Resources for Gift Cards

Gift Cards

Technological advances in payment options have made store gift cards and prepaid credit cards popular substitutes for the transfer of cash, particularly when used as an incentive or in lieu of selecting a specific product as a gift. These options mimic credit cards and allow the user the freedom of a predetermined expense account that feels more like a special purchase event than it does a simple transfer of cash.

Merchants enjoy the immediate sale when the card is purchased while retaining the use of inventory until a later date when the user comes into the store to make a purchase. The card issuer benefits from the fees associated with the use of the card. Card purchasers and users must pay special attention to the terms and conditions associated with each card, as some include time limits and special fees that can impact the ultimate value of the card.

Benefits

Keeping Up with Demand

The National Retail Association has concluded that over $26 billion was spent on gift cards within the 2007 holiday season. This was a billion dollar increase from the previous year. It is obvious that consumers are enjoying the freedom a gift card creates for gift giving. Paying attention to your customers’ needs produces higher revenue and furthers customer satisfaction.

Marketing Savings

Customer loyalty membership creates an opportunity for your customers to earn points or credits that can be used toward future purchases or for added perks. They will also receive a discount for every purchase they make. You can use their purchase information for further marketing techniques. As you will know what they are purchasing, when they are buying your product, and how often, you can create profitable campaigns specifically targeted for each client.

Free Advertising

Custom gift cards are very convenient for your customers, as they work the same as cash or credit but can only be used on your products. Gift cards are the same size as credit cards, so they are easy to carry and fit in every wallet. They also feature your logo or storefront on the card, adding to free advertising. These also work similar to customer loyalty memberships as data can be tracked and stored as well. Customers with gift cards have a predetermined value, creating an automatic profit for your company before the receiver even walks into the store. Using a gift card generally creates an added profit as most customers fail to stay within their balance, having to pay the difference out-of-pocket.

Increased Revenue

Reloadable gift cards are the best alternative to paper gift certificates. As they have to be activated by an employee, they are less likely to be stolen. There is generally a time limit on gift cards, so unused funds become free profit. Also, unused funds are not cash redeemable, increasing the likelihood of further purchases or increased profit. The option to reload the gift card can also create further incentives for your customers to return.

Pitfalls

Gift cards are a great way to reward employees, boost company morale, and promote good will amongst employees and bosses. However, they should be carefully selected, and any fine print carefully appraised before purchasing in bulk.

Research

Gift cards intended for employees should not be selected before conducting preliminary research. A gift card that allows someone to purchase goods or services that they neither want or need is just like not giving them anything at all. Some may even consider it slightly offensive if they receive a gift card to an establishment that they are certain they would never frequent.

Expectations

When used in merit-based incentive programs for employees, workers may get used to receiving a gift card. A similar problem can arise from most monetary rewards programs. Employees come to expect a reward for their work and even rely on the extra money. In the event that they do not receive a reward, they may adopt feelings of bitterness toward your business and those individuals who did receive an award. Failure on the employee’s behalf to recognize this as a gift is what can lead to problems. Gift cards, however, are less prone to result in this dilemma than other monetary incentive programs. The fact that it is a gift card may aid employees in recognizing the gift for what it really is.

Competition

When gift cards are offered in employee incentive programs as reward for hard work or loyalty, there is a chance that competition may develop between workers. While a little competition amongst employees can be a boon to your business, when employees feel that extra income is on the line, the competition can go from friendly to fierce. This sort of competition is rarely a good thing, as it emphasizes individual accomplishment over teamwork and cooperation.

Limited Use

There is a common tendency among purveyors of gift cards to put a time limit on them. This saves the seller money in the long run if the card is not used before the date listed. This limits the effectiveness of using a gift card in incentive programs for both customers and employees. Saying that a gift card is as good as money is less than true if there is a time limit on it, and some people may not get to use this gift.

Cost Prohibitive

Like all good things, gift cards cost money, sometimes more money than you would like to put on them. If you plan to buy gift cards for a large group of people, it may ­be more economical to not give out gift cards at all. If you do not know what type of gift card to purchase, then you have even more reason to just give out the equivalent amount of cash instead.

Pricing

Gift cards are popular among consumers and relatively cheap for merchants. Consumers purchase over 50 million gift cards each year. Since over 50 percent of people who receive gift cards spend more than the allotted amount, this is good news for merchants. Even people who are aged over 65, who are the very people who buy gift cards the least, think gift cards are a convenient option.

The cost of a gift card program includes the cost of custom-made cards, transaction fees, and any other fees associated with the merchant’s account.

The Cost of Cards

Custom-made gift cards can cost $1.50 each for small orders and $1 each for large orders. The more gift cards you order at one time, the more money you will save. Of course, you need to take into consideration how many customers you have and how you plan to use the cards.

The Cost of Fees

Transaction fees on gift cards are around 25 cents per transaction. However, monthly account and setup fees vary depending on each merchant’s requirements.

Conclusion

The prepaid card industry has grown steadily since its introduction, often experiencing a year-over-year increase in value in the tens of millions of dollars. There are numerous benefits for merchants, purchasers, and users to substitute prepaid cards for cash transfers, including increased marketing opportunities, more closely aligned and exciting shopping experiences, and convenience. The costs associated with using prepaid cards as incentives and the hidden costs and use restrictions that are sometimes tied to the use of certain cards can make prepaid cards a less attractive option than cash in some instances. Despite these drawbacks, however, the prepaid card industry continues to grow, underscoring the ultimate value of this payment option to the consumer marketplace.