Business and Operations
marketing strategies: Gift Cards
Great business ideas always involve a situation where
both the customer and the company win. Gift cards are a great business
idea. Many businesses, however, may be hesitant to introduce a gift
card because they’re not sure how to go about it.
Great business ideas always involve a situation where both the customer and the company win. Gift cards are a great business idea. Many businesses, however, may be hesitant to introduce a gift card because they’re not sure how to go about it.
Launching a gift card can seem like an elephant of a project. Perhaps your sales of paper gift certificates haven’t been stellar so you wonder what all of the fuss is about. Comparing gift certificates to gift cards is like comparing a 1960’s black and white television set to a plasma screen TV with a satellite dish. The two may belong to the same family but the newer version offers so much more flexibility.
It’s really about finding the program that offers the right fit for your business and then building a long-term strategy to leverage the card in creative ways to help strengthen your bottom line.
If your business already offers gift certificates then you know they involve a lot of manual tracking. Typically, the retailer logs the certificate in a ledger and provides a paper certificate that is typically “gifted” to another person. The recipient then redeems all or some of the certificate during one visit. If the consumer spends more than the certificate is made out for – great, you reap the benefits of the up sell. If the consumer spends less than the certificate’s worth, the balance is given to the consumer in cash.
Some consumers will put the certificate in a drawer and forget about it – this is called “breakage,” since you’ve received the money but it doesn’t get redeemed, so it’s a bonus for you. Some customers will misplace the certificate but still want to redeem it – causing you to search back in your log book for verification.
The whole process is cumbersome and most businesses offer it as a means of capturing some extra sales, and mostly as a service to customers. Gift certificates were the closest thing to cash, with all the limitations of cash. However, a funny thing happened on the way to the register. Enter the cashless society.
Nobody in the world has embraced the use of debit cards better than Canadians. In fact, Canada has the highest per capita use of debit cards of any country in the world. According to Interact, more than 34 million banking cards are in circulation among an adult population of 21.8 million. Canadians used their banking cards more than 2.8 billion times in 2004. That’s an average of 88 times a second for every hour of every day.
Once Canadians became used to using debit cards, it was very easy to migrate them from paper gift certificates to gift cards. According the J.C. Williams group, gift card sales have grown from $1 billion in 1995 to an expected $70 billion by 2006. It’s estimated that 45 per cent of the U.S. adult population (that’s about 97 million people) bought a gift card between August 2002 and August 2003. Clearly, these statistics illustrate that there’s a consumer demand and benefit in purchasing a gift card, but what about the benefit for the retailer? After all, these programs are expensive to implement – right?
The key to success lies in your ability to plot out your costs, projected sales, incremental sales and cross promotional opportunities. You can find the program that fits best with your business if you choose the right vendors with the right packages to partner with.
Solina Bradshaw, manager of marketing and communications for Givex Canada, advises retailers to call Givex.
“We’ll start with their point of sale system so everything can be integrated with their POS system. If there is no POS system, we will ask what credit/debit terminal is being used and things can then go through the credit/debit terminal. Often, the terminal can be configured fairly easily to process the gift cards and the physical cards can be produced in quantities as small as 1,000 cards. For retailers who want to get a gift card program up and running quickly, there are generic gift cards that can be purchased as is – right off the shelf.”
The card does, however, offer an opportunity for you to promote your business if you choose to brand it with your images and logo. Consumers keep gift cards in their wallets much like credit cards. Each time they go into their wallet to get their debit or credit card, they’ll be reminded of your business. Make sure your logo is on the front of the card facing out where it can be seen, not on the back hidden. The benefits to your business extend beyond simple brand awareness – gift cards are more effective at generating incremental sales.
According the J.C Williams Group, more than 20 per cent of consumers spend more than the initial amount placed onto the gift card. Of this 20 per cent, 90 per cent spend twice as much. That old paper gift certificate had a short life span. If the certificate is worth $100 and the consumer only spends $50 on their next visit, the difference was returned in cash. With gift cards, the balance remains on the card (read in your cash register) and encourages the consumer to return again to use the remaining balance.
According to J.C. Williams, breakage (cards purchased but not redeemed) occurs with about 10 per cemt of gift cards. The average value of a paper gift certificate purchased was $25 – the average gift card is purchased for a $50 amount. It seems we get more generous when loading a card with money versus a paper certificate. We perceive the plastic card to be worth more because it’s more attractive and we’re comfortable with its appearance.
Gift cards have also proven to be an effective means of shifting sales into periods that have been traditionally slow. A gift card purchased as a Christmas gift stands a very good chance of being redeemed in January.
The better than average retail sales last in January 2005 were attributed to redemption of Christmas gift cards purchased in December 2004. If you don’t have gift cards ready to sell for this Christmas season, there are still numerous opportunities to market the cards. While many people purchase gift cards as presents for others – consumers are starting to view these cards as a means of “paying it forward.” Gift cards are morphing into convenience cards.
Starbucks has proven to be one of the more innovative retailers embracing and marketing gift cards since 2001. The Seattle-based company has issued 18 million gift cards in the last four years and reports that gift cards account for 10 per cent of all their transactions. It’s not uncommon for consumers to load up a gift card for themselves with a month’s worth of lattes. The consumer can do this on payday knowing that they don’t have to worry about having the cash on hand when they run in for their coffee.
There’s also a savings the customer sees in banking fees when they pre load their own cards. If the customer pays a $1 fee to the bank each time they swipe their debit card, prepaying a month’s worth of lattes can result in a significant savings for them, because they only pay the banking fees to load up the card once (assuming they pay with a debit card).
Starbucks also allows patrons to register their card online. If the registered gift card is lost or stolen, the customer need only contact the Starbucks customer service line to have the card nullified and the balance transferred onto a new card. When consumers register their cards, it gives the retailer an opportunity to get permission based e-mail addresses for electronic newsletters and special notices.
For pizza operators, the next logical step would be to integrate the gift/convenience card into their point of sale system for use with hand held devices. This technology will allow operators to take gift cards at the consumer’s doorstep upon delivery.
Gift cards can naturally dove tail into a loyalty program that truly builds your business rather than relying on traditional discounting strategies. Launching a gift card and loyalty program is a step that Keith Toppazzini of Topper’s Pizza feels strongly is right for his business.
“We’re replacing the traditional stickers and fridge magnets with a new focus on the gift cards and loyalty program. As the consumer acquires points through repeated purchases, it’s converted into dollars available to spend at Topper’s Pizza. By expressing the benefit in dollar form, it’s easier for both the consumer and the staff to manage. The most beloved of all loyalty programs is Canadian Tire money. People respond to getting ‘dollars for loyalty.’”
Topper’s also plans to use the gift card to replace staff meal discounts.
“It’s easy to just load up the gift cards with the allocated amount and put it into staff pay envelopes,” said Toppazzini. “This gives staff more flexibility in how they use their allotment.”
Gift cards are a great way to partner with other businesses for cross promotion purposes. Some businesses close to your operation may jump at the chance to reward employees with gift cards for your establishment. These same businesses may elect to purchase gift cards from you as corporate gifts for their clients or just to have on hand for the next time a pizza is needed for a late night sales meeting. As you can see, the marketing possibilities are endless.
While launching a gift card program may seem overwhelming, it can be the key to taking your business to the next level. Yes, it’s an elephant of a project but by starting with the basics you can grow the technology and complexity of the program as your comfort level grows. After all, you do know how one eats an elephant don’t you? One bite at a time.•