Gift cards have consistently ranked as one of the top gift items wanted by Canadians and a growth category globally for card issuers. Businesses offering gift cards report higher levels of profitability and loyalty by introducing new and repeat customers to the business.
In 2011, Retail Category Consultants worked with a group of retailers to benchmark the Canadian closed loop gift card market. The purpose of the research was to obtain data about the current state of the market and to establish benchmarks for future trends research in the prepaid gift card industry. The survey was managed and sent by Mosaic Research to a broad range of retailers offering closed loop gift cards in different verticals, including:
- Retail Mall
Canadian Gift Card Market Summary & Trends
Our research concluded that the Canadian prepaid gift card market is significantly underdeveloped compared to the US market. On average, gift cards encompass about 1% of total sales for Canadian retailers, with approximately $45 loaded onto the average gift card, although this varies widely across different verticals. Similarly, non-denominational gift cards are offered by most retailers and have values ranging from $10 to $500 or more In fiscal 2010, most retailers experienced double-digit growth in their overall gift card business, signaling the popularity of this market.
Regional gift card sales mirror the regional split of the Canadian population , though Ontario’s sales are slightly overdeveloped.
While most prepaid gift cards are reloadable, only a very small percentage of customers choose to reload their cards. Generally, retailers who offer reloadable gift cards reduce breakage percentages and allow reloading on all cards except those issued promotionally. The majority of prepaid gift cards are completely used, putting breakage at less than 3% for most gift card issuers. Breakage varies considerably by market vertical.
Most retailers do not offer eGift cards, and online gift card sales are very small. This is similar to the United States where eGift card sales are only about 1% of total gift card sales.
Gift cards continue to be seen as gift items with over 50% of gift card sales to consumers and businesses occurring in the 4th quarter. These cards tend to be redeemed quickly with redemptions in Q1 and Q4 nearly equal at 30%.
Discounts continue to be given for B2B customers purchasing in bulk , but is also extended to customers that purchase beyond a standard amount. These discounts vary by vertical based on the card issuer’s margins. Generally, the narrower the product line and the smaller the issuer, the larger the discount.
In 2010, average growth in the consumer market was under 10%. Over 70% of gift card sales were through consumer channels in store or through participation in a gift card mall at another retailer. While there is much written and discussed about eGift cards, over 90% of consumer gift card sales still occur in-store. Today, the average dollar value loaded by consumers is just over $50, in many cases, this is because only set denominations are available in store, particularly in gift card malls. The value loaded by consumers is eclipsed by the value loaded by most B2B categories.
Growth in the B2B gift card market is outpacing the consumer market by almost 50%. For retailers that offer eGift cards, the majority of their eGift card sales are in the B2B market. There are 5 categories in the B2B market: employee incentives, fundraising, gift card malls, loyalty, and sales promotions. 80% of B2B sales come from loyalty programs, gift card malls and fundraising initiatives. Employee incentives and loyalty programs represent larger card loads than sales promotions, but the dollar value loaded by B2B category varies widely and depends on the issuer’s vertical and product range.
Entering The Canadian Gift Card Market
Based on our research and experience, we recommend a 4-pronged approach for retailers entering the Canadian gift card market. Like all business processes, launching gift cards has to be carefully planned and continuously assessed to ensure quality and control.
1. Learn best practices from mature markets.
Learning best practices from mature markets allows you to construct better strategies with the benefit of hindsight. Case studies give you a realistic idea of how to be successful and pitfalls to avoid prior to the rollout of any new gift card program, and contribute immensely to marketing plans with insights that have been tested and proven. However, ensure that the context of the best practices is comparable to your own business situation.
2. Determine the most promising verticals to target.
Gift cards should always be launched in the consumer channel first. Analyze your company’s brand strategy and determine the values you’d like to communicate to gift card customers. Think of a gift card as an extension of your loyalty program and ensure that anything you do with the gift card is consistent with the objectives for your loyalty program. When entering the B2B market, it makes sense to initially target a specific vertical or verticals. While market trends are important in selecting a vertical, the consistency of your company’s image and ability to meet customer needs should be top priorities. Factors like seasonality, customer demographics, and product differentiation should be taken into account.
3. Create a go to market strategy to understand customers.
The go to market strategy identifies the fundamental who, what, where, how and when variables that dictate the ultimate customer experience. The strategy should feature a customer service model to anticipate the customer’s needs and set the criteria for optimal customer experiences. Backend infrastructures like POS terminals should also be examined in accordance to the overall business strategy.
4. Define success and benchmark it.
It’s one thing to understand the theory behind gift card success, and another to successfully execute it. Benchmarks may change before and after implementation, but the key idea is to continuously analyze them for relevancy and effectiveness during practice. This is one way to manage problems before they escalate and keep your gift card program consistent with your values. It will also help to identify areas for improvement should the program not perform as planned.
Similar to your definition of success, your gift card program will change according to how you shape your strategy to meet market trends. Some strategies are applicable today but less applicable next year. Keep learning from your own success, successful case studies, experimenting with different program offerings, and refining your relationship with customers. While your brand image may be strong enough to attract that first purchase, it’s customer satisfaction that ultimately leads to loyalty success.