A No-Lose Opportunity

As a convenient way for consumers and businesses to give and receive gifts, gift cards are rising in popularity. This increasing demand for prepaid gift cards offer retailers significant opportunities to maximize customer relationships, enhance customer satisfaction and retention, and increase revenue. Retailers that do not offer gift cards as part of their service risk losing a significant amount of revenue. Retailers also miss key opportunities to enhance customer engagement, and risk exposure of their customer base to the products offered by the retailers that do provide gift cards.

In the recent years, gift cards and certificates have become immensely popular with both retailers and customers. Gift card sales in 2012 are estimated to have exceeded $200 billion, with $25 billion coming from holiday season spending. This can be compared to $24.1 billion in the 2011 holiday season and $24.9 billion in 2010. Customers love gift cards for several reasons. They are convenient, easy to use, easy to carry, and everyone appreciates them. There is no need to worry about buying the wrong gift, and they are appropriate for everyone be it family, friend, employee or business partner. A recent survey has shown that 59.8% of adults wish to receive a gift card for the holidays.

Measurable Benefits for Retailers

While consumers enjoy many benefits of gift cards, so too do retailers. One of the most basic psychological benefits behind gift cards is that people see the value on the card as “free money” or “found money”. On top of the initial gift card purchase, customers are almost guaranteed to spend more than the amount of the gift card when they redeem it. Customers are extremely unlikely to use up their gift cards without some excess being paid out of their own pocket. Rather than leave a balance on the card, customers are inclined to treat the gift card amount as a minimum purchase price. In fact, studies have found that 69% of gift card recipients will spend more than the value of the gift card, with 30% spending $25 more. This is known as “uplift”, and it is additional profit for the retailer. The prevalence of gift cards as holiday gifts effectively extends the holiday gift buying season, since gift cards are predominantly sold during the holiday season and redeemed in the off season. This makes the January and February clearance sales among the most lucrative non-holiday periods for retailers, and allows businesses to absorb the cost of goods sold (COGS) expenses over the entire period, instead of absorbing huge jumps in COGS at one time.

While research shows that uplift is a genuine phenomenon, Ogloba’s platform actually makes it simple for clients to measure the amount of uplift achieved by their gift cards. Our system computes the “extra” value of goods in a customer’s shopping basket when a gift card is used – for example when $90 worth of goods is paid for in part using a $20 card, there is uplift of $70. Over a period of time, the average uplift value (A) is compared with a standard average basket (B), giving the average uplift value (C) for the entire period – (A – B = C). (NOTE: the value of a standard average basket is not in our system). The system can also store the type of goods purchased, although it does not store the individual SKU numbers of the products. This allows clients to analyze if certain products are regularly purchased together, and can be useful for marketing and promotion purposes.

Gift and loyalty cards also have indirect benefits. While the majority (75%) of the money put on gift cards is redeemed, not everyone will use all of the value of their card. Customers may lose a card, or intentionally fail to use it for whatever reason. Some customers use the card but leave money remaining on the balance. This remainder is then either forgotten about, or disregarded as being immaterial. Whatever the reason, this unredeemed card value can add to the bottom line of the business. It has been estimated that since 2005, $41 billion of gift card-stored money has been lost or is unlikely to ever be used. It is estimated that while “breakage” (the unredeemed card value) has fallen in recent years, in 2012 alone $1.7 billion of card value went unredeemed. Regardless of whether the customers spend more or less than the face value of gift card, the retailer will profit. These two benefits alone often make gift and loyalty card programs pay for themselves.

More gains, little pain

There are other advantages afforded to merchants who offer gift and loyalty card programs. Gift and loyalty cards are the most cost-efficient way of acquiring new customers, or increasing the frequency of customer’s visits to the store. This is because the retailer does not pay to “generate” the new customer; the buyer of the gift card generates the customer by purchasing the gift card. This transaction actually creates two customers – the buyer of the card, and the recipient of the card. This in turn increases brand-awareness and encourages brand loyalty. An overall by-product of this is that Subscriber Acquisition Costs (SAC) for the brand are kept low.

Another added benefit of gift cards is that they are cheaper to produce, store and manage than paper certificates and vouchers, as they are durable, reusable and more secure. In addition, unlike some forms of marketing, the reach of gift and loyalty cards can be accurately measured, as retailers know how often customers are coming into the store, what they buy, and how much they spend, making them a cost-effective form of marketing. This rich data can be used to tailor marketing to specific groups or individuals, making it relevant to them, and therefore, increasing the effectiveness of the advertising. Ogloba’s solutions help our clients make the most out of their gift and loyalty card programs, increasing revenues, increasing customer loyalty, and increasing marketing efficacy.