Reaping the Benefits of Gift Cards

When a customer pulls out plastic to pay for a purchase, it’s no longer always a bankcard. The gift card has become an increasingly popular product with customers and retailers alike, and is fast replacing the traditional paper gift certificate.

The past holiday season saw an impressive rise in the sale of gift cards across the country. A survey by America’s Research Group found that more than half of Americans who shopped last year said they intended to purchase gift cards or give cash for the holidays.

Paper or plastic?
Some advantages of gift cards over paper gift certificates may be obvious, but others may not be apparent to those who are not yet using them. Product placement is a big advantage, according to Darcy Moore, marketing director at Maison Papier, which has three gift stores using the cards.

“Paper gift certificates are not even visible,” she said. “Gift cards can be placed very visibly as point-of-sale items at the register counter, where they are more likely to get a customer’s attention.”   Jewelry retailer Becky Beauchine Kulka, whose store has been using gift cards since before the holidays, points to the durability and portability of a gift card.

“It doesn’t get worn, torn or faded like paper. It usually goes in customers’ wallets, near their credit cards, so customers see the store’s name or logo when pulling other cards from their wallets. And they have it with them all the time, unlike a gift certificate,” she pointed out.

Kulka markets her gift cards in a way that would not work with gift certificates. “When a customer purchases a card, our salesperson puts it in a small jewelry box, so it can be presented as a gift of jewelry. People receiving them love the presentation,” she said.  An average of seven percent of the value of a gift card is never even used; the unused value goes to retailers as profit. Much of this profit comes from that remaining few dollars left on a card after a purchase. The unused portions of gift cards are not refunded, as often happens with the unused balance of a gift certificate.

Small values left on a gift card may also bring a customer back for another purchase, another thing that doesn’t happen with a gift certificate.  “A customer with a balance of $5 on a gift card will often return and spend another $100 to use that remaining value. That means I’ve got a sale that might otherwise not happen at all,” said Kulka.

Many retailers report that the biggest advantage over gift certificates is the improvement in tracking and management. Gift certificates require laborious record keeping, often done manually.  Stores with multiple locations may face accounting confusion and tracking errors when a gift certificate is redeemed at a location other than where it was bought. One location would need to cut a check to the other to compensate for the gift certificate redemption.

Deb Sweeny, director of finance for Douglas J Salon and Spa in Okemos, described the problem.  “It was an accounting nightmare. Now we have three locations, one gift card and zero hassle.”  Record keeping with gift cards is handled electronically, and managers can easily generate reports. They find it much easier to see how much value is “out there” on unused cards than on certificates, as well as to track sales growth or other trends.

Added security is another big plus for gift cards. Some retailers have had serious concerns about counterfeited or doctored certificates. Gift cards feel much safer. Retailers who use them often think of gift cards simply as the “new gift certificate”—the most logical way to handle merchandise vouchers. “Without exception, my entire staff thinks gift cards are a much better way to handle the gift certificate product,” said Kulka.

In addition, retail-marketing creatives are conceiving new uses for gift cards. One such use is a promotion with a partnered retailer. Consider the auto body shop owner who partners with a car wash for a promotion.

The auto body shop buys a set of gift cards at a discount from the car wash. After each paint job, the body shop recommends that the customer should not wash the car for 30 days. The shop then gives the customer a promotional gift card for a free car wash at the partner’s car wash, with a sticker showing the date the car is ready for a wash.

The auto body shop has an exciting promotion; the car wash may have a new customer. And unlike a one-time-only coupon or certificate, the car wash can offer the customer a way to prepay for future washes by adding value to the card (sometimes called “reloading” the card).  Gift cards can also be used as an incentive to try other services at your store. Kulka encourages customers to use her online “Dream Registry” (a gift registry service) by giving a $25 gift card to a new registrant.

Janeszko’s gift stores use the cards as a means of giving store credit when merchandise is returned, instead of cash refunds. “It’s so much easier and faster for our clerks and customers both,” she said.

Off-site sales of gift cards are another innovative way to drive new customers to a business. Gift cards can be marketed as fundraising products. An organization buys gift cards at a discount, sells them and keeps the markup for their organization.

Shopping malls are considering installing vending machines that sell gift cards for merchants in the mall. Customers appreciate the convenience of one-stop shopping for gift cards, especially during holidays when long lines in stores may deter a shopper from buying a gift card. After the holidays, the recipient, often a new customer, shops at leisure.

Another idea for offsite gift card sales requires thinking of the cards differently. “The term ‘gift card,’ while descriptive for some applications, may actually be limiting. A gift card simply stores value conveniently. It need not be seen merely as a gift certificate substitute,” said John Mayleben, MRA’s director of sales and marketing.

For instance, a ferry service to Mackinac Island may beat out the competition by selling gift cards valued at the ferry-crossing ticket price at a popular rest stop far south of the ferry crossing, when the billboards for the island first start appearing on the highway.

A traveler, thinking about lines at the ferry docks, sees the cards available at the rest stop and purchases one there. When he arrives in Mackinac City, he heads straight for the ferry line that he has chosen, ignoring the competition.

Ideas like these are just the early round of marketing ideas that use gift cards to drive traffic to retailers. As more retailers replace gift certificates with cards, the creative ideas will continue to flow.

References: SBA Marketing Association