Gift Card Glory: How Consumer Demand Has Shifted the Gift Card Market From Novelty to Commodity
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Country Business - September/October 2007
How many gift cards did you receive last year? According to the National Retail Federation (NRF), probably at least one. In their fourth annual Gift Card Survey, the NRF found that 95% of adult survey respondents either received or purchased a gift card in 2006 - a 24% increase over 2005 survey results.
Now, how many gift cards did you sell last year? The NRF estimates that gift card sales for the 2006 holiday season totaled $24.81 billion, $6 billion more than in 2005. Furthermore, the average consumer spent more on gift cards in 2006 than they did the year before ($116.51 vs. $88.03 in 2005).
Consumer demand has shifted the gift card market from novelty to commodity. If you want to leverage the value of gift cards in your business, you first need to understand the value they hold for consumers.
Courting Convenience
Consumers' growing love affair with convenience has wooed them from paper gift certificates to plastic gift cards. Gift cards are easier to buy, easier to carry, and easier to use than traditional gift certificates. No need to wait for a store employee to find the key to a locked box, find a pen that works, manually fill in the dollar amount and then record the sale of a paper certificate. Because gift cards have no value until loaded at the cash register, customers can help themselves from display stands throughout the store and simply cash out when they're ready.
Gift cards offer a quick solution for thoughtful, yet time-strapped, shoppers. Consumers can keep extra cards on hand for when they need a gift in a hurry. Gift cards relieve the pressure some gift-givers feel to find "the perfect gift", offering recipients the unique opportunity to choose their own gift in someone else's name.
Some people give gift cards to express their own tastes - "I really like this store, and I think you will, too" - and some to reflect those of the recipient - "This is my way of adding to your figurine collection". Either way, there is an implied endorsement by the giver, and consumers are more likely to visit an unfamiliar retailer when they are given a gift card by someone they know and trust.
Increase Your Reach
Gift cards not only bring new customers to your business, they bring customers who are ready to spend. The NRF estimates that 50% of shoppers who redeem holiday gift cards add money from their own pockets to make a purchase. Many consumers think of gift cards as "found money", and they count only the cash price of an item as money spent. A consumer who wouldn't spend $70 on a specialty basket may happily combine $20 with a $50 gift card to purchase the basket. They feel like they get a deal, and you get a new customer.
Unlike paper certificates, gift cards are small enough to tuck easily into greeting cards or attach to other items displayed in your store. Most consumers carry gift cards in their wallet, where they serve as convenient little reminders of the treasures you have in store for them. Some are even hole-punched to carry on a key ring. Gift cards are available in almost any color or graphic design, and retailers can customize gift cards with their store logo for an extra marketing boost.
Boost Shopper Frequency
Most gift cards are "stored value" cards, which is beneficial for both the consumer and the retailer. If a consumer spends $25 from a $50 gift card, the card automatically updates the balance. This save the retailer having to reissue a separate gift certificate for the balance, and it also encourages the consumer to return to the store for more shopping. A consumer can easily add money to their gift card balance and save it for another time or give the replenished card as a gift to someone else.
Other Retailer Benefits
Compared to paper gift certificates, plastic gift cards are more secure, more reliable, and more revealing.
In terms of security, plastic gift cards are very difficult to counterfeit, and not worth most counterfeiters' time. Gift cards are not appealing to shoplifters, either, because unlike paper gift certificates, the cards hold no value until they are activated at the checkout.
On the reliability end, consumers are less likely to return a gift they select themselves (and purchase with a gift card) than a well-intentioned but ill-suited gift chosen by someone else. If a consumer spends less than the full value of a paper gift certificate many retailers return the balance to the consumer in cash, rather than issuing a separate gift certificate. As noted earlier, most gift cards offer rolling balance updates, which means that retailers don't have to return a portion of their sales to the consumer, who may spend the cash somewhere else!
When it comes to revealing, plastic gift cards provide easy, electronic access to sales data that be useful for tracking the success of promotions, customer purchasing habits, and other business trends. By analyzing gift card histories, retailers can learn how to customize their marketing efforts to attract and retain customers.
Challenges
Selling gift cards does have its challenges. For accounting purposes, gift card revenue is recorded when the card is redeemed, not when it is purchased. Retailers who sell a lot of gift cards during the winter holidays need to prepare for seemingly deflated holiday sales. The upside is that many retailers see a revenue spike in January and February as consumers use their gift cards to take advantage of post-holiday sales and promotions.
In some states, gift cards are subject to "abandoned property" laws, which require retailers to charge penalties for delayed redemption or surrender unredeemed cards to the state government. Consumers who are not aware of these regulations may postpone their shopping until it is too late, and may blame the retailer who has the unpleasant task of educating customers after the fact. Retailers are wise to take an active role in educating their customers of current regulations governing gift cards.
On the other hand, the benefits of gift cards clearly outweigh the potential challenges, for both retailers and consumers. With a little bit of planning and creativity, you can use gift cards to promote loyalty from your existing customers and keep new customers coming back again and again.
Originally published in the September/October 2007 issue of Country Business magazine. Copyright 2007 Sally Bacchetta. All rights reserved.
Sally Bacchetta is an award-winning freelance writer and sales trainer. She has published articles on a variety of topics, including business, sales training and motivation, pharmaceutical sales and emerging technologies. Read her latest articles on her freelance writer website.
