SECURING THE SALE

KAREN RAUGUST

Activation at the point-of-sale has allowed food retailers to move prepaid calling cards out of secured areas onto the main selling floor for increased sell-through.

Although the technology has been available for at least two years, it has gained momentum within the supermarket channel fairly recently.

Glen's Markets, Gaylord, Mich., waited until card-activation technology was available before deciding to merchandise prepaid cards. "We wouldn't start the program until POS activation was in place. It allays fears about shrink," said Jim Paterni, director of general merchandise.

Adoption of POS activation is by no means universal. Companies such as Vienna, Va.-based Atcall report that virtually all their supermarket customers have or are about to have a system in place, while others, such as MCI WorldCom Prepaid, Atlanta, report that just a few of their customers are set up to date.

Last year, Sprint's Spree Prepaid Foncard, Kansas City, Mo., introduced its instant-activation system. "We can set up anyone that has a Visa card system. And our automated management system makes it easy for retailers to manage inventory and limit out-of-stock merchandise. The system automatically notifies us to send more cards when inventory runs low," said Amy Mosier, director of prepaid-card marketing for Sprint.

Other vendors, such as Southern New England Bell, Stamford, Conn., and Cable & Wireless, Vienna, Va., are beta testing their POS systems and expect them to be available shortly.

Most large chains are sold on the benefits of POS activation, according to suppliers. Its most important feature is its ability to reduce theft by customers and, especially, employees, since the dead cards that are displayed are virtually worthless until activated by the cashier at the time of sale.

Batch activation, where dummy display cards are replaced with live cards at the checkout, prevents theft on the floor but not by employees, since the live cards are stored in the cash drawer.

Some retailers, in the early days of the phone-card industry, reportedly had as much as 50% of their card inventory stolen when live cards were merchandised in the open. "It's literally like hanging out $10 or $20 bills," said Chris Smith, director of marketing for MCI. With the chance of fraud and theft virtually eliminated, retailers are able to confidently merchandise their calling cards effectively. "People are not going to the supermarket in search of a prepaid phone card," said Mark Welton, vice president of enhanced services at Arlington, Va.-based Qwest Communications, which sells prepaid cards to Rainbow Foods, DeMoulas/Market Basket, Interstate Foods and Pic 'N Save, among others. "It's an impulse item," he said.

"If they're well merchandised and well priced, they will sell," said Smith. "It's one thing to close the deal. It's another thing to make sure you're in the check aisles or somewhere customers can see it."

The implementation of a POS-activation system is one of the key factors behind retailers' more aggressive merchandising of their prepaid selection. Chris Huemmer, Atcall's director of prepaid sales, said that once POS systems are in place, the company's customers start to merchandise the cards appropriately, using racks, clip strips, seasonal headers and end units provided by Atcall.

Largely due to increased merchandising efforts associated with the implementation of POS activation, sales of prepaid phone cards tend to rise drastically after a POS system is in place.

One of Qwest's non-supermarket customers increased its prepaid card volume 400% in the first couple of months after instituting POS activation. Similarly, in same-store tests of Chicago-based Ameritech's customers, sales typically pick up two to three times, according to Wayne White, general manager of prepaid phone-card services. Such sales increases are notable, especially for a high price-point item with high margins. Phone cards most commonly retail for $10 to $20 in supermarkets. Southern New England Bell products, for example, generate margins between 35% for the lowest-priced cards and 60% for the top tier, according to Mark Lotstein, national sales manager of retail programs. Qwest's margins are as high as 40%. Industrywide margins are usually pegged in the 20% to 35% range, on average.

"Surprisingly, not many [retailers] demand POS activation," said White.

Tom Bollinger, vice president of promotion at J.C. Groub, Seymour, Ind., said security has been the issue in preventing Groub from selling prepaid cards. However, he added the retailer does not want to use POS activation because of limited space at the cash register. "We don't want to place another POS terminal at our front end. It would be better handled at the service desk," he said.

Lotstein agreed that "POS activation will slow down the checkout process." He noted that about 30 to 40 seconds are added to waiting time due to the transaction. This is less a problem for supermarkets than for convenience stores or gas stations, he added, where a slight lengthening of wait time makes a big difference to customers.

Howard Segermark, executive director of the International Telecard Association, Washington, said the need to train staff for POS activation may be a perceived negative in the eyes of some retailers, but he noted that the process is usually simple. "Some of the systems are no more complicated than a credit-card swipe," he said.

A larger concern for retailers is the information-technology development required to set up the system. Resources are often devoted to other computer-related issues, especially Y2K projects, causing delays in POS implementation.

Alan Stiffler, vice president for global card services at Cable & Wireless, Vienna, Va., believes that some retailers are not interested in POS activation simply because they are doing well with the product using batch activation. "It's already a high-margin product for them," Stiffler said. "They don't see the need for [POS activation]."

This is the case with Gary Schloss, vice president for general merchandise at Carr Gottstein Foods, Anchorage, Alaska, who said the chain is satisfied with its present system. "But if that's what's going to drive the market, then we'll move in that direction," he commented.

"We'll go to POS activation as soon as it's cost-effective. Right now, that only works in high-volume stores," said Charles Yahn, vice president of the nonfood division at Associated Wholesalers, York, Pa.

Several systems are used to activate prepaid phone cards at the checkout. Most involve swiping a card that has a magnetic stripe encoded with information on transmittal and activation. The cashier scans the card's Universal Product Code and, when prompted by the register, activates the card by swiping it as he or she would a credit card. The store is in contact with the vendor's computer system either directly, through telephone lines or through the Visa system or a debit network such as Cirrus.