Gift cards continue to grow leaps and bounds allowing retailers that have implemented a gift card program for their stores to reap vast benefits. In fact, total spending on gift cards in 2012 nearly reached $30 billion with around two-thirds of all American consumers having purchased at least one gift card.
It is mainstream and it’s not for the holidays anymore. While nearly 2/3rds of all consumers have purchased gift cards for someone around the holidays, over 80% of all consumers have purchased a gift card as a birthday gift. No longer should retailers simply rely on the holidays for their sales – though sales at this time are concentrated – the sales are available throughout the year.
Gift cards are convenient, secure, and act as a branded “billboard in a wallet”. In multi-unit retail outlets, they keep the money within the store network and with gift cards, retailers will gain more name recognition and exposure in the marketplace, further widening its existing customer base. To further the case, it’s not just for the brand awareness, it adds to the top line as the average gift card user ends up spending an extra 20% beyond the value of the card.
Why Gift Cards? Some retailers may still use punch cards or paper certificates and while these programs may have advanced their loyalty program to date, plastic gift cards outsells paper certificates from 2 to 10 times as much. The electronic gift card concept has become the medium of choice for retailers and merchants across the country. Among the significant reasons are:
- No Cash Back – the value remaining after partial redemption stays on the card ensuring additional opportunities to solidify the guest relationship.
- Real Time Processing - virtually eliminates both the losses associated with paper gift certificates and costly tracking and accounting.
Offering a gift card is very similar to offering a new product item – without having to learn complicated handling procedures, training procedures, and tie up valuable storage space. It will help gain new customers – friends or associates of your existing customers – and the card program should be viewed as a revenue generator.
Gift Card Logistics: A processing terminal is needed to run the gift card program. Usually your credit card company can help you pick out a terminal that will meet your needs and budget. Most gift cards use a host-based computer system to store the value of the cards as they are sold and redeemed. Simply load and redeem the cards via a credit card terminal that accesses the host computer. This host-based system enables the gift card to be sold and redeemed at all participating locations (if applicable for multi-unit operations). Here is generally how it works:
- Consumer purchases the gift card for any amount using cash or credit card – the clerk executes the sale via normal payment procedures on the register
- Amount of the “gift value“ is loaded and stored on the host database by swiping a magnetic strip card through a credit card terminal
- Customer receipt shows balance on card – updated in real time
- The card can be reloaded and may be used multiple times
- Swiped through credit card terminal for host authorization
- No cash back – customer receipt shows real-time card balance
Pooling: For multi-unit operations, as your cards are redeemed within other participating stores and other stores’ cards are redeemed within your store, the redemption amount is transferred at a specified time electronically. This is called pooling. All transactions are accounted for electronically in the database and activity reports. All pooling activity is documented, itemized by card with an overall summary and redemption amounts are transferred between locations via the Automated Clearing House (ACH) network from each location. The ACH network is the same system banks use to move money as regulated by the Federal Reserve. All activity is recorded electronically on the terminal and host computer with time and date stamp for audit purposes. A terminal gift card batch report itemizes transactions for reconciliation.
Marketing & Merchandising: With suggestive selling and merchandising, the gift card will create additional revenue. The demand for gift cards is strong year-round, especially at the different holiday times throughout the year. Birthdays are the most popular reason to buy a gift card – every day is someone’s birthday! Much like activation, the cardholder can purchase additional value or “reload” the card for any amount at any participating location. This is great for regular guests. The gift card can also be used internally for credits. For instance, in lieu of cash back on a purchase return or a customer complaint, you can issue a gift card for the value of the credit. This keeps the purchase money in the retailers network.
Loyalty Programs: A loyalty card program uses the same host-based computer system to store the value of the loyalty cards as the gift card. You can load and redeem the cards via a credit card terminal just like the gift card with the only difference being that you can only add/redeem points to a loyalty card, not dollars. Much like the gift card, the loyalty card earns points and is redeemable at all participating locations. A typical loyalty program works something like this:
- Enrollment - Consumer enrolls by completing a loyalty application.
- Staff reviews for eligibility and ensures the loyalty card number is recorded on the application.
- Consumers will earn X point per $ spent when they initially enroll and ongoing.
- Activation - Consumer earns X point per $ spent as soon as they enroll.
- Amount of the “loyalty points” is loaded and stored on the host database by swiping a magnetic strip card through a credit card terminal
- Enter the amount of the purchase when prompted.
- Customer receipt shows points balance on card – updated in real time.
- Adding Points - Consumer earns X point per $ spent with each purchase.
- Same procedure as activation transaction, but done as “add value” transaction.
- Customer receipt shows points earned and cumulative balance on card – updated in real time.
- Redemption - Redeemable at all participating locations (if applicable).
- Swiped through credit card terminal for host authorization.
- Enter amount of points to be redeemed when prompted.
- Customer receipt shows real-time points balance.
A well-run gift card and/or loyalty program can be a terrific revenue generator for a retailer. Not only does it help drive pre-paid revenues, it also creates incremental sales upon redemption since the consumer generally spends 20% more than the value of the gift card. This incremental business combined with the loyalty aspect of the card being redeemed at your store is a winning combination.
John Matthews is the founder and president of Gray Cat Enterprises, Inc., a strategic planning and marketing services firm that specializes in helping businesses grow in the restaurant, convenience and general retail industries. With more than 20 years of senior-level experience in retail and a speaker at retail-group events throughout the U.S., Matthews has recently written two step-by-step manuals, Local Store Marketing Manual for Retailers and Grand Opening Manual for Retailers, which are available at www.graycatenterprises.com.