Gift Card Technology:
Gift card use has exploded among adult consumers of all ages and economic segments. However, as more people are using gift cards, the limitations of the original systems are being strained. Buyers want to purchase cards of variable amounts through any channel. Gift recipients want equal flexibility in using the cards. And retailers want to satisfy these demands without breaking the bank. In addition, according to Datavantage's research, many retailers underestimated the internal demand for gift cards to support marketing/promotional activity. Costs for those retailers may be higher than anticipated. Now there are ways to control those costs.
New gift card solutions offer options not available just a couple of years ago: multi-channel functionality, lower operating cost, and more opportunities for customer involvement, just to name a few. The retailers who lead the gift card revolution need to re-evaluate their position and examine the opportunities now available.
Situation Analysis
You have a gift card system installed, and it's doing well. But you've learned a lot since you first began selling gift cards. The costs of operation are higher than you anticipated. And your customers want more flexibility. Are you stuck with the status quo? Not by a long shot. With the projected growth in gift card use, and the increased value per card, now is the ideal time to begin your search for a new stored value system compatible with the changes in the market.
Customer Demand Is Changing
Customers are still very interested in gift cards. While growth has been a boon to retailers, it has also been a source of costs. Most customers require at least two uses to use up the value on a gift card, and then end up spending more than the value of the card. While this behavior benefits the retailer, it also incurs more transaction and communication cost. As the average value of gift cards increases, so too may the number of store visits required to exhaust the balance. Additionally, some retailers offer loyalty points for the purchase of gift cards, encouraging the purchase of stored value cards for personal use. This also increases the retailer's fees for loyalty card use. Finding a solution that keeps transaction costs low ultimately benefits the retailer without affecting the customer's experience.
The average gift card buyer purchases nearly $200 worth of gift cards in a year; usually spending the value among five or six cards.
According to a recent survey by Fiala, Inc., a leading gift card packaging company, 45% of people with Internet access would be "somewhat" or "very" interested in purchasing a gift card online. Many retailers, however, cannot currently offer the same gift card online as they offer in their stores, making it necessary to support two systems.
How the gift card recipient wants to use the card is also changing. The ability to use the same gift card online, in the store, or through catalogs is becoming increasingly important. General convenience is one factor. Another factor is proximity to a store. Just because the buyer is close to a particular store doesn't mean the recipient is. Finally, customers feel frustrated when they are limited in how they redeem cards ? to them, all your channels are one "store." Differences in infrastructure are immaterial to customers. As more and more people give gift cards, the opportunities for redemption also need to expand. Retailers who hesitate are likely to be left behind.
Cost Control
Once a gift card program has been successfully launched, retailers begin to look for ways to keep the cost of the program under control. Transaction fees and communication costs add up quickly, especially if the retailer uses a gift card program that requires the use of leased lines. Most early gift card solutions were set up through credit card style processors. Naturally similar fee structures were instituted. Now other options are available and worthy of exploration.
Licensing fees, ASP service fees, maintenance fees, and the cost of supporting software throughout the chain is also a factor worthy of periodic review. Were the projected costs in line with the actual costs? Would pulling the processing in-house save costs, or is an ASP arrangement preferable?
