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Why Your Business Needs a Gift Card Program

Gift Cards – why your business needs a Gift Card program

 

Gift Cards may be the most powerful business-marketing product ever invented and every retail and hospitality business should offer them.  If you don’t sell them, you should.  Read below to find out why.

 Gift card 2

Gift Cards are a guerilla-marketing powerhouse.

I’ll start with the absolute coolest thing about a gift card program.  A customer pays you money, for a plastic card that they plan to give to someone else.  They are giving you an advance on a product or service to be delivered in the future to a new customer that they are going to bring to you!  How cool is that?  Your customer is paying you to bring you more business, brilliant.

 

A Gift Card sale is a cash advance.

When you sell a gift card you take in revenue with next to zero cost of goods sold (COGS).  You don’t realize the costs until your customer returns to redeem the card, which may be months later.  Also, consumers almost always spend more than the value of the card when they make purchases with gift cards.

 

Gift Cards are reusable.

Unlike paper gift certificates, a plastic gift card can be loaded, redeemed, and reloaded multiple times.  Reselling and reloading significantly brings down the cost of cards.  It’s cut in half each time it is reused!

 

Billboard in a wallet.

Gift Cards should be printed with your logo and branding.  Each time a consumer sees the card in their wallet or on their bureau, you’ve just sent them a mini advertisement.  It happens over and over again until the card is finally redeemed and is a great reminder that they need to visit your store.

 

Gift Card recipients bring friends with them.

The amount of a Gift Card redemption is truly just your COGS.  Remember this when deciding how you want to use them.  Here’s a potential scenario:  You find a way to distribute cards with $5.00 in value loaded on them (direct mail, handing them out in an office lobby, etc.).  The recipient of the $5.00 card wants to redeem it and invites a friend to join him for lunch.  They both come in for lunch and the person with the gift card decides to add one of your specialty drinks to his order, which he normally wouldn’t do and specialty drinks are a profitable product for you.   Additionally, his guest pays full price for her meal.  When the card is redeemed, the true cost to you is just your food cost.  If your food cost is 30% and you gave away a $5.00 card, it just cost you $1.50 to get 2 new customers, upsell them on high margin products, and the opportunity to wow them and win their repeat business.  That’s money well spent in my book!

 

Impulse purchases are the number 1 reason for gift card sales.

Gift Card purchases are usually made on impulse when the consumer remembers it is their friend or relatives birthday and they would like to get them a gift.  You’ve probably noticed the abundance of Gift Card displays located on the end caps of most big box stores and at the checkout counter of many convenience stores.  These have become so successful because consumers rarely plan ahead for a gift card purchase. Here’s how it works.  The consumer purchases a gift card, at full price in your local supermarket.  The supermarket takes a percentage of the sale and the marketing company that owns the Gift Card display takes a percentage.   The remaining amount, usually 25% – 40%, is then paid to the merchant who will end up redeeming the card.  Although this is a good strategy to market your brand and gain wider distribution of your gift cards, it’s much better to sell them yourself.   Keep your cards on display and market gift cards in your store with signage or table tents so that the impulse to purchase is triggered in your store, rather than at the supermarket.  You could, for example, offer your cards for a discount of 20% and a 10% employee incentive for selling them.  This way you are taking in 70% of the value of your card (twice your cost of goods sold), you are nearly guaranteeing a return customer, and you’ve got your employees doing the in store marketing and upselling all at a very small cost to you.  Prepare your store to enable impulse purchases and you’ll see revenues increase

 

Breakage

Often gift cards are never fully redeemed and the value remains as a liability for a long period of time.  When this value is accounted for tax purposes and written off as an unclaimed liability it is known as breakage.  There is obvious inherent value to merchants when a card is purchased but never redeemed.  However, I caution the construction of a gift card program that has the leveraging of this outcome as part of the strategy.  State escheat laws say that unclaimed property must be returned to the state.  Some, but not all, include unredeemed gift card value as part of their definition of unclaimed property.  The rules vary by state, but you should prepare your program to follow the most strict escheat laws.  Here are some suggestions:

Your cards should never expire.  Your cards should hold their value forever (no penalties for inactivity).  You should plan to redeem any and all outstanding gift card value at some time in the future.  If you do these things you will protect yourself from any pitfalls related to unclaimed property and treat your customers in the best way possible.

 

I truly believe that a good Gift Card program is one of the most powerful business tools available to merchants today.  There are great programs out there that cost very little compared to the benefits to the business.  Like most technological and marketing decisions you need to make, I recommend you consult a trusted adviser like Honor Business Solutions to help you navigate the options and POS systems to make the best decision for your business.

 

Cheers to good business!

Mark Miller

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