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Understanding Customers Leads to Market Domination

Understanding behavior leads to category domination

If you're used to being a global leader in your category, it can be tempting to see expansion into another country as just one more frontier to cross. That it's about understanding local regulations, setting up your local entity, and trading on your international name.

But, not all markets are built the same, and making assumptions that miss the local nuances can prove to be expensive.

New Zealand Paytech company Ezi-Pay knew taking on global giant epay — a Euronet Worldwide company (NASDAQ:EEFT) — in the New Zealand market would be a hell of a fight.

epay already led the way in payment processing and prepaid solutions all over the world, and had extensive resources to call on.

Ezi-Pay had local smarts, the building blocks for payment processing, and the most vital piece of the puzzle — the retailer network. Game on.

Ezi-Pay grew out of telecommunications challenger Compass Communications' outrageously successful prepaid phone cards (long distance calling cards) division.  Back in the day, when home phone national and international calling costs were still high, mobile phone costs were even higher, and telcos were refusing credit to those running up high phone bills with no ability to pay, phone cards were a currency all of their own.

They had long been the calling option of choice for travelers, for anyone on a budget, and for those with family in expensive destinations. Compass took that a level further, by introducing the average household to the unbelievably cheap calling rates that phone cards offered.

Demand was huge, but there was an equally huge logistical problem. Phone cards were essentially cash. Retailers had to lock them in a safe. They could be stolen from couriers. Retailers had to buy them upfront and they came with an expiry date printed on them, so the physical product had a limited shelf life.  Profit margins were excellent, but the downside was significant.

Prepaid mobile phone top-ups had exactly the same problem. Also printed on a physical card, they were an open invitation to theft. While the mobile telcos loved the branding exposure, they hated the logistics.

It was an enormous problem just begging for a solution

epay stepped into the New Zealand market, and set about gobbling it up, while the scrappy Compass off-shoot Ezi-Pay had realized if they could build a transaction network, they could switch Compass phone cards to an electronic item that had no value until activated.

And, if they could do that, they could offer the same service to other phone card providers, as long as they could keep Ezi-Pay cordoned off from Compass itself. What would truly elevate them though, was to bring the prepaid mobile phone providers on board, with electronic top-ups, all transacted through Ezi-Pay's network.

Initial Ezi-Pay branding was disruptive. Where epay was a polished corporate presence, Ezi-Pay was cartoon-like, featuring a garish lime green. You couldn't miss it. However, this isn't a story about great branding. Instead, it's a story about knowing how to seize an opportunity and take advantage of superior local knowledge.

As epay negotiated master agreements with the telcos for supply, and corporate supermarket and bookstore head offices for distribution, the Ezi-Pay team knew something that only a phone card supplier would know — in the New Zealand prepaid communications retail landscape, independently owned local stores leave corporately-owned stores in the dust.

There are thousands of local dairies (convenience stores) throughout New Zealand, and they stock everything their community needs.  A very humble-looking corner store or kiosk in the right location could sell many times more phone cards and top-ups in a single day during peak season than a supermarket would turn over in a month. They're built for quick visits — a couple of minutes in and out — and that's the way people buy prepaid products. When their minutes have run out, they don't plan a trip to the supermarket to stand in a queue, they make a quick trip down the road to the dairy.

The Ezi-Pay team ran like they were being chased to sign up the high volume independent distribution network, one by one. They knew who they were, they knew where they were, and they knew who was most important based on volume.

The retailers were delighted to have an electronic solution. They no longer had to worry about holding phone card stock with value, selling a card that was about to expire, or having to pay for stock in advance. All they now needed to do was activate the card on purchase, by swiping its magnetic strip through their existing point of sale or payment terminal, and they were billed minus the retailer margin.

It made so much sense that other phone card suppliers also signed on, as did the mobile phone providers, albeit some of them reluctantly. After all, it was easy to regard Ezi-Pay as a frenemy. Soon though, the numbers would be too compelling to ignore.

Understanding consumers as well as business owners

Ezi-Pay had proven conclusively that it understood its market, and it could have simply behaved as a payment processor for prepaid electronic products, activating phone cards and top-up PIN numbers on demand. That would have solidified their position in the market, but it wouldn't have grown the market itself, and Ezi-Pay had the opportunity to do both.

The Compass team already knew that operating multiple phone card brands, and advertising to the wider community using mainstream channels instead of the more usual posters in shop windows had the effect of increasing the market as well as their share.

Ezi-Pay adapted this knowledge to turn prepay into a destination in store. With no attached value, phone cards could be displayed on the store countertop, so they would be seen by every single shopper. It could be argued that as a single-use PIN printed on a slip of paper, there was no need for mobile top-ups to be represented on a display unit, but displaying them automatically increased sales.

It was accepted worldwide that phone cards and other similar products should have fixed denominations even when electronically activated, which meant producing stock to accommodate each value. However, this conventional wisdom was born of nothing more than the inability of international point of sale systems to accommodate a variable value.

Ezi-Pay operated variable amounts for electronic phone cards from the get-go, so they knew the freedom to choose the value they really wanted allowed consumers to make a higher average purchase than if they were faced with set denominations.

That proved to be as good for the company as it was for consumers, as it helped to make up for ever-shrinking margins. Prepay processing is a high volume, low margin game, so expanding the product range that can be processed through the network is vital.

Introducing an entirely new retail category

Electronic gift cards were already well established in the USA and Europe as a retail category, with a wide range of brands available for purchase in supermarkets and other high foot traffic locations, and epay was at front and center. 

Clearly, it wasn't going to be long before they shifted their gift card sights to New Zealand, so again, time was off the essence. The Ezi-Pay Gift Station® was NZ's first gift card mall. 

Gift Station was launched less than 8 months from conception — in time for Christmas trading — with a presence in all NZ's leading foot traffic retailers, and carrying gift cards from a wide range of the country's most popular retailers. The peak buying season was an outstanding success, and the team managed to keep stands in stores, persuading reluctant volume-focused retailers that consistency was key to establishing this category, and it would pay dividends.

Meanwhile, e-commerce store became the single largest retailer by value within 12 months, outperforming NZ’s highest foot traffic supermarkets and setting the standard for excellence.

The gift card category grew 100% year over year. All that was missing was the jewel in the gift card crown of the time — Apple iTunes gift cards.

With their international relationships, iTunes was the card epay had in their line up once they launched a gift card offering but by then, there were few big local retail brands left to woo. Once Ezi-Pay had succeeded in securing iTunes, local market dominance was achieved, making Ezi-Pay irresistible to its international competitor, who then acquired Gift Station for an undisclosed sum. 

At every turn in this very competitive journey, Ezi-Pay appeared to have fewer resources than its competition, but it captured first-mover advantage every time by knowing its market, understanding what it needed, and realizing the opportunity to make the most of what was coming.