By Walter Paulsen
With each passing month comes another announcement of a new technology to help retailers drive more traffic into stores, increase spending, and surprise and delight customers. From geo location-based social apps to group discounts to charity incentive models, innovation is coming fast and furious - but without any clear leaders or obvious strategic direction.
The market will sort things out eventually, but progressive retailers want to spot trends early. To help sort the winners from the pretenders, it's useful to ask a few questions to understand the environment in which winning solutions will operate.
For a retailer, a great gift program is one that creates incremental sales, at high margin, and additional foot traffic. If a program requires too much discounting or only replaces purchases that were already going to take place, the total sales volume and net margin don't improve. Some gift card programs work well in this regard, especially if they bring new customers into stores to purchase merchandise at full price.
In the United States, gift cards are the 800-pound gorilla of gifting, since they are ubiquitous and well understood. However, like most innovations, gift cards have a life cycle and are showing their age.
Grocery and drug stores now offer hundreds of gift cards for every imaginable buying niche, and the onslaught of plastic has created consumer overload. Gift cards now pile up unused in sock drawers and purses, more of an obligation than a delight.
Gift cards are so overused that companies have sprung up to help customers dispose of unwanted cards. One such company, Plastic Jungle Inc., has attracted high-profile management and investment from leading venture capital firms.
Plastic Jungle may or may not succeed, but its mere existence validates the belief that gift cards are a mature technology. By any reasonable standard, gift cards no longer qualify as a great gift. But if the tried and true is no longer in fashion, what will come next? To answer that question, let's take a small step sideways and consider how we got here, and then ask where the next generation of great gifts will come from.
It's been said that the road to hell is paved with good intentions, and that is certainly true of the current gift card overload. For decades retailers offered paper gift certificates. By the mid 1990s, they began to switch to gift cards. With advances in color printing and copying, retailers were hit by a wave of fraudulent certificates, and the reliable plastic card, based on the form factor of the credit card, seemed like an ideal solution.
Success begat success, which begat excess. But, hemmed in by its own success, the entire gift card industry now sags under the weight of several drawbacks. First, the majority of cards are made of plastic, the ultimate environmentally damaging material. Second, gift cards are expensive to produce and distribute, especially for gift card malls, where retailers have to print millions of identical cards months in advance, many of which linger unsold on grocery and drugstore shelves for many months, and even years.
Third, and most damaging, gift cards have been so successful that customers are tired of them. They neither surprise nor delight. Consumers now say a polite "thanks" and then toss the latest card into the pile with the others. Instead of a pleasure, cards are at best a duty and more often a chore, requiring extra work in redeeming them, draining the joy out of gifting and shopping.
Gift cards are so well established that they will continue into the twilight for another decade or longer. But they are by now clearly destined for the scrap heap of old technologies, joining VHS tapes, vinyl records and DVDs in the twilight realm of being no longer loved but too useful to die a graceful death.
As gift cards wane in popularity, what's to replace them? Thankfully for retailers, the relentless drumbeat of innovation is bringing waves of new products and services to market. A confluence of mobile and network technology is breaking down barriers that have kept consumers and retailers locked in a plastic gifting paradigm. It's too early to predict specific winners, but three key trends are emerging:
With the ability to reach customers with special offers using websites like Groupon Inc., Socialwise and others, independents can encourage customers to prepurchase special offers and generate new visits. Expect group purchasing concepts to proliferate and push changes throughout retail, eroding the advantage chain retailers have enjoyed.
The large, integrated systems of major retailers have become a lead weight instead of a competitive advantage. Like a muscle-bound athlete pumped up on steroids, the major systems are unable to flex and respond to innovations. Their muscle now is a constraint and a significant threat to adopting nimble innovation.
Retail IT will need to reinvent itself to be more open and flexible to adapt to the changing environment. Look to companies, like Best Buy Co. Inc. with its Remix open API (application program interface) and Target with mobile gift cards and optical scanners, to surge ahead.
On the other hand, companies that are locked into old platforms will languish, unable to tap into innovations that are reshaping consumer shopping and buying behavior.
Smart phones have become the essential consumer electronic, and people expect that retailers will embrace the trend and offer the ability to shop, buy and give gifts anywhere, anytime.
The next wave of innovation is going to build on the "constant contact" aspect of mobile and help people connect in a more personal way with their friends and family. Since giving and receiving gifts has been an important thread in the social fabric of human history, expect that trend to continue.
Some empires will be reduced to rubble and then to dust, hoping somehow that this time it will be different, while established players with strong products based on single technology paradigms will be able to shift seamlessly to the new new thing.
But the real interesting companies are percolating in garages and nameless office parks across the country, lacking name recognition but overflowing with smart, hungry and foolishly optimistic people who are betting their professional lives on a new way to embody the essential human activity of gifting.
This is an exciting time for retailers and the companies that serve them. They are helping consumers redefine expectations and embrace innovation from small and unlikely sources. Plastic has served the gift market admirably and deserves to be treated with dignity as it fades away.
Technology is rapidly replacing plastic with a host of innovations that are better from every angle. Retailers should milk the cash cows and invest in the bright future represented by new gifting innovations in social, Internet and mobile technologies.
Walter Paulsen is Senior Vice President of Business Development and Retail for Giiv Inc., a mobile and social gifting company. He was previously President of CardFact, and prior to that a founding Vice President at Blackhawk Network. Walter can be reached at firstname.lastname@example.org or http://www.linkedin.com/in/walterpaulsen.
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