U.S. Retailers Take Notice of Coffee Cards

Discussion
Apr 15, 2002
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Reuters reports that the prepaid Starbucks card’s runaway success has surprised many analysts who expected the so-called “cash card” to be unattractive in a consumer market dominated by direct debit and credit cards.

With four million cards now circulating in the United States and Canada, Starbucks is enjoying the kind of results that might soon be measured on the bottom line. The coffee giant’s cash cards fueled an immediate — and unexpected — sales jump after their November launch, and perked up its cash position by securing up-front payments. The company attributed its record January and February same-store stores to the cards’ spending incentives, which hinge on customer loyalty to the Starbucks brand.

A leading U.S. cash-card maker says rival retailers are beginning to take notice. ValueLink, a subsidiary of First Data Corp., has distributed more than 700 million cash cards across the U.S. for retailers including Abercrombie & Fitch Co., Bed Bath & Beyond Inc., Toys “R” Us Inc., IKEA, and Blockbuster Inc. The U.S. cash card market has grown from one billion dollars in 1995 to more than $32 billion in 2002, driven initially by gift cards bought for birthdays or holidays, it says. But future growth is more likely to hinge on reloadable, reusable cards based on the Starbucks model, according to Tanya Schwaner, marketing product manager of ValueLink. She says that the ValueLink cards are paving the way for a wider launch, allowing customers to prepay at pharmacies, gas stations, grocery stories, and restaurants — or combinations of their favorites. “We have clients that are starting to partner with each other on products they don’t compete on,” Schwaner adds.

Moderator Comment: Do cash cards have broader applications
and a larger market than commonly assumed?

We will readily admit that Blockbuster, Barnes and Noble,
Gap, Starbucks and other cash cards make great (see convenient) gifts. Beyond
that, we do not see much use for them, however. [George
Anderson – Moderator
]

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