A gift card, also known as gift certificate (in North America), gift voucher or gift token (in the UK) or tarjeta regalo (in Spanish) is a prepaid money card or prepaid debit card with a specific money value. It can be used as an alternative to cash for purchases at a particular store or any one of participating stores. Customers are commonly encouraged to buy them for friends as gifts for birthdays, graduations, and many other gift-giving occasions.
This post discusses types of gift card, the use and benefits (mostly from the retailer's perspective), market trends and tips for applying the trends and best practices.
There are two main types of gift cards; 1) cash cards and 2) store cards. Cash cards aka 'open loop' gift cards include Visa, MasterCard and Vanilla gift cards. They allow holders the flexibility to redeem the cards at any of the numerous stores participating in the payment programs by these brands. They are better for gift givers who do not know the recipient's tastes sufficiently well to select the alternative, ie a store card for a single brand. Specifically, store cards aka 'closed-loop' gift cards can be redeemed only at the store of a single retailer. Consequently, these cards are more suitable for gift givers who have more intimate knowledge of the (potential) brand preferences of the recipient. This post will focus exclusively on the latter, ie store or closed-loop cards.
Gift cards may be sold through multiple distribution channels. For instance, apart from being sold from the brand's outlets (online and or offline), cards may even be sold by third party retailers who can benefit from gift giving market trends. For instance, when compared with other industries, restaurant gift cards have been observed to have the single highest demand (Blackhawk Network's survey on "How America Gives Gifts in 2016'). It is therefore not surprising that Walmart has a large specialty floor point of purchase (POP) display dedicated exclusively to gift cards mostly from numerous restaurant and coffeehouse brands. To a lesser extent however, gift cards from other industries are also sold on Walmart's racks from Google Play cards to Apple Store & iTunes, Nintendo and so on.
This third party distribution trend also occurs online. Example: Amazon sells many of the same restaurant gift cards along with so many other brands and options that make the gift card product very competitive.
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| Amazon offers a wide array of gift card products across many industries and brands, even those (like Apple) that had been historically very exclusive in their distribution. |
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| The width and depth of online options (highlighted in red above) from just Amazon alone are so awesome that the offerings of this juggernaut can leave many small business owners feeling intimidated. |
Unlike cash cards, store cards usually retain more or all of their full face value. (Cash card holders are often subject to charges for services like monthly maintenance fees that whittle away the value of the card if unused over time. Other cards have fixed 'purchase fees' that the buyer pays upfront at the point of sale). For this reason, store cards may attempt to differentiate themselves by specifying on their packaging that there are no purchase or other fees). Furthermore, store cards are less likely to have expiration dates.
- They can be used for any type of business as any (consumer) business offering is giftable. Consider who benefits from your product, when and how and develop a gift card program accordingly. For instance, pens can be gifted to parents during the back to school rush (possibly bundled with other related products), a plumbing business can sell gift cards that will be gifted to new home owners and so on.
- They bring more business.
- Gift cards are often used by retailers wanting to promote loyalty.
- Gift cards promote brand awareness and new customer acquisition. Existing customers who give friends and family gift cards are essentially providing a 'referral' service to persons they know and believe are a good fit for your business. When given as a gift to new customers, it encourages new customers to go through your product catalog and personalize their gift accordingly.
- Many shoppers exceed the value of gift cards.
- Gift buyers value convenience over uniqueness, especially when they are running out of time.
- Sellers benefit from the immediate cash flow, regardless of whether or not customers redeem the card. Besides, customers often lose cards, forget about them, or do not bother to redeem small remaining balances. Note however, depending on your local revenue department, the un-redeemed card value called 'breakage' may be due to the government. You must therefore check the rules that apply to your business. Note that gift cards are a business' promise to deliver products at a later date and may therefore be required by law to be documented as a company's liability (or loan). It is no wonder governments may prefer to enforce transfer of these funds to them so as to prevent unscrupulous businesses from making it hard for customers to redeem gifts.
- Store gift cards are an intimate gift because (unlike cash cards,) they demonstrate that the giver has personal knowledge of the interests of the recipient. This is therefore ideal for brands that sell personal products
- Be creative. The pandemic lockdown may pose promotional Covid-19 marketing solutions - opportunities through gift cards. In addition to abovementioned benefits like customer acquisition, brick-and-mortar businesses may consider promoting gift cards for curbside pickups, home deliveries, special day visits and so on to show appreciation for health-care workers, the elderly, teachers, friends in need and so on.
Relevant statistics related to gift cards
- 42% of consumers surveyed purchased e-gifts for both e-gifts and self-use.
- Re self-use, 78% would purchase an e-gift for self-use if it were offered at a discount, a finding of particular interest for retailers wanting to encourage egift adoption. Other cited reason are to rewards collect points and to use the card to shop online.
- Re gift-giving, the purchase motivation factors with the greatest probability include delivery in minutes (45% of respondents), delivery notification (39%), ability to include a digital greeting card (28%). (Blackhawk Network’s study on consumers’ usage, adoption of and sentiments toward egifts)
- Gift cards are purchased in numerous types of retail businesses, the top 3 being restaurants, credit cards and department stores. See the list of others below. How popular do you estimate gift cards will be in your business? (Blackhawk Network's survey on "How America Gives Gifts in 2016')
- Restaurant gift cards (41%)
- Visa® Gift Cards, MasterCard® Gift Cards and American Express Gift Cards (31%)
- Department store gift cards (28%)
- Coffee shop gift cards (21%)
- Specialty clothing, shoes, apparel and accessories gift cards (19%)
- Entertainment/movies gift cards (19%)
- Electronics store gift cards (18%)
- Book store gift cards (14%)
- Salon/spa gift cards (11%)
- Home improvement gift cards (10%)
- Sporting goods gift cards (9%)
- Gas station gift cards (8%)
- Grocery store gift cards (8%)
- Discount store gift cards (6%)
- Home decor/housewares gift cards (5%)
- Office supply gift cards (2%)
- Other (3%).
- Gen X and baby boomers prefer to redeem plastic gift cards. Conversely, millenials prefer e-gift cards. (National Gift, 2016)
Re Small business gift cards
74% of consumers surveyed said they regularly buy gift cards from small businesses. The study also found that
- 90% of consumers who receive a gift card from a small business they had never visited previously said they would shop at that business and return there in the future
- 56% of surveyed consumers join loyalty or frequent shopper programs at small businesses. The same group said gift cards are the preferred way for their loyalty to be rewarded
(Fiserv Small Business Study,2019)
Most common tentpole marketing opportunities
Top times to buy a gift card include:
- Birthday (67%)
- Holidays (44%). This relates mostly to "winter holidays like Christmas".
- Thank You (25%)
- Graduation (22%)
- Mother’s Day (21%)
- Congratulations (21%)
- Just Because (20%)
- Wedding (17%)
- Anniversary (17%)
- Valentine’s Day (16%)
- Reward for Someone (14%)
- Father’s Day (14%)
- New Baby (13%)
- Housewarming (7%)
- Work-related Reward (7%)
- Easter (7%)
- Back to School (5%)
Men have been observed to be repeatedly more likely than women to buy gift cards. (NRF, 2015)
Shoppers surveyed plan on purchasing gifts for eight people on average, estimating they will spend a total of $618.93 in 2019. (Blackhawk Network, 2019 on holiday shopping)
General information & areas of potential controversy
Second only to questions about the size of the gift card industry are questions about unused gift cards. The US media are often fixated on who profits most from lost, stolen or forgotten gift cards.
Regarding unused gift cards, roughly 3% (CBS News Report, 2020) or 2% to 4% (Mercator Advisory Group) of gift cards are never redeemed according to an estimate from the Mercator Advisory Group in 2019.- 75% of people surveyed (68% of men, 81% of women) said they ALWAYS use the gift cards they receive. 20% of people surveyed (23% of men, 17% of women) said they forget to use the gift cards they receive. (GiftCards.com, 2018)
- 42% of consumers redeem their gift cards right away. (Blackhark, 2018)
- 42% of persons who do not use cards immediately watch and wait for good sales or promotions to maximize the value of their gift card. (National Retail Federation, 2018)
- Sell your gift cards through multiple channels that include your brick-and-mortar store, online, other non-competing retailers.
- Advertise that you sell gift cards both in and outside your store. Gift cards have the potential for the acquisition of 2 new customers, they buyer and seller. In short, advertise your gift cards as a gift giving solution for gift buyers.
- Improve your online shopping platform. This is especially noteworthy within the context of using gift cards as one of your Covid-19 solutions.
- Use gift cards over gift certificates. Gift certificates are the same concept as gift cards, except for their physical presentation. Specifically, certificates are printed on paper or cardboard. In contrast, gift cards are usually printed on plastic cards and usually have a magnetic stripe to transfer information into the POS system. Apart from being less susceptibility to wear and having a more professional presentation (more suitable for premium brands), gift cards outsell gift certificates between 35% and 100%.
- Prepare to up-sell, cross-sell and offer add-ons to gift card shoppers as their tendency to be less price-sensitive while shopping with 'someone else's money' makes them more likely to spend more than the value of the gift card.
- Integrate gift cards into your loyalty rewards program. Here are 2 meaningful ways.
- 1) Encourage recipients to join your loyalty rewards program, perhaps delighting them with points (for signing up). This will also provide you with the opportunity to market to that person, ie customer relationship marketing.
- 2) Allow customers to earn points for redeeming gift cards. By awarding points for their activity, customers are incentivized to earn further points for to earn rewards. Additionally, if your program expires points for inactivity, it ensures that customers are not penalized for having engaged with your brand without their own cash.
- Offer value to buyers in the form of convenience with gift wrapping. Research shows that convenience is one of thre greatest forms of perceived value in gift cards for gift givers. Example, Both Amazon and Sephora gift wrap their gift cards, a convenient service that no doubt earns them a premium, especially since convenience has been shown to be of great value to gift givers (over uniqueness), especially at the last minute. Specifically, the gift wrapping allows the giver the luxury of having already very presentable gift that is immediately ready for presentation to the recipient. The gift wrapping is arguably targeted more to the buying giver than the receiver.
- Offer add-ons labelled 'bonuses' that exceed consumer expectations and differentiate your brand's gift. Example, Sephora's website explains that the gift card comes includes "Includes a sleek, black, dual-mirrored compact, embossed with the Sephora logo and a gift box."
Example: The Cheesecake Factory gift card package for $50 includes a bonus of 1 free slice of cheesecake.
Example: Red Robin offers a '$10 bonus buck'.
If funds are a current challenge that prevent that level of generosity, even consider points in your loyalty rewards program.
The cards may be sold singly according to dollar value and or in packs of several cards, often 3). While research shows that many people buy gift cards for multiple recipients, it also shows that many people buy gift cards for themselves. Take advantage of volume sales, including bonuses which gift card buyers may enjoy themselves, even if they use the volume package in a type of 'give-to-get' fashion increasingly encouraged in many referral programs. Also incorporate abovementioned consumer bonuses to this end.
If possible, provide the option between 'eGift' cards and 'physical cards'. Example: The Cheesecake Factory provided this option to customers on their website.
- Consider the statistics that relate to tentpoling, industry, top gift recipients and consider if and how your product's type applies. For instance, personal care products like cosmetics can great gift ideas for birthdays of close family members and friends, a non-surprising trend observed in Sephora's loyalty rewards program since that company sells cosmetics, a product in whose interest only persons in close relationships can predict. When customers sign up, they have the option of providing their birthday in order to receive a gift card.
- Whenever possible, use eGift cards. This method makes it easier to encourage both the giver and recipient to give up their contact details.
- Although gift card programs can be set up with relative speed, give yourself sufficient lead time to train staff and figure the best strategies before the heavy period.
- Build relationships through data collection. When customers (the giver and recipient) sign up with their contact details, use their information to invite them to receive email newsletters and special offers. You can also prompt them to redeem forgotten cards and so on.
- Reward loyal customers, even if you do not have a loyalty rewards program. Consider sending gift cards to best customers that you have not seen for a while but would like to get back.
- Use gift cards to boost sales during slow selling periods. Selling gift cards just before slow periods is one means of doing this. Christmas gift cards are therefore useful in this regard. Black Friday sales might promote Christmas shopping for industries that usually see slow sales during Christmas (like health care). Otherwise, you can also promote special gift card weeks or weekends. This is a common practice in January when Christmas shopping has ended.
- Compete with big stores (like Amazon). Celebrate and stress the uniqueness and ability to personalize in your niche. Even Amazon is unlikely to offer competing gifts, like a unique tour experience through your facility, a gift within your rewards catalog of unique and local experiences.
- Use gift cards as an alternative to issuing refunds. This encourages the customer to keep their investment in your brand. Besides, this practice also combats fraudulent behavior in which thieves steal merchandise (like possibly the same thing they had previously bought) with hopes of getting a cash back refund (upon presenting a receipt).
- Donate with gift cards to fundraisers. This encourages the recipient to return to your store as opposed to when the recipient of cash or merchandise may never return to your store.
- Reward top performing employees and sale persons with your brand's gift cards. This helps to keep the money in your business. Not to mention, it can be a less costly approach because the cost to you is closer to the cost of producing the product than the sale price of your product or another retailer's products at sale price.
- Learn how tax and other law applies in your area.
- Outside of breakage (discussed previously), laws may also apply to the types of fees you may or may not charge and the period over which such fees may apply.
- Learn all of the rules. For instance, activation fees are often allowed IF the fee amount and explanation of its determination are clearly disclosed before purchase.
- Can customers redeem cash? Some places (like California) allow cash redemption for gift card balances below $10.
- Disclose details about expiration.
- If you are also running a referral program with a give $x and receive $x (after the customer spends $x), I suggest making the gift card option more attractive regarding the type of reward for the giver, like give $x+1 and receive $x+1 or well valued non-monetary reward. Since the customer's investment and the rewards for both the giver and receiver are greater and likely to be more immediate for an overall better customer experience, your programs will appropriately reward customers and motivate more profitable customer practices.
- Proactively counteract gift card fraud in whatever way possible. Gift card fraud has become a big problem. Some scammers copy the code from the back of the card. When the codes are hidden, requiring someone to scratch of the concealer, scammers figure out the codes using algorithms. Some small companies are so small that they manually manage the card use, even logging details on Google Drive and sending card inscription details, balances and transactions via direct text messages to customers' registered mobile phone.
CONTENT RELATED TO GIFT CARDS
- Store gift cards may exist alone or as part of a loyalty rewards and referral program. See how to design referral programs to increase your business' customer acquisition potential and loyalty rewards programs to increase customer loyalty and retention.
- See a marketing guide PDF by First Data
- Random facts
- Most retailers do not allow customers to exchange store cards for cash (ie apart from the requirements of some governments regarding small unused balances).
- Not all stores record the customer-related data of card holders. Consequently, it is sometimes possible to transferred ownership of cards to whomever holds them.
CONTENT RELATED TO GIFT CARD PROGRAMS
- Why the old 'earn and burn' loyalty program model is failing and a new approach for modern consumers.
- Tiered loyalty programs
- Use spend-based loyalty rewards programs to give greater rewards to customers with the highest customer lifetime value (CLV) ... and reduce costs while you are at it.
- A great loyalty rewards program can not help your business if customers can not understand it sufficiently well to sign up. Create a loyalty rewards program explainer page.
- Incorporate a referral program into your loyalty rewards program. These 2 types of program complement each other. While the loyalty rewards program seeks to retain customers, referral programs seek to acquire new customers.
- Analyze how well your rewards catalog has been curated.
- Shopping wishlists (gift registries) may also help to promote gift giving while also providing the opportunity for new customer acquisition.
- Case studies:
- Amazon
- Cheesecake factory
- Starbucks
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