Looking to increase sales and profits this Christmas season? Set the stage now with a plan that exploits the full potential of gift cards.
Consider this: More than half of all consumers bought at least one gift card for the holidays last year, according to a report from First Data Corp., an Atlanta-based e-commerce processor.
And shoppers seem to like gift cards more than ever. “The average value of a closed-loop card purchased in 2011 rose more than 23 percent year over year, from $34 in 2010 to $42 in 2011,” according to the report. (A closed-loop card can be used only at a specific store. An open-loop card, issued by credit card providers such as Visa and American Express, can be used at any store.)
Gift cards, as the above comments suggest, can stimulate Christmas sales. But they can’t do the job on their own. Here are some steps you can take to insure the success of your program:
Show it off. “The most important promotional step you can take is to move your gift card display to the cash register where customers can see it,” says Shelley Hunter, a San Francisco-based gift card consultant. “If you’re not comfortable having the actual stack of gift cards sitting there, then at least provide promotional material that lets customers know gift cards are available.”
Dress it up. Although gift cards make great gifts, the presentation can feel impersonal, causing customers to hesitate about giving something that might reflect a lack of effort. Hunter suggests alleviating such concerns by helping customers turn their gift cards into personal gifts.
How to? One way is to display combinations of gift cards and other small merchandise items. “Customers quickly catch the vision that adding a little something to the gift card turns an otherwise impersonal plastic into a thoughtful act,” says Hunter. “And the retailer gets a bump in selling more than one product.” While you don’t have to package these gift card combinations for the customer, having ribbon on hand can encourage an upsell.
Reward the giver. Offer gift card buyers an incentive, suggests Hunter. “For example, customers who buy a $50 gift card might receive a $10 coupon towards their next purchase.”
Incentivize sales. Reward staff members who sell gift cards. “Individuals on a commissioned sales team usually only get credit when a card is used, which can lessen their efforts to sell gift cards,” says consultant Bob Phibbs, Coxsackie, N.Y. “Even worse in my view is that the person who rings up the initial purchase often gets credit for the sale. That leaves nothing for the salesperson who actually sold the card. Some stores don't want to deal with the issue, so they decide that no one receives credit. That’s perhaps the worst solution, since a customer buying a card can end up feeling like the leftover at an American Idol tryout.”
Offer generous return policies. If the recipient of a gift card buys something they end up not liking, will you refund their purchase or only issue a new gift card? You might prefer the latter option, but it can disappoint your customer. “You don't want your employees angering customers about what the store ‘can’t do’ with a gift card,” says Phibbs.
Encourage reloading. Only nine percent of consumers reloaded a gift card they’d bought or received in the past year, according to First Data. Get the figure up by offering cash bonuses or free items each time a customer adds cash to a card. Some card vendors allow customers to reload cards on online. That in effect turns a gift card into a spending card, and allows a merchant to set up “wish lists” where friends can purchase items for the card holder.
Offer gift card substitution. Is a certain item out of stock? Post a “purchase gift card instead” sign at the in-store display, or on your website catalog. Train all the staff to offer gift cards when items are stocked out. First Data says that an increasing number of consumers are willing to buy gift cards when an item is not available.
Go virtual. Offer electronic or “e-gift” cards where possible. Give customers a convenient way to take care of last minute gifts by setting up a program that lets them send gift cards from their smart phones.
It’s smart to take some time to select the right gift card vendor: Switching to another can be costly. “Gift card systems cannot be swapped easily,” says Hunter. “Gift cards, once sold to customers, need to be redeemable. If the gift card balance can only be verified and redeemed on the system that activated it, the retailer will need to create a transition plan in order to change to a new system.”
Here’s one question to ask vendors: Can the program be integrated with your current point of sale (POS) system? If not, you’ll end up keying in every gift card transaction in a separate tracking system, then manually updating your ledger when recipients visit the store to redeem cards.
On the other hand, if you are a small retailer just getting started with gift cards you might actually prefer a system that is not so integrated that it’s difficult to switch vendors. Here, the Internet can help: “Some vendors have a web site where a gift card amount can be verified,” says Hunter. “Then the retailer keys the tendered amount manually into the store’s POS system.”
Obey The Law
Make sure your gift card program complies with federal and state laws, particularly in regard to expiration dates and transaction fees. On the federal level, certain rules about gift cards are included in the Credit Card Act of 2009.
“Federal law requires that retailers honor gift cards for a minimum of five years after purchase,” says Judd Lillestrand, CEO of ScripSmart, a Las Vegas-based organization that tracks gift card legislation. “Also, fees cannot be charged unless there is inactivity for a minimum of 12 months.”
Each state has its own gift card laws, adds Lillestrand. Retailers in California, for example, can neither charge fees for gift cards nor set expiration dates. And states also differ on the distribution of unredeemed gift card dollars. “A number of states seize unspent gift card money as ‘unclaimed property’ after two, three or five years,” says Lillestrand. “Sometimes the full remaining value must be turned over to the state; other times just a certain percentage of the value.” Often state regulations are unclear and confusing, notes Lillestrand, since legislation often does not address the issue of gift cards specifically, but only the more encompassing issue of unpaid debts.
In some states retailers are allowed to recognize revenue from gift card balances that are not redeemed after a set period of time. The resulting revenue is referred to as “breakage” in the gift card industry. “At some point the chances of redemption are so small that the retailer can record the sale,” says Lillestrand. “Of course, the customer may come in later and use the card, at which point the retailer will need to honor it.”
For a rundown of the relevant laws for your own state, refer to the listing at www.scripsmart.com. Bear in mind that when state and federal laws conflicts, the stricter set of rules will apply.
Security risks grow when technology improves. That truism applies to gift cards no less than to credit cards and electronic banking. Traditionally, gift cards were considered safe items that could be left out on counters with no regard for theft. After all, the thief who stole a bank of gift cards before they were loaded with digital cash had stolen nothing but useless plastic.
With the arrival of new innovations in gift card processing, things are a bit more complicated. Gift cards displayed on sales counters have serial numbers visible to everyone who walks by. Thieves can record those numbers, monitor the card vendor’s web site to see when the cards are loaded with cash, then purchase merchandise online using the stolen numbers.
Solution? “Avoid selling gift cards with visible numbers which anyone can view on the display rack and write down,” says Lillestrand. More cards are being sold with something called “scratch-off security.” Identification numbers are obscured by a substance that customers can scratch off after purchase.
You will also need to decide what you will do if a customer’s gift card is lost or stolen. You may not be willing to be responsible for the value, but you may want to replace the card without charge if the customer brings in a receipt. If so, make sure your vendor offers the capability of cancelling cards online or over the phone.
Gift cards can make a profitable Christmas season for retailers who select a quality vendor, promote sales, and encourage reloading. “Many retailers think putting up a sign that says ‘Buy gift cards’ will do the job,” says consultant Phibbs. “That’s not enough: You need a strategy.”
Phillip M. Perry is a New York-based writer and consultant.