Convenience retailers tracking the downturn in prepaid wireless, many of whom also struggle to sell expensive mobile phones in an attempt to become destination spots, may have a new reason for hope: grab-and-go kits that will dial into a new revenue stream and foster destination purchases without the hassle of selling handsets.
The emerging “bring your own phone” phenomenon may even put c-stores in the catbird seat, as people start to understand that they need only to swap out the phone’s subscriber identity module (or SIM) card to switch carriers and potentially cut their rates in half.
The movement rides the trend of no-contract plans. It’s all a word game. Tomatoes and tom-aah-toes. Because no contract and prepaid wireless are essentially the same thing: monthly pre-service billing and payment via snail mail, retail, online or mobile methods. But the term prepaid suggests the unbanked, while “no contract” appeals to the credit-worthy customer who simply wakes up to the obvious deal.
For the retailer, it’s a reconnection to what had always been a growing revenue stream: wireless refilling in a prepaid environment. It’s a somewhat complicated but nonetheless happy concept, potentially breathing new life into a struggling category.
“The prepaid wireless has fallen to where no-contract wireless is a bigger portion of the [business],” says Frank White, director of retail operations for Tri-State Petroleum, Wheeling, W.Va. “But a lot of programs are coming soon to help against the mass merchants and drug stores.”
The proliferation of mobile phones has had a distinct effect on both retail sales and operations, providing opportunities to sell actual products and services as well as driving efficiencies that range from mobile payment to marketing. In addition to the SIM kits, trends on the product side include:
- Virtual aisles. A customer can shop for items online, via mobile phones or through terminals at the store and have the product delivered to his or her home or to the store for later pickup.
- Gaming. Everything from lottery to poker is on the horizon in prepaid formats, with legislation tying the cards back to the brick-and-mortar store.
- Transit cards. Seeking to cut the cost of handling coins and bills, cities and municipalities are introducing prepaid cards for use on public transportation.
- General-purpose reloadable cards targeting higher-income demographics. New packaging is being unveiled. Though specifics have yet to emerge, new wording and graphics will talk about the product in a way that’s appealing to a more upscale yet budget-conscious demographic.
Mobile trends on the operational side include:
- Mobile wallets. Debate continues on the potential of customers paying for products and services with their cellphones, because tests languish and retailers remain hesitant.
- Marketing. The question of how to use social media and smartphone applications (apps) continues to swirl.
- Operational uses. Retailers have yet to fully consider mobile to create efficiencies within their operations.
“My very first presentation about product partners in 2004 started with [two carriers], followed by 1-800 Tow Truck,” says Frank Squilla, senior vice president of sales for InComm, Atlanta, referring to the explosion of products and services in the prepaid and gift-card categories since. “Five years from now, who knows?”
Bring Your Own Phone
The idea of a bring-your-own-phone kit may have been too strange for consumers to grasp five years ago, but times have changed as mobile phones have become more imperative to people in recent years, according to Anthony Martinez, senior director of wireless services for InComm.
Just last year, smartphone sales jumped 42%, Martinez says. Such expansion didn’t exist five years ago. A second trend that was just emerging was bill payment via online or mobile. Five years ago, it was 10% of the business, he says. Today, it’s 45%.
“That’s why we’ve seen a decline at some locations,” Martinez says. The traditional customer was cash-based, someone who ran out of minutes, came in and topped up. The new customer is signing up for a $50 rate plan due every 30 days. They pay digitally and want a feature or smartphone.”
Overall, the no-contract wireless business has been growing, going from $24.5 billion today to a projected $38.2 billion in five years, Martinez says. The number of subscribers will go from 79 million as of 2012 to 129 million by 2017. “It’s a healthy, growing business, but it’s changing,” he says.
Internal InComm research shows the main barrier to people switching from post-pay to no-carrier plans is education. In its survey of customers conducted last December, as many as 53% of customers with a post-pay plan either “don’t understand no contract” or “did not know anything about it.”
For retailers, many positives exist. The product is a no-fuss, prepackaged kit, housing a SIM card that comes with a certain number of minutes. The product hangs on shelving units. Margins are strong. The risk of theft and loss is reduced and the c-store becomes a point of activation, so the new carrier now sees greater value in the channel. Martinez could not discuss specifics at press time.
Other Products
While in various stages of development, other products in the category are also starting to heat up, ranging from momentum within the tried-and-true to state deregulation opening new opportunities, says Squilla of InComm.
Among the tried-and-true products are general-purpose reloadable cards. Much in the same way no-contract cards are becoming popular with higher-income customers, so are prepaid reloadable cards. The growing need to control budgets or to better handle teenagers and their financial needs has led many to use prepaid, Squilla says. These cards are undergoing packaging and messaging changes to better connect with parents and other more upscale customers.
Gaming or, more specifically, gambling—including online lottery and poker games—is opening up to the prepaid market. Many states facing budget deficits are introducing online gaming, with some lawmakers mindful of retailers and traditional brick-and-mortar channels. Some of these states, for instance, are requiring that customers fill their accounts via prepaid cards purchased in stores.
Cities and municipalities are also looking at prepaid in the area of public transportation, among the reasons being to reduce the cost of handling coins and paper bills. Salt Lake City is reportedly putting such a plan in place, involving cards that cost $3 to activate and have the ability to take on $5 to $500 in prepaid fares. C-stores may have an opportunity to sell such cards.
Yet another segment with potential is what Squilla calls the “virtual aisle.” Essentially, it’s the opportunity for consumers to order third-party products online or via Internet-enabled terminals in the store. The stores can then act as a pick-up place for the items or simply as an impulse site to spot-sell a meandering customer.
Debate on Mobile Wallets
The whole “virtual” phenomenon is affecting c-stores not just on the product front, but also on other levels. One of those areas is with emerging mobile wallets.
In what seemed to be a warning to some of the high-profile players in the mobile-wallet space, many stakeholders—including merchants and customers—have been left out of the discussion, according to Jack Williams, president of Paymentcard Services Inc., Fort Worth, Texas. Hence, he says, the business case is flawed. Speaking of his past experience at video retail chain Blockbuster Inc., Williams says, “Merchants care about what drives incremental sales. At Blockbuster, I wanted to know how to get one more video rental out of you.”
New payment methods such as the mobile wallet, as well as new technologies to reduce fraud such as Europay MasterCard Visa (EMV), need buy-in from merchants, who ultimately have to invest in upgrades to the point of sale (POS).
Williams went as far to say that near-frequency communication (NFC) technology, which is the basis of the Isis program, which is backed by major phone carriers, “has no traction.” If any solution is going to succeed, “everyone will have to come to the table—the merchant, the issuer, the acquirer, the processor,” Williams says.
Ubiquity is also an issue for merchants, with a prime example being the tug-of-war between contact and “contactless” payment terminals. Too many uncertainties exist with regards to technology, creating confusion and hesitation among retailers worried about investing in equipment that may never get used.
For consumers, mobile wallets still won’t eliminate the need for some kind of card, especially because ATMs will continue to require plastic, Williams says.
Also addressing consumers, Robert Martin, senior vice president of attended merchant solutions for mobile-services supplier Apriva, Scottsdale, Ariz., says, “The consumer is asking, ‘Why am I going to use it as a payment vehicle instead of debit that already works through a system and my bank?’ ”
At the end of the day, Martin says, consumers do not care what a retailer pays in merchant fees: “For the consumer, it’s about, ‘What value do I get?’ ”
Speaking in favor of the Isis effort and NFC, Tony Abruzzio, business development executive for New York-based Isis, said the technology has its upsides:
- NFC is already a standardized technology that providers can implement immediately, not just here in the United States, but also globally.
- It rides on the EMV system, which is a security technology that the credit-card companies are already mandating in the coming years.
- The demographic is 18- to 34-year-olds who are interested in trying something new, as long as innovative retailers and financial types can envision the kinds of offers that will lure them into using the technology.
Still, supporters of mobile wallets have acknowledged a sluggish adoption rate.
“So why has this disruptive shift in payments never materialized?” asks Seth Priebatsch, CEO of LevelUp, a mobile-payments provider based in Boston. “It’s because these two formulas—one for [a traditional credit] card and the other for Google wallet—are the same.”
With both being the same, no reason to change exists, he says.
“Change is expensive. Credit cards work just fine,” he says. “Change means that merchants, payment processors and credit-card companies would have to bring in new hardware, new training.”
Mobile Convergence
That said, Priebatsch believes that several compelling reasons will keep the march toward mobile payment going. These benefits include:
- Lower payment processing. Mobile is a path to potentially lower processing fees, a concrete trend that could “disrupt rates” as people now see them.
- Access to data. It becomes a platform for a merchant to take back control over his or her customer base.
- Advertising and loyalty. As a larger vision, mobile payment is just a piece of a larger connection to a retailer’s customers, creating a concrete pathway for advertising and the building of loyalty.
As discussion on internal uses of mobile expand, Gray Taylor, executive director for the Petroleum Convenience Alliance for Technology Standards (PCATS), Alexandria, Va., says the mobile-wallet discussion ought to expand to talk of a mobile “briefcase.” As an example, he points to digital coupons. Taking paper coupons for discounted items at the c-store may not be as typical as in the grocery or drug-store channels today, but Taylor believes that with the advent of the mobile wallet, that day may be coming soon.
“[The industry] has to figure out how to handle validity, security and redemption,” says Taylor, who heads PCATS and the technology efforts of the larger NACS association. “We can pilot this thing to death, but we don’t want to be the … last [to implement programs].”
C-store purchases have always been impulse buys, he says. But with much of the activity in a mobile-coupon scenario happening in the “cloud” or at a more centralized computer off-site, a coupon can be in a customer’s cellphone at “the moment of truth,” when he or she is making that purchase decision, he says.
The reason why these benefits have not trickled down to retailers, Priebatsch says, is that a larger convergence of multiple players—consumers, merchants, POS companies, acquirers and developers—has yet to occur. Those groups are now moving more quickly to common ground for various reasons, he says. As an “ecosystem,” Priebatsch says, each of those groups is actively seeing the potential of moving together.
Social Media’s Mobile ‘Ecosystem’
While retailers may not understand how social media ties into talk about mobile technology, Anthony Shop, founder of Washington, D.C.-based Social Driver, says it’s an integral part of a two-way conversation between the store and its customers.
“My grandfather ran a gas station and used a cigar box as a cash register,” Shop says. “But he’d always complain to me about how customer service today wasn’t like what it was back then. When he had his store, they’d go out to the cars, fill the gas and talk with customers. It was a community.”
To grasp the community-building potential of social media, retailers need to break away from a “broadcast mentality,” in which options such as Twitter or Facebook are used simply to “push” content. “Social media brings people together around a conversation, like a campfire,” he says. “It’s a way to get people together, with information going back and forth.”
Shop names a few common industry problems social media can address:
- Reducing customer-service call volume. If a retailer is prepared to respond directly to customer complaints via Facebook or other social-media outlets, then that company can cut down on the number of phone calls it accepts on its own lines.
- Increasing awareness of branding and marketing messages. As companies work to develop the community, a stronger, more direct communications pipeline builds.
- Quicker feedback from customers. Shop mentions a soft-drink company that used a particular word in its latest ad that apparently offended customers. Fortunately, the company discovered the mistake before the ad rolled out.
- Connecting employees. With most employees having cellphones, communications about promotions and other important customer-facing information can flow to those devices, Shop suggests.
- Recruiting talent. Again, a stronger pipeline to customers can also result in a better way to identify potential new employees.
What companies need to do, however, is first identify their core strategies and then align them with an outcome. Often this preliminary work will lead to the kind of social-media activity—be it texting programs or apps—that is warranted.
App Advice
Retailers hear of many delightful and potentially lucrative uses of mobile technology and social media, such as accepting mobile wallets to encourage low-cost transactions, rewarding customers with downloadable songs or engaging smartphone users with a scratch-off-and-win game.
For all the enticing ideas that social media can bring, retailers may fail in their efforts if they skip the basics, according to Anthony Shop, chief strategy officer and co-founder of social-media consultancy Social Driver, Washington, D.C.
“Customers love apps that are useful,” Shop says. “[App] ideas can be great but won’t work without a supportive audience.”
Often social-media efforts wallow or fail because companies don’t take basic steps with regards to finding purpose, involving stakeholders and considering the target audience, he says, referring to a three-stage process:
- Boardroom. In this initial step, key executives focus on company goals, not the result. For instance, one reason many retailers are delving into mobile payment is to encourage customers to pay with debit, which helps retailers avoid high credit-card transaction fees. Focusing on a goal such as that may lead a retailer in many directions, which may or may not involve mobile wallets.
- Conference room. After doing the legwork of deciding on goals and direction, retailers have to bring in the players within the organization who will execute the plan, including management, accounting, marketing, operations and possibly the cashier who needs to learn something new. For instance, Shop says many apps fail or are downloaded but never used more than once or twice because cashiers don’t encourage customers to engage them on an ongoing basis.
- Showroom. Finally, what the result looks like and how it operates at the store level is the final test. Bringing up the theme of weather, Seattle-based Starbucks develops products for all day-parts and has automated programs tied to weather that send offers as the day cools off or heats up.
“Many companies do apps because the competition is doing them,” Shop says. “But if you look at app reviews and [usage stats], you’ll be underwhelmed.”
Ultimately, the key is to understand the chain’s goals, bring in the moving parts—the people—who need to execute on any plan and, finally, know the customer and what he or she expects and would find useful.
Such advice may transcend the many aspects that mobile appears to be touching, including products, payments and operations, Shop says.
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