NEW ALLIANCE

(FNS) -- Retailers are wholeheartedly stamping their image on prepaid calling cards. This has not always been the case. Aligning with suppliers of prepaid phone cards used to be a risky business at a time when an emerging prepaid phone-card industry offered easy entry to under-resourced companies. Sometimes retailers and their customers got burned with dead 800 numbers.Gordon Diamond, a spokesman

(FNS) -- Retailers are wholeheartedly stamping their image on prepaid calling cards. This has not always been the case. Aligning with suppliers of prepaid phone cards used to be a risky business at a time when an emerging prepaid phone-card industry offered easy entry to under-resourced companies. Sometimes retailers and their customers got burned with dead 800 numbers.

Gordon Diamond, a spokesman for AT&T, Basking Ridge, N.J., said, "There have been some problems in the industry, where the customer ended up on the short end of the stick."

Today, however, calling cards have become much more attractive to retailers as their sales have grown and big telecommunications companies with trusted names like AT&T, MCI and Sprint have quickly acquired bigger pieces of the market.

Private-label prepaid phone cards offer retailers a versatility that can't be found in most other store-brand packaged goods. Besides being able to boost store brand recognition, the cards can help retailers differentiate themselves, create advertising exposure, provide customer incentives and added value, tie into seasonal opportunities and spur sales of other products in the store. "It helps the independents to have another category to expand into, another service to offer," said Chris Duley, vice president and general manager of McKenzie Buying Co., a wholly owned subsidiary of Western Family, Tigard, Ore., which, along with MCI, is distributing a co-branded prepaid card to supermarkets.

"It helps with their overall private-label programs. The independent retailer needs that kind of spread in private label."

Another benefit of prepaid private-label cards is their frequency of use, pointed out Chris Smith, director of marketing for MCI Worldcom, Washington. "It's a rare quality where something is sold at retail that requires consumers to look at it quite often."

Chris Huemmer, director of the prepaid division of Atcall, Vienna, Va., agreed. "There is repeat action on a phone card, and we put a message from the supermarket chain at the end of the call. It's also possible for supermarkets to put an advertising message on the phone card, such as letting customers know about a sale on a certain product that week."

The prepaid-card market has experienced heady growth over the last seven years, going from $12 million in 1992 to more than $2 billion in 1998. Retail, the fastest-growing channel of distribution, accounted for 44% of prepaid phone-card sales last year, according to Atlantic-ACM, a Boston research firm.

Retail success stories include Shaw's Supermarkets, East Bridgewater, Mass., which carries a variety of cards with the Shaw's name and scenes from the New England states where its 162 stores are located. "It's a comfort factor. Rather than showing the World Trade Center, we're showing a New England covered bridge, a famous Portland [Maine] lighthouse and the entry into a Maine harbor," said Bernard Rogan, a spokesman for the chain.

The private-label program allows Shaw's to offer "friendlier"-looking phone cards and give the chain "ownership" of the card, Rogan added.

Shaw's also features seasonal phone cards, including cards designed for Valentine's Day and Mother's Day. Private-label card supplier Cable & Wireless Global Card Services, Vienna, Va., works with Shaw's and other retailers on special packaging and discounts for holidays. Prepaid calling cards are popular as gifts for Mother's Day and graduations, according to Alan Stiffler, vice president of Cable & Wireless' American region.

One large East Coast chain is working on a Mother's Day promotion that would give shoppers one free private-label phone card after they purchased two or three prepaid phone cards. "It is certainly one of the busiest days for the phone company," said a chain official who requested anonymity. In addition, customers will associate the supermarket's name with a good value, according to the official.

Atcall supplies Wegmans Food Markets, Rochester, N.Y., with private-label cards that are activated at the photo center and customer-service area. "Wegmans wanted to go with private label because they use it with their frequent-shopper card," said Atcall's Len Gordon, who services the Wegmans account. Wegmans runs a buy-one, get-one promotion tied to its loyalty program, Gordon said. When shoppers sign up for a Wegmans frequent-shopper card they also can purchase a prepaid phone card and get an extra one free.

Carr Gottstein Foods, Anchorage, Alaska, uses the state's scenery, as well as its name, to sell its private-label cards, which were designed by Carr Gottstein executives and Cable & Wireless. Pictures of grizzly bears, a polar bear, moose and Alaska's wild flowers actually become collectors' items for tourists, according to Gary Schloss, vice president of general merchandise at Carr Gottstein.

"They may never use them, but they like the pictures," Schloss said. In addition, Alaska natives send the cards to friends out-of-state. Sprint focuses on marketing to a "community of interest" with its Spree phone cards. For example, racing fans are the target of its promotions with Food Lion, Salisbury, N.C.

"The NASCAR [fan base] had been regionally focused in the Southeast, but now it is a huge national phenomenon," said Amy Mosier, Sprint's director of marketing for prepaid phone cards. In several Food Lion stores, shoppers purchase the Spree cards to have a chance to play a computer-simulated Sega race car game. The game has been installed in a hydraulic replica of Adam Petty's car. The car is rotated among various Food Lion and other retail stores.

An upcoming national promotion also allows shoppers who purchase a Spree card to win a Pontiac Grand Prix and other prizes, such as extra phone-card minutes. Three winners will be given keys and flown to the Charlotte Motor Speedway. Only one of those keys will fit the Grand Prix, however, and the person who holds it will drive away with the car. Retailers have also seen prepaid sales surge as they improve their merchandising and advertising techniques.

"We've seen sales continue to climb. They were conservative in the past, but now we're doing promotions and newspaper ads," a spokesman for an East Coast chain said.

Carr Gottstein's phone cards are more visible now in weekly newspaper ads, according to Schloss. In stores, the cards are featured at checkouts, and unactivated cards are hung on clip-strips in a few aisles, about 16 feet apart. "Dummy cards help stimulate interest in sales," Schloss said.

Phone-card companies are certain the cards will continue to grow as more consumers become familiar with them. Atlantic/ACM projects sales of prepaid cards will reach $6 billion by 2002. Supermarkets' prepaid-card margins can average 35%, said Stiffler of Cable & Wireless.