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The Green Sheet Online Edition

August 25, 2014 • Issue 14:08:02

How gift cards drive revenue and customer loyalty

By Michael Gavin
Merchant Warehouse

Since their inception, gift cards have enjoyed increased sales every year. According to Jason Daley's article, "New Franchise Concept Puts Unused Gift Cards to Use," published in the Sept. 6, 2013, issue of Entreprenuer, more than $110 billion is spent on gift cards per year. And statistics provided at Gift Card Granny (www.giftcardgranny.com/statistics) indicate gift cards have been the most requested item on holiday wish lists since 2007.

For businesses, gift cards are easy to offer due to the minimal overhead costs and overall convenience for their consumers. For customers and the gift card recipients, they offer a sense of freedom and a simple solution for gifting. Many businesses, including small and medium-sized enterprises, have realized the tremendous opportunity gift cards provide, and offer them to increase revenue, enhance customer acquisition and boost customer loyalty.

Multiple parties benefit

Gift card purchases benefit all parties involved: the buyer, recipient and the business. The buyer has completed a convenient gift purchase with little worry as to whether the recipient will like a gift, the recipient receives it without concern whether it will fit or not, and the business has increased its sales.

The benefit for businesses offering gift cards also extends beyond the initial gift card purchase. Since each card purchased has a specific value, this allows businesses to gain on any amount spent beyond the gift card's value. According to statistics shared by Gift Card Granny, $25 is the most common amount purchased for gift cards and, on average, recipients spend an additional 20 percent beyond the gift card's value.

One less obvious benefit for businesses is from gift cards that go unused, which is also known as "spillage." Spillage includes gift cards that are lost, partially redeemed, never used or expired. Since the business receives its revenue upfront at the time the gift card is purchased, it is off the hook from worrying about whether or not the gift card will actually be used to purchase a product or service.

Oftentimes, the total value of the card will not be spent by customers because the balance drops so low, they forget they have it, or they misplace it. In addition, businesses benefit from customers that do not use the full value of the gift card on their first visit but save it to use at a later date. Not only does this bring customers in again, but there's also a good chance they will spend more than the remaining value on their gift cards.

Revenue is increased

"Buy one, get one" gift card promotions can also drive revenue for businesses. During the holiday season, several merchants run these types of promotions to entice shoppers to purchase gift cards. For example, numerous restaurants offer an additional gift card as a reward for buying a gift card for someone else. Some restaurants even offer free meals or discounts for individuals who buy a certain number or amount of gift cards. Not only does this tactic bring the gift card recipient in, but also the customer who may bring in more guests, resulting in extra revenue for the restaurant.

Businesses can capture new customers when a recipient receives a gift card to a retail store or restaurant they have never visited before. According to the First Data Corp. study, Five Key Trends Driving Gift Card Success, 41 percent of survey respondents said receiving gift cards has prompted them to visit stores they otherwise would not have visited. Fifty-nine percent of respondents said they visited a store more frequently after receiving a gift card. With this tremendous opportunity to capture new customers and gain repeat visits, there is no reason why any business should not offer gift cards.

Loyalty is fostered

Repeat visits lead to long-term profits. In fact, "5 Interesting Marketing Loyalty Stats," posted by Erica Stevens on Tecmark's Loyalty Marketing Blog, stated that repeat customers spend, on average, 67 percent more than first-time customers.

Although repeat visitors are great, loyal customers are even better. Businesses can go beyond offering gift cards and implement customer loyalty programs to build long-term relationships with customers and, once again, increase revenue. Starbucks Coffee Co., for example, has one of the strongest customer loyalty programs, offering members a free drink on their birthday, as well as the opportunity to earn stars for each purchase to reach different reward levels. Having loyalty programs in place brings customers in on a regular basis and keeps customers satisfied by rewarding them for their frequent purchases.

In order to launch gift cards and loyalty programs, businesses must start with promotions to gain traction. Merchants who store away gift cards until a customer requests them will not see a boost in profits. Leveraging social media is a great strategy to spread the word and get customers involved. Gift card and loyalty program information should be displayed throughout the business as well.

Any size or type of business can offer gift and loyalty programs today. Plus, they are affordable and manageable for every business. There is no reason not to offer them when it's a simple way to earn additional revenue, increase customer loyalty and improve customer acquisition. With the popularity of gift cards and customer loyalty programs rapidly growing, soon enough, consumers will start to expect them, even from small and midsize businesses. It's 2014, and businesses must get on board in order to stay in the game.

Side Bar

Aite Group LLC Senior Analyst Madeline Aufseeser reported in Prepaid Mania: A Merchant Affair that 90 percent of consumers remain anonymous to the merchants they frequent. It is therefore the "holy grail" for merchants to be able to collect a little personal information at the POS about their customers. "Using a merchant-branded prepaid card supports that goal by providing insights to the merchant and ultimately drives more sales," the Aite report said.

For more details on the Aite report, see "Gift card giveaways boost sales, Aite says," The Green Sheet, May 26, 2014, issue 14:05:02. end of article

As Merchant Warehouse Senior Vice President, Sales, Michael Gavin is responsible for day-to-day management of the company's direct sales, as well as leadership of all sales activities within the company's agent channel. He has served as a key leader within the organization since joining the company in late 2000. Merchant Warehouse's Genius Customer Engagement Platform is a single, intuitive platform that integrates every transaction technology, loyalty program and more. Contact Michael at mgavin@merchantwarehouse.com. For more information on the company, visit http://merchantwarehouse.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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