "We are very bullish on future growth and expect that increasing numbers of consumers will soon consider phone cards to be a 'must-have telecommunications product' to add to their portfolio."

Another major player in the industry, GTE Card Services, Irving, Texas, has sought ways to grow its business by tying in with supermarket loyalty programs. "We want to take our prepaid cards to a broader segment of customers, and linking up with loyalty programs enables us to reward customers with calling time. For example, every customer who purchased $50 worth of groceries could be given 10 free minutes of calling time," said Joe Mistretta, GTE's national sales manager.

One of the newest companies specializing in prepaid services, New York-based Digitec 2000 Inc., is also expanding into the supermarket channel. Since beginning operations in 1995, Digitec sales have increased from $16 million to a projected $60 million to $70 million in 1998. "We initially targeted mom-and-pop convenience stores serving the ethnic inner-city market," said Barry Catmur, Digitec's vice president of business development and product support. "Phone-card sales immediately took off, as they provide immigrants who don't own private phones with the only means to call family and friends back home in places like the Dominican Republic, Haiti, Jamaica and Colombia."

Digitec is now concentrating on mainstream retail, particularly at supermarkets, where it will display new products such as holiday greeting cards. "We are bringing out a special card for Mother's Day with the message 'Happy Mother's Day -- I love you -- Give me a call' that includes a phone card with 30 minutes of calling time," said Catmur.

While suppliers polled by SN are bullish on the future of prepaid phone-card sales in supermarkets, they also realize the necessity of increasing consumer awareness and retailer knowledge in order to ensure increased profits.

"Our job is far from done as millions of Americans still have no idea what a phone card is," said Sprint's Waltz, citing a 1996 study by the Yankee Group that revealed that just 30% of the public had heard of phone cards and only 10% had actually used one.

"In many cases, retailers also need to be educated so that they better understand the product and can relate to customers the money-saving benefits, reliability and convenience of phone cards," said Digitec's Catmur.