Online management challenges B2B’s aversion to plastic
The business to business rewards sector, traditionally a conservative market resistant to innovation, could now be about to undergo major changes.
Asda has become one of the first B2B gift card issuers in the UK to offer to partner companies an online management system for plastic gift cards as a replacement for paper gift vouchers.
The Gift Card Management System (GCMS) implemented by Jordan Media for Asda
Business Rewards plans to make it attractive for paper voucher fixated B2B business professionals to switch to plastic when offering rewards to their company’s employees.
Paper vouchers have long predominated in B2B and the people involved in the industry seemed to like it that way. John Lewis runs the second largest B2B rewards scheme in the UK and its offering is entirely paper-based with vouchers in specific denominations.
Jordan’s Graham Sellors, who is a director of Asda Business Rewards, says of the new system: “It is very simple yet secure and allows funds to be added remotely by an authorised administrator to new or existing gift cards.”
Sellors says the aim is to make GCMS an industry standard, but that there is a lot of resistance to overcome first among the agencies handling B2B schemes.
“A lot of people want to stick to paper,” he says. “If you count out the vouchers you feel in control unlike with cards. The gift card management system puts that control back in. The agencies can manage the funds on individual cards and can control exactly how much they put on the cards. They don’t have to ask anyone else to do it and they can do it securely online.”
The GCMS allows Asda Business Rewards customers to store gift cards initially with no value, and then load and activate them remotely once they have been distributed to the relevant members of the scheme.
Loading value onto the cards is all done by the B2B scheme administrators, and the cardholders themselves do not have any control of the card and are not able to load funds on to it. “There wouldn’t be any point,” Sellors told Loyalty. “The scheme is there to provide an incentive to employees and the person managing the scheme, typically in the HR department, will be the one loading value on the cards.”
Cardholders can decide to put extra funds on the card by opting to join a ‘salary sacrifice’ scheme and putting say 5% of their salary on the card, but the actual topping up of this amount will still be done by the scheme administrator on the internet.
Sellors added that one instant benefit of switching to plastic for B2B scheme organisers will be a reduction in mailing costs. Paper vouchers already have the value on them when they are sent out so have to be sent special delivery. Fraud from stolen/intercepted paper vouchers has been an increasing problem for the industry.
“If the cards are charged up and then lost the scheme organiser can turn the money off,” says Sellors. “We have a list of card numbers and as long as we have the card’s number we have a direct link to the system of First Data [Asda’s gift card processor] and we go in and take the money off that card.”
The fraud problem with plastic gift cards occurs when they are bought online with a credit card. To combat this, for first time purchasers at its website Asda Business Rewards sends a letter to the registered address of the cardholder to check the validity of the transaction. Value is not loaded onto the card until it is confirmed that the registered cardholder carried out the transaction.
Authorised administrators at B2B customers have a user name and password to load value onto new or existing cards via the Asda gift card site.
Asda was the second retailer in the UK to launch a retail plastic gift card after Debenhams. It is ahead of most of its competitors in that it stopped issuing paper gift vouchers as retail products in 2001. In 2008 it issued 4.5 million plastic retail gift cards and around 1.5 million plastic and paper B2B products. Its magnetic-stripe-based cards are supplied by Thames Technologies.
The gift cards can be used to buy more than 30,000 products available in any of Asda’s 340 stores throughout the UK.
Asda still issues paper B2B vouchers as there remains a large demand for them, according to Amanda Farrell, the retailer’s marketing manager for gift cards and vouchers. “A lot of our B2B customers are not equipped to deal with plastic cards yet,” she says.
The demise of paper vouchers in B2B has been predicted for the last two years, but Farrell says that large numbers are still likely to be around in 2012. The current ratio in B2B is around 70% paper and 30% plastic, although recent figures from The Voucher Association (now known as The VA) found that plastic cards only accounted for 10% of B2B scheme revenues. The B2B sector lags the retail gift card market, which itself has been relatively slow to move to plastic. Around 50% of retail sales are now of plastic cards and the emergence of US-style plastic gift card malls at retailers is finally beginning to speed things up.
Marks & Spencer operates the UK’s largest B2B gifting scheme, followed by John Lewis and Sainsbury’s, with Asda in fourth.
High up-front costs
B2B schemes have a high up-front cost for businesses to operate, and Asda offers a 5% discount on the face value of its vouchers/cards to B2B customers. Farrell says absorbing this loss is worthwhile because if Asda did not offer the discount then some of its B2B customers would buy from rival retailers who did offer one – and the use of B2B cards in retail can be extremely lucrative in generating extra revenue.
“The industry average is that people spend around 40% beyond the value of the card,” she says. “The benefits to Asda of B2B are that incremental spend and the potential business we get from new customers.”
Asda is currently the only retailer issuing cards that can be topped up with varying amounts online. Other major B2B schemes including Argos, Sainsbury’s and Tesco issue cards in pre-donominated amounts.
“I think Tesco and Sainsbury’s will have to review their situation,” claims Graham Sellors.
He adds that Asda has been trying to erase its image as a “cheap and nasty” retailer which has damaged it in the B2B market in the past in comparison with the more aspirational M&S. “Asda now provides a complete range of products,” says Sellors. “It’s about value not cheapness.” It is currently offering a gift wrapped wine and luxury chocolate promotion as part of its efforts to attract customers over from its retail rivals via B2B gifting.
There is some evidence of B2B rewards being cut back in the recession, according to a survey on B2B voucher receipt and redemption by P&I and online rewards and motivation provider iPoints. The survey found few dramatic changes in the industry, but the proportion of people saying they receive vouchers as a reward or incentive from work has dropped noticeably, from 30% in 2007 to 15% in 2008.
Andrew Johnson, director-general of the VA, said he was surpised at the survey results and that its own figures for 2007 showed an increase in sales to the corporate sector.
Frequency of distribution has also changed. In 2007, over a third of companies handed out vouchers once a year, and 20% once a quarter. Now, however, 71% choose to give them on an ad hoc basis.
The VA’s Johnson adds that plastic must outpace paper in retailing before B2B will catch up. “There are a lot more complexities in B2B. It requires lots of rigid and secure operating systems,” he says.