Featured in Prepaid Press
By Gene Retske
Render Dahiya was a founding partner of Kinko’s, a leader in online, on-demand publishing services for businesses. He brought his strong consumer background to Arroweye Solutions in 2007, and led them to achieving Visa Vendor approval for their on-demand printing of Visa logo-ed prepaid cards. Arroweye provides both open and closed loop on-demand products for an impressive array of retailers, including Macy’s, eBay, Amazon, Borders, Bonefish Grill, Carraba’s, Outback, Lowe’s and other highly visible retailers. Dahiya explained the reasons for the rising popularity of on-demand products in prepaid.
GR: What kinds of businesses are doing loyalty programs today?
RD: I’m trying to think of who’s not! I’m sure that there are smaller chains and restaurants that have not figured out how to do it because they can’t track their customer accurately, or they haven’t figured out how to make the investment.
GR: So, it sounds like you have to not only get customers into the loyalty program, but you have to be able to monitor the program as well, right?
RD: You have be able to monitor the program because if you have any offers tied to it, you want to make sure that no one is taking advantage of it. But, more importantly, you want to make sure that you are getting the return on your investment. To a certain extent, loyalty program offers are the same as any sort of other promotional offering, in that you want to be able to measure your return on investment. You want to know what drives more traffic, and is there a follow on purchase after that.
GR: You have also pointed out the need for the ability to adjust the program as it rolls out.
RD: That goes back to the tracking piece. We are focused on prepaid cards. If you are sending out some sort of a prepaid card as part of your loyalty program and you are trying to drive someone back to use that card in your business, maybe you start with an offer of 15% off on some product. If you are seeing enough response rate, or possibly too high a response rate, if you are in an on-demand model like ours, you can change that offering and have it back in the marketplace in a day or two, versus months or weeks. Flexibility in loyalty programs is a key because it enables you to make changes on the fly.
GR: Product managers are usually concerned about response rates that are either too high or too low, right?
RD: Yes, I think that is the case with every program you run. You are always worried that if you gave away too much, your revenue may not overcome that margin deficit. Flexibility is the key to all programs now. With modern technology, you should be able to create flexibility in your programs. You should not be stuck in four walls for eight weeks if you made a decision that had unintended consequences. You should be able to make an adjustment if you are using modern technology.
GR: Explain what “on demand” means.
RD: The best way to explain it is to talk about the way traditional card programs are created and manufactured. Today, if you wanted to create a loyalty program that had a reward card, say, you may have to wait 6 to 8 weeks to get that program launched. You have to invest in 10, 20, 30 thousand preprinted cards, carriers for those cards that are sending your branding message, and you inventory all this in a fulfillment house. Then, as people sign up for your loyalty program or win rewards, you send these materials out. In an on-demand model, you don’t make any investments up front. You also don’t have to worry about things like stock outs. You don’t have to worry that you started a loyalty program and expected 20 thousand takers in the next two months and actually only have 10 [thousand]. Which means, I am stuck with 10 thousand pieces of material that have a factor of spoilage. The branding may get old, the offers may get stale, etc.
In an on-demand model, as orders flow in, those materials are created and fulfilled back out to the consumer in 24 to 48 hours. That means you don’t have to project your inventory levels. If your take rate is too high, you can reduce the offer, or, if the take rate is too low, you can increase the offer. You can continue to adjust as the model goes. At the same time, if the offer is taken at a much higher rate, and it is a good financial model, you don’t have to worry about a stock out situation where you have to wait 2 or 3 weeks to get another stock in.
GR: This is analogous to the on-demand publishing model where books are printed as they are ordered, right? Instead of printing thousands and storing them in a warehouse until they are needed.
RD: When I entered this industry in ’07, I was somewhat stunned when I saw the antiquated fashion in which payment cards were put together. They are put together in the old type publishing model. Print 20 or 30 thousand cards, put them into inventory, pick them one at a time as ordered. If you own a card program, that really locks you into four walls. You are inhibited from making the correct decisions for your marketplace because you are always looking over your shoulder.
GR: So, you end up managing a program to the card inventory, not the marketing objective?
RD: It adds another decision point that you don’t really want there. If you know the right thing to do, if you are a decision maker, is alter your card design, or change a promotional date, or change an expiration date, and [you can’t because] part of your decision is ‘well, I am going to get heat because I have to throw away 10 or 20 thousand dollars worth of inventory to do that.’ Everyone has the objective to grow profitable sales, and that decision [on the card inventory] stopped you from doing something that could enhance your business.
GR: How are the cards sent to the consumer? Do they go directly from you, or does the client send them?
RD: It’s up to the client. I would say about 80% of our orders go directly to consumers, 20 to 30% go to a kitting house or fulfillment houses, depending on the end use.
GR: Where does this go next? In the publishing world, we have gone from big inventories of books, to on-demand, to e-books. Is this going the same direction for loyalty fulfillment?
RD: In the industry, everyone thinks they want everything delivered to their phone. There are a ton of hurdles—from how you redeem it, to the theft and security problems, and to a comfort level, with everything being on a phone that you are dangling around on your belt loop. Obviously, at some point, more of this goes mobile. Our products have an e-gift card experience that allows things to be delivered by email for e-certificates, etc. I also think, that even if this industry turns more mobile, there will always be a certain segment of people who want physical cards, and that means the amount of cards in the industry are going to go down over time, which I am not sure they are. Even though we thought a lot about on-demand printing in publishing, all the data says that there is more printed sheets of paper out there than ever before. The same thing could happen here.
RD: Mobile could be a piece of your e-delivery system, but it doesn’t necessarily mean cards disappear. But, if cards narrow up, on-demand makes more and more sense because now, you have even more stale inventory sitting out there, and more unpredictability on how much of your inventory is going to be utilized.
GR: Back to the publishing analogy, over 80% of books are still printed.
RD: We had some clients who were heavily focused on e-certificates. We told them that a gift card, especially around seasons, in closed loop, is a heavy holiday driven item. People want to physically hand someone a gift. They don’t want an e-certificate. You can see it when you look at e-certificates, the volume goes crazy two days before Christmas. “I forgot to buy a gift for my nephew,” right? So, this is the only way I’m going to get there on time. We also deliver products in a greeting card. This physical gifting piece of this is not going to go away.
GR: It is a bit different than books, then?
RD: Books are important, and great to read on e-readers, but they are not financial instruments. There is not a security risk. I’ve got that wallet tucked into my pocket and I’m watching all the time. I’ve got credit cards in that wallet, and I’ve got quick ways to get rid of it. There are many ways to steal a credit card number, but the best way is to steal my wallet. If all this data is on your phone, I think there are some serious security concerns that consumers will have in making that transition.
GR: Big changes going to happen in prepaid, huh?
RD: When you look at the prepaid industry over all, it is going through tons of change. Obviously, you see the Durbin amendment. You see what is going on with financial regulatory change. That is driving change within the prepaid industry, and anxiety. At the same time, if you look at the open loop industry, you have this huge amount of growth, driven by the economy and the new products that are being introduced.
When you are in those times, my experience is that you need flexibility. You need the ability to react very quickly. Whether that means tomorrow you have to change a term or condition on the back of the card, or whether, because of growth, we are attracting so many new competitors and players, that is going to draw more and more players to this industry. You have to have product that you can differentiate. On-demand gives you the ability to unleash that and come up with ideas, put them into the marketplace faster than your competitors.
Render Dahiya is President of Arroweye Solutions. Visit Arroweye Solutions online at www.arroweye.com.