Thursday, January 10, 2008

Retailers Tying Gift Card
Growth Into CRM Strategy

By Amanda Ferrante, Assistant Editor

It has been nearly impossible to miss the news articles regarding the growth of gift cards after the recent holiday season. Some of the most telling stats included:
• Gift card sales were anticipated to count for $26.3 billion during the last holiday season, up from $24.8 billion in 2006, according to the National Retail Federation;
• According to a study from market research firm Packaged Facts titled “The U.S. Market for Prepaid Cards with a Focus on Gift Cards,” nearly 35% of consumers who purchased gift cards in the last 12 months anticipate spending more on gift cards during the next 12 months, with 9.1% expecting to spend “significantly more.”
• 53% of gift card redeemers reported that they often or always spend more than the card value, and most likely over two store visits rather than one, according to the same Packaged Facts study;

Needless to say, there is a huge opportunity for retailers to make the gift card more of a strategic asset. That being said, retailers are thinking way outside the box to make their gift card offerings stand out on the crowded end-cap. In addition, since retailers cannot recognize the revenue from gift card sales until the cards are redeemed, retailers are working harder to get consumers in the store to activate their currency.

While most retailers keep the gift card an anonymous transaction, some are branching out and offering “reloadable” cards, with which the holder can acquire points that can later be used in exchange of items.

Subway Restaurants, a proponent of the point system, is “speaking” to their customers in a new way with their personalized gift card. Cardholders can load the card with a dollar value up to $100—and the card is reloadable, so it can be used as a debit card when making purchases at all U.S. and Canadian restaurants.

Subway’s gift card provider, Portland, OR-based Chockstone Inc., maintains a database of transactions and tracks user spending detail by cardholder name or other personal information, but by a unique string of numbers assigned to each card. “Although the cards are largely anonymous, we can communicate effectively to the customer’s receipt,” says Edward Daley, Marketing Specialist at Subway.

“We consider this a critical part in the evolution of our Subway Card program as it allows us yet another opportunity to extend the brand and make us more accessible to our customers,” says Daley. “It all adds up to our ability to offer customers promotions and incentives that they are most likely to find appealing. Giving customers what they really want is what it is all about!”

Starbucks is also an early adopter of the CRM capability of the gift card. Customers can purchase a gift card only and then, if desired, allow the company to identify them through proprietary software. The company ties the gift card to a name and credit card, allowing it to be automatically reloaded through Chase banking services. The Starbucks gift card can also be personalized with the recipients name and favorite drink order.

While retailers don’t count the gift card purchase as revenue until its redemption, there’s more value than just the potential revenue. “Retailers believe that every gift card represents a potential increase in what a consumer spends (lift) of about 20%,” says Tina Henson, CEO of, a site that sells and trades gift cards. “They also represent traffic. Some surveys indicate that a single gift card can mean 3-5 visits from a consumer. Therefore, retailers want these cards redeemed.”

In an industry that’s evolving so rapidly, innovation is key. Chris Nicolaides, Vice President of Business Development at IdeaEdge, a gift card provider, says the emotional connection an audience feels to a brand can greatly impact the gift card industry. The company behind the American Idol Gift Card paid attention to the growing phenomenon of the number one television show in the world.

“With 44 million viewers engrossed in the show, you can’t help but realize that there’s no other brand that invokes that kind of emotion [like] the American Idol brand,” he says. The concept in leveraging the hundreds of millions of dollars in merchandising behind the show will “invoke a high hype consumer purchase [of gift cards] launching entertainment brands that have high emotional connection… Innovation is important.”


Christa said...

I work for the American Express Gift Card division and recently discovered your blog. Great information - I've bookmarked it and will refer back to it often. Many thanks!

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