Premium Incentives: Behind the Scenes

There’s a reason why plastic gift cards aren’t recyclable: They carry entire computer systems along with them.

OK, not really. But now that the migration from paper to plastic is essentially complete, gift card programs are finally starting to leverage the technology that can make them more than glorified coupons.

The evolution from paper to plastic was postponed by as much as a year while those back-end systems were being developed. Now, suppliers are hustling to convert whatever paper-based services remain to sturdier, though infinitely more flexible, stock.

The technology is coming fast and furiously. Cards are encoded with magnetic strips, which offer much greater security against counterfeiting. Internet-based tracking programs, which are quickly gaining in popularity, facilitate more detailed monitoring by both suppliers and end-users.

Of course, the average marketer doesn’t need to know what’s going on behind the curtain. But they should care that the functionality of these systems saves time, improves data collection, and makes execution more effective and efficient. And they shouldn’t be completely ignorant to the behind-the-scenes details, either. “Clients have to know the limitations and flexibility of the programs they’re buying into,” advises Alan Safahi, ceo of gift-card fulfillment house Card Express, Inc., Irvine, CA.

“Marketers are definitely probing more and more into our systems,” says Larry Karpen, director of marketing at New York City-based BMG Special Products, which handles music-infused campaigns for such companies as Intel, Aiwa, and Clairol. “They’re asking lots of questions.”

Here are five that brand managers should be asking before they order the next stack of cards.

Who’s in Charge?

Some suppliers manage back-end systems in-house, while others outsource to point-of-sale network carriers.

There are reasons for both. Companies with their own systems claim to have greater control over programs and say they can react more quickly to maintenance issues or technical problems.

Outsourcers say they can be just as nimble without having to incur the huge expense of building in-house systems — costs which ultimately would be passed on to customers. Also, “it allows us to focus on the gift card programs we sell, not on technical issues,” says Tim Lee, director of financial services with KB Toys, Pittsfield, MA.

Whichever the case may be, get a full description of the back-end systems — not the name and model number of all 12 servers, but a general idea of the system’s size and age, where it’s hosted, when it was (or will be) upgraded, and how many transactions it can handle seamlessly before the server accidentally shuts down.

What’s the Functionality?

Get a sense for exactly how all card activity works. How is it redeemed — offline, online, phone, mail? If there are multiple retailers that accept the card, will the plastic work with each point-of-sale system?

How quickly will the retailers’ systems report the debit, in real-time or during a daily batch report? What type of customer service is in place, and is it tied to the P-O-S as well — allowing customer service representatives to track card activity?

Once marketers know how the card works, they might be able to make system logistics work to their campaign’s advantage. Cards that can be programmed instantly (compared with card systems that take 24 hours to become effective) work well with instant-win games that dole out daily prizes, for instance.

Is it Safe?

We’re living in a post-McScandal world, so make sure you get the skinny on the security measures.

Find out what systems are in place to prevent fraud, how cards are initially distributed (will they ship live?), how they will be activated, and what the procedure is for lost or stolen cards.

Depending on the supplier, cards may be activated in batches or one-by-one. Marketing Innovators, for example, assigns unique ID numbers to each card so they can easily be deactivated if lost or stolen. San Francisco-based The Sharper Image (which manages its own gift-card efforts in-house) has a system through which codes are electronically checked against computerized “master files” before redemption is approved.

And find out who assumes the liability for lost or stolen cards — supplier or client? Some card companies take all the risk, but others don’t. The last thing a marketer needs to hear is that he’s responsible for the fraudulent redemption of the 40,000 cards that just went missing.

How Easy is Access?

Technology’s greatest impact on gift cards has come in the unprecedented monitoring access it offers. Internet systems at such companies as Card Express, Gift Certificate Center, Marketing Innovators, and Framingham, MA-based retailer TJX Companies provide password systems that let clients log onto intranets to track activation and redemption, with the latter including time, location, and type of purchase made.

That means they also can keep tabs on which cards aren’t being used and tailor communications to prompt redemption. (It also means fees based on redemption levels can be billed more easily.) “As the product evolves, so do the systems that power it,” says John McGinnis, Marketing Innovators’ chief operating officer.

The Internet also makes things easier for the end-user. Several card companies offer points-based continuity programs allowing participants to check their own balances and redemption status online.

Access levels vary. The Sharper Image, for one, does not provide real-time access to activity. The company runs reports as requested “but we do need more accessibility,” admits director of corporate marketing Doug Atkinson.

Eden Prairie, MN-based Best Buy Co.’s Musicland unit doesn’t have instant-access either. But a planned merger of its gift-card operation with that of its parent may change that. (Musicland currently is assisting Detroit-based Ford Motor Co.’s Focus brand on a test-drive offer dangling $50 gift cards to Sam Goody stores.) Chicago-based Hyatt Hotels, meanwhile, debuts a new online system for incentive efforts this month.

But the Internet hasn’t replaced call centers and mail houses entirely. End-users can still call Marketing Innovators phone reps for help — although those reps may very well access the company intranet to supply the requested information.

Is Reporting Simple?

Marketers who need to regularly update the vp-marketing may want to find a supplier whose system offers informative spreadsheets with a few clicks of the mouse. (They are available.)

Most suppliers will deliver regular reports regardless of their client’s own online diligence — if for no other reason than to maintain a record of communication.

Knowledge is power, right? Having a handle on the above information could make gift-card programs more powerful.