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The Net Takeaway: Gift Cards: Turning money into air?


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Gift Cards: Turning money into air? · 02/07/2005 04:35 PM, Marketing

Many retailers have been experimenting with “Gift Cards” as a replacement for the old gift certificate. In addition, malls are offering cross-store cards, which is an interesting idea. Banks ahve also offered “debit cards” which are basically traveler’s checks in a card, usable anywhere Visa/Amex/MC/Disc/etc. are accepted. However, as usual, the stores are finding ways to treat what could become great customers… as garbage.

Now, before I get into this, please understand where the stores are coming from. Financially speaking, the money a consumer spends on the gift card is not bookable as direct revenue like it would be if the user bought a product. Instead, its like a half-transaction: the store has the money, but since the gift card is a liability until it’s redeemed, it sits on the books as “money owed”. So, like any debt, the stores want to amortize it over time and get rid of it if they can. They should be doing this by running promotions to stimulate usage… but instead, they take the “screw the consumer” approach.

This post is stimulated by a recent article in the Washington Post about yet another suit against Simon Malls (if you don’t have a UN/PW, try this Bugmenot search pre-set for the Post) because they administer various fees and expire their cards over time. Now, this is considered illegal in various states (including Mass., where I and many Simon malls live), but the stores are fighting these state laws tooth and nail.

I’ve never really understood the role of gift certificates and cards like this; my wife’s family gives the gift of ultimate flexibility: cash. And not checks either; they want it to be spendable that night. Gift Certs reflect this American approach that “giving cash is tacky”, which keeps stores happy. But in their zest to protect themselves, they go a bit overboard.

Here is some of the Post article:

Simon Property charges a $2.50 monthly administrative fee on the cards beginning six months after it is issued, according to its Web site.

Spitzer also says a $5 replacement fee isn’t disclosed on the company’s card as required by the law.

According to the Simon Property Group Web site, customers can prepay from $20 to $500, plus $5.95 shipping and handling charges, and give the card as a gift. The $2.50 monthly administrative fee begins in the seventh month the card is issued, until the balance is zero. A customer whose card expires with a positive balance is charged $7.50 for a replacement.

Now, as a marketer, scewing my customers seems wrong. I would like to propose that there is a strategy to facilitate both purchase of the cards, utilization of the cards, and happier, more loyal customers as part of the process.

There are 2 types of people who buy these types of products: Those that like the store and want to spread the message (Influencers) or those who know that the recipient likes the store, even if they themselves (the purchaser) doesn’t (Facilitators).

Influencers shouldn’t be screwed by giving a card that loses value over time; instead, you reward the Influencer with additional value on their card (of course they have one, they love your store) if the recipient uses the card earlier. Decline that bonus over time, and see how the reduced carrot works. This transitions nicely to a full rewards program if you don’t have one, and is an easy link if you do.

Facilitators are “bonus” money who are not usual customers… but they could possibly become one. If nothing else, they create additional spend in the recipient, given that all of that money could have gone elsewhere. We can still reward the facilitator by enhancing the value of the card. Instead of expiring the card, we make it part of a special program which gives the purchaser an additional discount if they buy 2 more cards during the year. This program would also be part of a larger “card-holders are great” program, which gives the recipient access to special card-holder offers, (of course they are delivered mostly by e-mail, but you knew that was coming). Finally, most stores are in the same mall with other stores the Facilitator might want to shop at for themselves. So, set up a swap of value between your retail chains so each side can get credit at the store they want, following the reward program above. In fact, you can even use this as a way of letting the recipient know where to buy a gift card for the gifter!

So, personally, I think these things are not such a great idea. But instead of fighting and finding ways to screw over the users who do like them, turn this process into a way to stimulate spending, and not only get the card value booked, but turn it into a way to generate repeat and loyal sales from both the Influencer and the Facilitator.

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