Gift Cards Give Back To Retailers

The future of this category is moving toward mobility and loyalty tie-ins

Leading up to this past holiday season, experts estimated that more than $43 billion worth of gift cards would be purchased. Meanwhile, 67 percent of consumers reported spending more than the initial value on a gift card by an average of $29.79, with shoppers also reloading these cards more often after the initial gift is spent, according to the 2012 Prepaid Consumer Insights Study released in December by First Data Corp.

The future of gift cards is in the mobile space, with retailers tying them into loyalty programs. These cards continue to offer an opportunity to the convenience store operator — not only to build their brand, but also to create loyalty among customers.

"A c-store is a place where consumers visit on a regular basis, so they already have a natural base of customers," Michael Hursta, vice president of prepaid solutions at First Data Corp., told Convenience Store News. "Gift cards provide a link from the customer to the brand, and if you can get them to register and reload [the card], it's even better."

Providing incentives to reload and register is the key to keeping the relationship going after a gift card is purchased. One of the most popular tactics is offering a bonus, said Hursta. "If a consumer agrees to reload the card for $50, the retailer would add an additional $5," he explained, adding that there are also non-financial benefits that can be offered, such as special events or discounts not available to the general public.

First Data's research showed the number of people purchasing gift cards plateaued, so the competition for these purchases is increasing among retailers. Making the cards more visible and letting consumers know a store offers them should be a priority, he noted.

The good news for c-store marketers — and any branded retail outlet — is that closed-loop gift cards issued by specific retailers grew in popularity in 2012 and this trend is expected to continue, according to the First Data report. Closed loop cards — as opposed to open-loop cards such as Visa, MasterCard and American Express that can be used at multiple retail locations — accounted for 87 percent of all gift card purchases last year, and 61 percent of consumers said they buy gift cards at specific retailers.

"A smart retailer will acknowledge the fact that buyers and recipients have different needs, so to attract buyers, they should make it obvious they have the cards and tout the benefits of owning or giving one," Hursta advised. "For recipients, [retailers] want to connect with them deeper, and offer incentives for them to go online and register. This opens a whole new portal to communicate with the customer."

GOING MOBILE

As smartphones proliferate, the gift card market is morphing toward mobile — being found on cell phones and mobile applications (apps) — and many retailers are even tying them into their own branded loyalty programs.

Mobile is coming fast, and it will be as big as everyone is reporting, according to Hursta, who said it's only a matter of time. "When it does hit, it will surprise people at how big it is. A tipping point has to be reached where enough retailers are accepting mobile payments, and then those who don't will feel left out," he told CSNews.

Of those consumers surveyed by First Data, 46 percent are interested in storing gift card information on a mobile device in order to redeem at a retail store, with 71 percent of consumers aged 18 to 24 claiming such interest. This offers them security, plus there isn't the need to carry around a physical card, the study showed.

Right now, retailers with loyalty card mobile apps are collecting transactional activity on gift cards or reloadable loyalty cards, and after a certain threshold is met, they're sending a message to the consumer about a reward that's ready to be redeemed. In the future, this will happen in real time, Hursta explained.

"Soon, retailers will want to know who the consumer is, where they are and at what time of day they visit, so they can decide on the fly what type of reward to give," he said.

Additionally, consumers are embracing e-gift cards, which showed growth in 2012 — almost doubling in popularity, according to the research. More than half of the consumers surveyed (60 percent) said the top reason they choose this method is the immediate delivery, followed by the convenience of e-mailing the gift card (52 percent.)

"With the ease of use associated with e-gifting and mobile commerce gaining popularity among younger consumers, gift cards continue to build valuable relationships and connections with all generations of consumers," said Hursta.