The use of prepaid cards and incentives inloyalty programs is a well-established practice, though theindustry still is working on the best way to position in the cardsamong all the other incentive options, including cash, merchandise,and experiential rewards.
On the closed-loop side, retailers can use prepaid cards to deliverrewards and to cross-market with adjacent, but noncompetitive,brands. Hotels might offer gift cards to frequent flyer programsfor instance. Gift cards are also an example of customer loyaltybecause the customer is committing money in advance to a particularcompany. Starbucks, Dunkin’ Donuts, and Subway all have programsthat recognize and reward this behavior, and have offered customersa chance to load directly and automatically from credit cards,debit cards, and bank accounts. These are interesting because theyseem to exploit the full opportunities of these cards.
From the loyalty program manager side, prepaid cards offeradditional advantages. Firstly, a reloadable card means that amanager does not need to keep sending out checks or vouchers forlong-term programs that offer repeated rewards. This can encourageredemption and make the program seem more valuable tocustomers.
Payments Journal recently shared how one Los Angeles Times columnist took CVS to task for not using prepaidcards to distribute rewards.
He suggests that the company may want to discourage rewardsredemption, though given the possibilities of uplift with sales anddissatisfied customers if rewards don’t seem valuable, it doesn’tmake sense for the company to discourage redemption.
Prepaid cards also offer an opportunity to provide rewards in atangible way without the need to offer cash or have an inventory ofmerchandise. There is some debate around the ‘trophy’ value of agift card. That said, the cards do seem to be popular among loyaltyprogram participants.
Closed-loop cards offer the recipient to pick something, but arespecific enough that they do not just get mingled in withcash.