Here's how smart cards--plastic cards that store information on an internal microchip--can help small companies learn about their customers' purchasing behavior and reward customer loyalty.
Techniques: Killer Tools
Small companies are playing with a full deck of smart-card applications
As a former restaurant owner, Michael Cutter was all too familiar with the problem that was plaguing Super Wash, his Phoenix-based chain of coin laundries. "You do 70% of your business on nights and weekends, and you'd love to do more on your slow days," he says. The obvious solution was an off-peak discount. But just try teaching that trick to a mechanical coin slide.
So Cutter was spinning with excitement when he found a way to get coins out of the coin-laundry business. Today, Super Wash customers at half of the company's 17 Southwest locations pay for their loads with smart cards: pieces of plastic that look like credit cards but contain computer chips. Vending machines exchange bills for cards loaded with electronic cash; customers then slide those cards into washers that deduct the cost of each load. Now Cutter is in the process of installing the machines at his remaining laundries.
Smart cards have freed the 10-year-old, $4-million company from fixed prices and 25¢ increments. With the cards, Super Wash, which now charges $1.89 for a family-size load (drying included), can offer 40% discounts on every wash between midnight and 6 a.m. The discounts have raised the number of loads each machine handles daily to nine--double the industry norm--generating, on average, 50% more revenues for each location. By themselves, those results justify the $35,000-per-store cost of the technology, from Schlumberger Danyl (609-234-8000). And with no coin slides to jam, Super Wash has reduced maintenance costs by 70%. "That was a bonus," says Cutter. "The main thing is how much downtime on machines we save."
Unlike magnetic-strip cards--such as credit and ATM cards--smart cards process and store data internally, on a microchip. That means companies using smart cards can eliminate the cost and risk associated with real-time connections to a central computer. "We looked at other systems with centralized control and backup," says Cutter. "But if they go down on the weekend, which is when we make our money, we can't wait till Monday morning to get them fixed."
The downside of storing information in people's pockets, of course, is loss of control. Since data aren't collected on a central server, card issuers can't pull up customer information and analyze it for trends. Super Wash gets around that by downloading transactions from its washing-machine readers onto a PC every few weeks. It can then mine the data for nuggets like how a washer's distance from the door affects its usage. Unfortunately, there's no simple solution for the problem of lost cards: if a customer's Super Wash card goes missing, he or she loses whatever money was on it.
The idea of sandwiching a microchip between slices of plastic dates back to 1974, when French inventor Roland Moreno received the first smart-card patents. Saddled with an inefficient telecommunications infrastructure, Europe quickly adopted the technology--which can authorize payments off-line--for use in phone and bank cards. In the United States, however, large-scale trials of smart cards have failed to generate much interest, most likely because consumers here already enjoy a dazzling array of payment options.
But the cards, pressed into service by creative companies looking to tighten their bonds with customers, are beginning to catch on for other applications. And their use will likely increase as the technology becomes ubiquitous. William J. Barr, president of the Smart Card Forum and coeditor of Smart Cards: Seizing Strategic Business Opportunities (McGraw-Hill, 1997), predicts smart-card readers will become widely available on new PCs sometime next year. That would make smart cards even more affordable for small businesses that want to "identify their customers, acquire information about purchasing behavior, and reward customers for their loyalty," he says.
Jim Brakebill wants to do all those things, but mostly he wants to keep his customers away from the large drugstore chains with which he competes. So in 1995 the owner of Jim's Tower Pharmacy, in Oklahoma City, joined a citywide program in which local doctors, hospitals, ambulance companies, and pharmacies record their customers' medical histories on smart cards, called Medicards. Information about every diagnosis, operation, and prescription, as well as insurance data, notification of allergies, and emergency contacts, is loaded onto the Medicard, which can be issued by any of the participants, and which customers carry with them. The program's goal is to provide integrated care without building a centralized patient-tracking system.
For Brakebill, the Medicard is also a powerful sales tool. "Patients bring their bottles in to have me put that information on a new card, and sometimes there are medications I didn't know they were taking," he says. "Just having the dialogue with them, you find out there's business you didn't even know about." He estimates that such leads have boosted his sales by 5% a year since he joined the program. "It's not that I picked up so many new customers," he says. "It's that I captured more of the business of the customers I already had."
To get up and running, Brakebill spent $300 for a smart-card reader from Precis Smart Card Systems (800-917-6278), the company that administers the Medicard program. The reader, which is about an inch thick and the size of a postcard, connects to Brakebill's PC; he uses it with an on-screen form to update cards every time customers change insurance carriers or drug dosages. He also pays $10 a year to Precis for each card that he, personally, issues, for which he then charges customers a $15 annual fee. But sometimes he just gives the cards away. "I'll say, 'If you bring in your mother and she transfers all her medication over here, I'll give her the card free.' That's maybe a $10 cost to me, but if she's got 10 prescriptions a month, I'm going to make that up on the first fill."
Like Brakebill, Phill Porpora worries about customer loyalty. As co-owner and vice-president of Lee Auto Parts, a family-run chain in Chicago's northwest suburbs, Porpora sees smart cards as a way to protect the $20 million in annual sales his company makes to independent garages and do-it-yourselfers, and to compete against superstores, like AutoZone, that are muscling their way onto his turf.
