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The Green Sheet Online Edition

June 28, 2010 • Issue 10:06:02

Perspective on the 'gift' economy

By Thom Aldredge
World Gift Card

At Christmas in 2002 our daughter received three gift cards totaling $150 for a national bookstore chain. My wife and I were concerned; although she received other presents, this was a major part of her holiday haul. So we asked her if she was disappointed. Her response: she loved to read, she loved music and she loved good coffee.

The bookstores had coffee bars, and our daughter could listen to new artists demo CDs (back then) and browse the book racks with a mocha latte. She couldn't imagine getting better gifts for Christmas. I assure you she spent more than the value she had received on those gift cards.

Does she still shop with that bookstore chain today, eight years later? You bet. It is anecdotal evidence of the importance of gift card programs to merchants. Retailers should realize that a satisfied customer like our daughter is what drives their bottom line.

Explosive growth

The gift, or prepaid, card industry has enjoyed what can only be described as a volcanic explosion. Less than 20 years after the introduction of the electronic gift card, more than $100 billion is loaded onto the cards in the United States annually. That's about $357 of gift card spending per individual per year.

There are a variety of reasons for this growth. But the main reason is that the American buying public has embraced the notion that a gift card confers the gift while the recipient retains the choice. But the popularity of gift cards isn't just about the card recipient, it's also about the merchants, too. Merchant issuance of cards that customers buy, and recipients enjoy, encourages repeat business. That's the merchants' "gift."

During the bustling 2007 holiday season, when merchants ran out of merchandise, the sale of gift cards brought customers back. During the less prosperous 2009 holiday season, merchants under-stocked merchandise, and yet gift cards still brought customers back.

The giving economy

The act of giving is a concept embraced by every culture, every creed and every individual. There is something inherently pleasing about one person bestowing a gift upon another. The holiday season is the pre-eminent gift giving time.

But, as human beings, we give all year long, and for many purposes: Valentine's Day, Mother's Day, Father's Day, back-to-school, graduations, birthdays, anniversaries, retirement parties, commemorations, love notes, parties, good efforts and so on.

Gifting also extends to what we like to do for other human beings in need, whether it is a direct investment by each of us individually, or casually, through a percentage of our purchases that a merchant donates to specific charities. It is a part of our DNA.

The notion of a "gift" economy exists, as individuals give to one another for a variety of reasons, and nothing is expected in return. Merchants and retailers, subject to a market economy, are delighted that a gift economy supports their efforts.

Gift certificates were invented to allow customers to bestow a gift of value upon a recipient without the complication of deciding what the recipient might want to receive.

Great gift giving requires a level of commitment in determining what the recipient might like and then making that selection process a combination of insight and thoughtfulness. All of us enjoy a thoughtful gift, given from the heart. And the example of our daughter cited earlier is instructive - those gift cards were what she wanted.

As we mature as a nation of shoppers and gift givers, gift cards will increase our ability to be insightful (what would this person enjoy having) and thoughtful (do we have the recipients best interests in mind). Our "potlatch" is the stuff of a parallel economy, even a culture.

Gift certificates allowed us to bridge the gap of judgment, and they simplified the process of gifting, which at the least prevented embarrassment for those who needed a last-minute gift. The evolution to electronic gift cards was a natural one, and added a great deal of convenience to the endeavor.

Now, the addition of loyalty recognition to purchases made with gift cards is perpetuating and expanding their use. The notion of dual rewards just for using a gift card is highly motivational.

Types of gift cards

There are two basic categories of gift cards: open-loop and closed-loop. Open-loop refers to cards that are accepted basically anywhere.

These are the branded Visa Inc. and MasterCard Worldwide prepaid cards, the American Express Co. gift card, and the Discover Financial Services gift card. Open-loop, network-branded cards can be used wherever branded financial network cards are accepted. The cards can be purchased in a variety of locations.

Closed-loop refers to cards that are issued and accepted by a merchant or retailer. They can generally be used only at the locations specified by the issuer. The value on the card is controlled by the issuer. There are situations in which open-loop cards can be used in more restricted settings and closed-loop cards can be used in more unrestricted settings.

Both types of cards represent distinct market niches and come with their own sets of features and benefits. It is important for ISOs to understand their similarities and differences.

It is also important for merchants to know how to use each type of program to achieve maximum benefits. Consumers that buy the cards, as well as the cards' ultimate recipients, need to know what to expect as far as terms and conditions from each type of card program.

Tools that multiply value

With the advent of electronic gift cards, the payments industry has realized their impact on the creation of opportunities to upsell merchants, generate additional revenue and, more importantly, solidify merchant relationships. Gift card programs that complement retailers' merchandise and services become a valid, valuable and, now necessary, value-added service.

Merchants without an electronic gift card program are missing out on a method that enables their current customers to bring them new customers. ISOs who do not offer their merchants a value-priced, technologically advanced, turnkey gift card program (both closed and open) are leaving dollars, and potential referrals, on the table.

This is the first in a series of articles about gift cards. In my next article I will discuss gift cards as an alternative payment tool.

For more stories from SellingPrepaid E-Magazine, as well as breaking news and forums devoted to the prepaid sphere, please visit greensheet.com. end of article

Thom Aldredge is President of World Gift Card, a turnkey gift and loyalty card program provider based in Plano, Texas. He is a spokesperson for the gift card industry and serves on the Electronic Transactions Association Government Relations Committee. Call Thom at 888-745-4112 or e-mail him at thom@worldgiftcard.com .

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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