eCHANNEL: Shoppers Pig Out on Prepaid Rewards

Posted: 10/2002

Shoppers Pig Out on Prepaid

By Tara Seals

CUSTOMERS pig out on prepaid long-distance minutes. It’s no all-you-can eat
plan; the calls are free through this innovative online rewards program.

Phil Nadel

PhoneHog members receive a free
prepaid calling card via e-mail when they join, and can earn minutes by taking
action on the PhoneHog site, such as signing up for a free newsletter from the
Motley Fool or joining the Columbia House CD club. Members also may apply for
credit cards or shop in the mall, which includes 150 retailers. At
the mall, mainstream, brand-name stores such as Wal-Mart, JC Penney, J. Crew,
Office Depot and Office Max mingle with more niche-oriented merchants, such as a
company that sells inkjet printers. Members can earn up to two PhoneHog minutes
for every dollar they spend in one of the stores. There is no minimum or
obligation to take any action on the site.

"People feel comfortable
shopping there," says Phil Nadel, president of PhoneHog. "There’s more
consumer awareness and a higher level of trust with this because we aren’t very

PhoneHog doesn’t ask for credit card
information or even phone numbers, making it simple to sign up. "People
don’t want to give out too much information on the Internet," explains
Nadel. "Also, we’re totally advertising supported, and we don’t ask them
for money."

The site also gives members
different offers, discounts and coupons from its advertising partners. It runs
special offers inside the mall, and gives each member a personal page with more
promotions — and opportunities for earning minutes.

"Right now we have 4,500
minutes available from all the different things on the personal page," says
Nadel. "Some are free, some require a purchase or a signup."

The minutes are the driving force
behind the success of the site, he says. Sure, there may be $5 off opportunities
from certain merchants here and there, but the members, he says, "have a
voracious appetite for minutes."

the members try the site once and earn some minutes, they’re "hooked."
"They just keep coming back for more," says Nadel. "We have some
members that never do anything, but we have a very high activity rate from our
core members."

The core group makes a lot of
long-distance calls, and is made up of people in long-distance relationships,
frequent travelers, college students and parents.

Indeed, when Nadel began PhoneHog in
September 1999, he drew his inspiration from a long-distance relationship in
college, with his soon-to-be wife. "The long-distance bills when I was in
college were killers," he says. "I paid a fortune, so when we decided
to come up with broad mass-market concepts, I thought it would be great to offer
free long distance."

Aside from personal preference, long
distance makes sense because "it’s a consumable product," he explains.
"Telephone service is something people use every day and it gets used up
and you always need more — I mean, how many gift certificates to Chili’s do you

"Some of our members like the
convenience of having the card and they use it for travel, we have some people
that use it from home instead of their regular long-distance service,"
Nadel says.

The average age of PhoneHog members
is 32, and members are 50/50 male/female. Two-thirds are married, and most are
middle class with $25,000 to $50,000 annual income. This represents a shift away
from the typical profile of a prepaid long-distance user. "The profile is
someone who’s cost-conscious, interested in saving money, may clip coupons, but
not necessarily someone who’s credit-challenged," says Nadel.

One of PhoneHog’s challenges is
educating prospective members about its proposition. "At first blush, many
of them may think we’re asking them to switch to our long distance and that
we’re a 1+ service, so we have to educate them a little on what exactly we’re
doing," says Nadel.

To aid the education process the
site has yes or no bullet points on its home page to demonstrate what it is and
what it is not. A differentiator, made possible via the use of prepaid
technology, is its ability to provide instant gratification.

"Every other rewards program
out there relied on points or frequent flier miles, or things that have to be
accrued," says Nadel. "You wait, then cash in, and our thought was, if
you give people immediate sense of benefit, they’ll be more likely to take

The minutes, supplied by reseller
and carrier TeleFyne Inc., work domestically and internationally, and never
expire. "You might as well shop through us rather than go direct because
you’re going to get something; everything you do, you earn minutes, and they’re
credited right to your account," says Nadel. "You can keep this card

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Source: Vividence Corp.



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