Ansoff Matrix

Previously, I discussed risk management and industry competitive analysis. I will now extend those earlier discussions in this article by focusing on the ways in which a business can consider its options for its growth. Specifically, 'growth' relates to securing more sales revenue and or volume. Since businesses exist within a competitive landscape, this growth must usually occur after capturing market share from competition while managing the associated competitive risks.

Uses for the Ansoff Matrix

• Ansoff's Matrix is a marketing & corporate strategy tool. It can be used to formulate your business plan's growth-oriented mission statement. Businesses with strong growth ambitions often consult these strategies. 
• Third parties reviewing a business plan, especially investors who will suffer loss if your business' ventures fail like venture capitalists are particularly interested in your choice of strategy for enhancing revenue. Growth strategies therefore provide a very strong indication of the level of risk associated with your business' vision. 
• Defining your business strategies according to the Ansoff Matrix provides a systematic way of  integrating risk management into the marketing strategic plan. Specifically, it allows marketers to easily identify risks, rank those risks and then plan tailored responses for each risk, according to its intensity.

Types of Growth Strategy, Defining 'Product' and 'Market' & Gradations

The 4 strategies in ascending order of risk are as follows. It is worth noting that any of these strategies may be used in conjunction with another. 

1. Market Penetration
2. New Product Development (NPD)
3. New Market Development
4. Diversification

Each of these 4 strategies is graphically represented by a quadrant in the Ansoff matrix. The axes of the matrix represent strategies involving the 1) product and 2) market. Each axis is divided into either 1) current or 2) new. In other words, a strategy can involve either a pre-existing product or a new one. Similarly, the strategy can involve either a pre-existing market or a new one. Each strategy can therefore be plotted within the matrix to simultaneously consider the nature of the product and market in these ways.

As strategies involve newer products and or markets, the risk of loss and faillure increases. In other words, the level of risk increases as a business moves further away from what it already knows and into something new whether new markets and or new products. Since market research and product research & development (R&D) required to engage in something new do not guarantee success (ie sales), there is always a likelihood that your financial investment into these activities can be lost. In fact, non financial losses are also looming probabilities. As discussed below, the least risky strategy is market penetration while the most risky one is diversification

Given the potential for different definitions for 'product' and 'market', managers should communicate the interpretation that should apply to their organization. For instance, in my practice, a 'product' is any unique item for sale. It usually has its unique barcode (a digital fingerprint that hopefully conveys my message of its individuality and uniqueness). In other words, if I sold polo shirts, color variations or other items within a product line can not be collectively called a product. Instead, I select the standard or original version as a single 'product'. As will become apparent below, the decision to introduce newness like variations in color, size and so on requires some specific consideration regarding associated risks.

For my purposes, a 'market' usually consists of members who qualify for the product and can probably be served through sales channels available to their market. If the shirts are sold in City A stores and City B stores but shoppers from either city do not access the other city, I can say that I have 2 markets that are defined in terms of geographic location. I may name them the City A market and City B market. In reality however, markets may also be separated psychographically, socioeconomically and otherwise. The key point is that a 'market' is specifically defined and separate from others. For instance, Stores A and B may be feet away from each other on the same street but belong to different markets. If the stores have extremely different prices; one very high to be exclusive and the other very low to cater to budget conscious shoppers, members of one socioeconomic market are unlikely to ever visit the store of which they are not members, even if the other store is nearer to their homes.

In some organizations, quadrants contain gradients that represent different levels of newness or deviation from the current product or market. Gradation reflects varying levels of risk within a single quadrant. For instance, imagine that you decide to sell your shirts to a new market, ie the middle socioeconomic market but within the same town. The level of risk will be different if you sell the same shirts in a different city whose commercial environment is entirely new to you. The risk increases even further if you sell in a different country. 

As you might have suspected, the same gradation can apply to products. For instance, if you offered polo shirts that were extra small and pink (ie rather than the standard navy blue), you run the risk that your market will not buy them. Has your market consisted of men whose machismo will prevent them from buying pink, even for their sons? Knowing the qwirks of your market, you will also need to decide whether offering a dress shirt of linen (ie rather than a polo shirt made of jersey material) is marginally or considerably more risky. Each of these new items may appear on a different gradient. These differences are clearer if you started to offer products that are: add-ons like belts and hats that complement the main product; upsells like fancier polo shirts or; products in completely different industries like daycare services which drastically deviate from clothing.

Needless to say, while considering the gradations of product newness, you must simultaneously do this for markets. For instance, considering the qwirks of your market, do you need to treat the pink shirts as 'new' products in a 'new' market because, up until this point, your store has only attracted men, but women and their daughters are the only likely buyers? If you are thinking about the daycare services which, in addition to being a different product, also caters to a different market, its riskiness transcends pink polo shirts for women despite the fact that daycare services exists within the same quadrant for both new product and new market.

This post will now explain each of the 4 strategies in turn. However, in the cases of new product and new market development, there is additional discussion about the associated risks.

1. Market Penetration - LOW Risk
This strategy involves a 

• current product  AND
• current market

Aim: To increase market share by increasing dollar value of revenue. Within your current market, you have the option of targeting either:

• customers from competitors (direct and indirect)      --OR--
• YOUR current users to consume more

This applies to cases in which you are already serving a particular market but wish to deepen your hold on that market, ie expand market share. See examples below this strategy. When using this strategy, you likely need either very little to no market research to achieve this successfully because there are no new markets to be researched, nor products to be developed and tested. The market is already like your familiar 'home base'. NB. This strategy is not ideal if you are in an already crowded market and your product is in its mature stage.

• Example(s): forms of this strategy.
• If a brand called Kopa-Cola already sold its drink in City X (ie a pre-existing product and market) but 
• now tries to increase sales by introducing a 6-pack, perhaps pricing it so that the last bottle is free. With this approach, the brand is targeting its own customers ... OR
• now offers the drink as part of a bundle that includes tickets to movie theatres that cater to the competition's drink. With this approach, the brand is targeting the competition's customers.
• Opening new channels and or making existing channels easier to use within the existing market with new physical retail outlets, new websites, new social media, live chat, etc
• Loyalty programs encourage your current customers to continue buying. Consequently, they meet the objective of this strategy, ie to increase sales. (As a side note, loyalty has the added benefit of raising switching costs as per Porter's Five Forces).
• Market-appropriate tentpole promotions like Mother's Day special, Christmas sales, etc. These promotions may include sales like buy 1, get 1 free or earn double rewards.
• Competitions that encourage the engagement of current customers using social media features like questions in Instagram Stories.
• Shout-outs with strategic alliances, ie other businesses with non-competing offerings but the same market. You may use tools like Instagram @tags. 

2. New Product Development (NPD) - MEDIUM Risk

This strategy involves a:

• new product - a source of cost and therefore risk
• current market

This strategy is the 2nd least risky. It evolves naturally from product penetration because it is easier to sell to existing customers that you already know well than to acquire new customers. It relies very heavily on pre-existing deep insight into customer needs and successful innovation. In short, costs that cause risk relate only to new product development (NOT market research).

Uses & benefits:

• to recapture your customers who are being lured away by the competition (essentially a counter attack)
• to exploit opportunities to sell a new product. 

Example(s):

• If the abovementioned Kopa-Cola brand (that already sells its drink in City X) now tries to offer a product variation to its pre-existing market. It might offer a 'light' variation, to prevent customers from having a wondering eye when they notice that the competition and social media is talking about lowering sugar consumption.
• In the personal care cleaning industry, large synthetic detergent (syndet) bar companies began to receive a lot of competition from cottage industry makers of all-natural soap. In response, syndet makers created 'green' ingredients to their syndet bars and took advantage of the facts that there is no regulation over the word 'natural' and the average consumer does not understand the science. However, to attempt to raise entry barriers to soap makers and secure their competitive advantage, they began to push the idea of pH-neutral products as being superior and safer for human skin. They did this knowing that soap by its nature can never achieve pH balance.
• New features on the current product
• Special editions, which are variations of the current product
• New product updates.
• Case study: Apple does this very well with new  innnovative operating systems, each with existing new names.
• Market extension using strategic alliances with other companies.
• Tentpole-specific variations
• Glocal variations

Risks asssociated with new product development include the following.

• Missed opportunities due to inflexible pursuit of and faith in the original plan. This can result in tunnel vision that does not adapt to changing market needs.
• Delays due to over-stretching (human and other) resources. Allow the R&D team and equipment to focus exclusively on their task. In other words, avoid the temptation to assign these resources over too many projects and normal-business tasks because they will be less equipped to handle the unpredictable nature of R&D. In short, the solution is to have a 'capacity buffer'. A capacity buffer includes not rushing into new projects before properly completing ongoing ones and dedicating teams and equipment to a single project.
• New products that become unpopular in the market due to being too complicated with an excessive amount of features. This is very applicable to products that are technical and whose method of use needs to be learnt (like software, equipment and information). I will also add that this applies to even consumer goods whose number of components should likely be kept at a minimum to help consumers better identify what they like and consider effective. Rather than make a toothpaste that is for removing tobacco stains but also ideal for sensitivity is confusing. You are better off creating segments. Besides, your production team will have less chance of total work stoppage due to running out of one among numerous components.
• Product failure due to zero-tolerance for design failures during development process. This can result in entering the market prematurely with sub-standard products that can hurt your brand. The solution is to not only be clear on objectives based on market needs but also willingness to alter the plan and re-design the product as needed during the process. Allowing the R&D process to endure failures prevent designers from only selecting the least-risky options. Enduring the failures in-house early saved the brand from public product failure.

3. New Market Development - MEDIUM RISK

• current product
• new market - a source of cost and therefore risk

A new market can be defined by any grouping such as geographic location, psychographic segment and income level segment. Re R&D, since you are targeting new leads with the same product, you only need to perform market research (and NO new product development). You already know your product has a potential to be liked. Since the elements of newness is limited to only or mainly one between product and market, this strategy is considered to carry medium risk. (However, you might still need to follow trends of the target market's evolving needs and desires). 

Case Studies:

• Some of your high end clothes can not be sold as normal in your usual outlet, possibly due to overproduction, returns, slight defects and so on, you find alternate 'off-price' retail outlets like TJ Maxx. TJ Maxx is a different market segment in that it is renowned for appealing to people who want high quality but at a discounted price. Consequently, your high end buyers are unlikely to shop there. If TJ Maxx is also unable to sell those products, they may pass those products on to thrift stores.
• Unlike numerous Western companies attempting FDI in China, Starbucks' foreign direct investment (FDI) entry into China was successful after some initial floundering. The success is possibly due to several reasons. For starters, its entry represented the first time a coffee culture was introduced to such an extent in China when the middle class was growing and demanding new experiences. Despite the Chinese culture that is traditionally geared towards tea, the experience was appealing to Chinese. To some extent, the aesthetics are considered glocalized with Chinese wall art, mugs and so on. Senior management admitted that their task was helped significantly by having Chinese 'friends'. My impression is that this success might involve luck because of timing. In contrast, Starbucks failed in Israel. This was due to not appropriately adapting to the  Israeli coffee culture. For instance, Israelis prefer to lounge around with ceramic cups. Carrying away Starbucks' paper cup made some Israelis feel rushed which was therefore unappealing. Since Starbucks charges a premium for the Starbucks experience, it would be understandably hard to justify paying more for an experience people did not value. The brand failed in Australia to the extent that it closed 2/3 of its locations in 2008 (only 8 years after starting its FDI there) and after sustaining over USD 100 million in losses. This occurred despite the fact that the Australia coffee market is among the largest in the world. Its failure appears to have occurred through an attempt to quickly reproduce the same US product, ie as opposed to slowly or organically becoming integrated into the new market. The Australia market is used to a more intimate experience in cafes and also has its own coffee preferences. Starbucks' menu did not adapt from more sugary drinks to what Australians would consider more sophisticated tastes. Furthermore, the high number of locations arguably made the brand appear too mass produced or commoditized and available for a premium brand. Ultimately, the premium price could therefore not be justified by consumers who found the experience below par. This case illustrates that success in one location does not naturally translate to other markets. To be clear, it is not simply a matter of american companies being incapable of globalizing. Afterall, another american company, Gloria Jean's Coffee was successful at glocalizing with over 400 outlets in Australia. Gloria Jean used Australian franchise to accomplish this success but with a menu that is adapted to the Australian taste.
• The failure experienced by Walmart in Germany is a case in point that shows the risk involved in failing to adjust an incompatible business model to the demands of local markets. Specifically, Walmart did not alter its American model before setting up stores in Germany. It was voted as the "worst supermarket" for several years and lost hundreds of millions of dollars. At the core of this problem is the fact that Walmart's value proposition is competitive price while the German market does not focus heavily on price. In general, Europeans do not even care to know the price of items while shopping.  

Example(s):

• Brand awareness promotions
• You want to target not just Gen X and Y as per your norm but now also Baby Boomers.
• You want to overcome a recession or low-income profile in your country and want to enter a different country's more affluent market. 

Risks associated with new market development may be divided into internal, external and legal. Identify risks by considering the following related factors. In all instances, seeking advice and working closely with locals (like staff, lawyers and other stakeholders) help to manage these risks. These relationships must also be maintained since the rules change. Needless to say, research your market as heavily as possible and without making assumptions.

• Internal (ie within your business)
• Cultural differences: segmentation based on demographics &/ psychographics; language; social perceptions regarding matters like race and gender; systems of measurement.
• Goals that are unclear, inadequately communicated or integrated into the functional processes throughout the organization.
• Lack of coordination, especially among virtual team members.
• Cash flow. Given the unpredicatable nature of how things can go wrong, businesses need extra emergency sources of cash.
• External
• Conversions across (volatile) foreign exchange rates, foreign business practices.
• Logistics, especially in developing countries.
• Technological networks in the location. 
• Social unrest and trends. Businesses should learn the significance of the social climate, the reasons for protests, riots, labor strikes, revolutions, wars, sudden changes in governments and so on. This is key for planning accordingly, showing appropriate solidarity and avoiding the perception of insensitivity.
• Physical environmental factors. These involve  issues as insidious as the mold that develops in highly humid climates to the raging nature of hurricanes, earthquakes, floods and so on.
• Legal
• Compliance with the regulations and laws of the new market. Consider for instance that, selling marijuana was legal in some US states but carried a severe penalty in others.

4. Diversification - HIGH Risk

This corporate strategy involves:

• new product - a source of cost and therefore risk  AND
• new market - a source of cost and therefore risk

Diversification is the single most risky strategy because it involves entering into new markets with new products. Sometimes, this strategy is used as a last resort for survival when a company's product life cycle is in decline in its market or when there is no other foreseeable means for growth (because all other strategies have been exhausted). However, it can also be used by healthy companies that simply want to grow to please its shareholders, like Amazon. I also consider new business ventures as starting in this way. Regardless of the circumstances that lead to diversification, businesses should consider cultural differences when moving internationally. If you lack sufficiently deep knowledge of your product, tread cautiously. You might be better off with another growth strategy. Also consider minimizing the high risk with strategies like franchising.

Case studies

• Amazon has used diversification simply to grow to please its shareholders. Regarding new markets, it uses strategic alliances in this globalization process. Regarding new products, it leveraged its well known name to diversify into drastically different fields in some instances like the Amazon Web Services (AWS). Unlike the original retail Amazon, this business provides server, storage, networking, remote computing, email and mobile development and security services. In fact, this product has even become Amazon's leading revenue generator. Ultimately, this case is the classic example of the enormous rewards that can come with enormous risk.
• When a car brand needed a plastic manufacturer to make some of its parts (fairing panels), Swatch, a business that specialized in making plastic watches took the risk of making this new product (fairings) for a new market (the automobile market), both elements (product and market) with which Swatch had no experience. 
• Alphabet is a case of a highly successfully diversified business. 

Example(s):

• Mergers & acquisition can give you access to your competitors' customers. 

Sustainability of Growth Strategies

Beware however that these strategies are not always sustainable. For instance, strategies reliant on giving more for less, product variations, new sales channels, new market segments, etc can often be easily imitated by the competition and or deliver diminishing returns over time. Consequently, they are best considered as relatively short-term growth strategies for quick results. As to be expected, the most risky growth strategy, diversification has the greatest potential for more sustainable growth.

CONTENT RELATED TO THE ANSOFF MATRIX

• New Product Development 101
• Business Plan
• Risk Management 101 
• Franchising can be a means of reducing the high (financial) risks associated with new market development.
• Consignment agreements can reduce risks associated with new market development.
• Corporate strategy
1. PESTLE 
• Create SWOT (using PESTLE tool)
2. Porter's 5 Forces
• Create SWOT analysis (using Porter's 5 Forces)
• Gap analysis
3. Ansoff Matrix 
4. Boston Matrix
• Operations management 101 for productivity
• Abovementioned case studies in other content
• Amazon
• Apple
• Gloria Jean's Coffee
• Instagram
• Personal care (cleaning) industry
• Starbucks
• Swatch
• TJ Maxx
• WalMart

Store Gift Cards

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. 

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.

   

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. 

Uses & Benefits of Store Gift Cards

• 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

Use for giving to others or oneself

• 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)

Demand for cards ranked by industry

• 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')

1. Restaurant gift cards (41%)
2. Visa® Gift Cards, MasterCard® Gift Cards and American Express Gift Cards (31%)
3. Department store gift cards (28%)
4. Coffee shop gift cards (21%)
5. Specialty clothing, shoes, apparel and accessories gift cards (19%)
6. Entertainment/movies gift cards (19%)
7. Electronics store gift cards (18%)
8. Book store gift cards (14%)
9. Salon/spa gift cards (11%)
10. Home improvement gift cards (10%)
11. Sporting goods gift cards (9%)
12. Gas station gift cards (8%)
13. Grocery store gift cards (8%)
14. Discount store gift cards (6%)
15. Home decor/housewares gift cards (5%)
16. Office supply gift cards (2%)
17. Other (3%).

E-gift vs plastic cards by generation

• 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%)

(Blackhawk Network’s study, 2018)

Overspending gift cards

59% of consumers surveyed usually spend more than the card's value. (Blackhawk Network’s study, 2018). Several studies have had similar findings. Even market research conducted as far back as 2010 showed the same pattern of overspending. (First Data, 2011). It is therefore reasonable to assume that this trend is consistent and likely to persist.

Top gift card givers

Men have been observed to be repeatedly more likely than women to buy gift cards. (NRF, 2015)

Top gift recipients 

Close family member (73%), Friend (49%), Extended Family Member (37%), A Child Other Than Your Own (19%), Colleague, Employee or Boss (18%). (Blackhawk Network’s study, 2018)

Average number of gift recipients 
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. 

Regarding how to allocate (aka 'escheat') unused balances (aka 'breakage'); 

• 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)

Tips for designing a successful gift card program

• 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