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Using Gift Cards as Promotional Tools

Retail Gift Cards as Promotional Tools

Smart retailers have recognized the power of putting a gift card into a consumer’s hand. By using gift cards as promotional tools, retailers are able to grab the consumer’s attention while driving trial or repeat purchase from consumers. However, many retailers dismiss gift card promotions because they do not understand the real cost. Let’s look at a simple example:

The offer: a $10 promotional gift card
Average margin: 30%
Average spend by a consumer using a gift card: 4.5 times the card value or a gross sale of $45
Margin earned: $13.50
Actual cost to give out a $10 promotional card: $0
Profit: $3.50

Once retailers understand that while a rich and appealing offer, gift card promotions also work for the bottom line, they need to make sure their program will be successful. Here are some questions to think about to improve your success rate:

1.  What are your program objectives?

Are you trying to drive repeat or more frequent visits from existing customers? Attract new customers? Reward trial? Answering this simple question can help shape your campaign. If you want to reward or drive more visits from existing customers, you may do something as simple as handing out a gift card at the cash after a purchase of a pre-determined size. However, if sales are starting to slow, and you are still looking to encourage visits from past customers, you may decide that you will mail or email gift cards.

Some stores decide that the objective of their program is to encourage trial. In this instance, it is often best to work with a partner on your program. Your partner might be a non-competitive retailer who has a complimentary customer base (for example, a wine store might partner with a butcher) or it might be at an event where possible customers will attend (a pet store might offer gift cards at a fundraiser for the SPCA) or, at its simplest, a store might choose to stand outside and hand gift cards to passersby on the street.

Obviously each of these methods has a different projected redemption rate and this must be factored into the overall campaign costs.

2. What are your denomination and managing costs?

Have you ever received a $5 gift card for an electronics store?  Did you ever use it? It is likely you didn’t. Gift card promotions are not for every retailer. When you run a gift card promotion you need to consider redemption rates. There are many factors that effect redemption rates. Included are factors such as the value of the gift card versus the merchandise in your assortment. If consumers do not see value in the promotion, redemption rates will be low, thus reducing the effectiveness of the promotion.

The following will also affect your overall costs:

  • The format of the gift card: does it make sense to offer an e-gift card or a physical gift card? A physical gift card can be used in-store and online, but e-gift cards can only be used online. Obviously, e-gift cards are less expensive to produce, but maybe it’s important that the customer is able to hold the card, store it in their wallet, or show it to family and friends.
  • The design of the gift card: if you go with a physical gift card, a more complex design means a higher cost. Before settling on a design, ensure that it communicates your brand properly.
  • The delivery of the gift card: often, the delivery method is determined by the objectives of your campaign and the type of card you choose. For example, sending an e-card can be inexpensive if you have an email database that matches your target group, but if you’re purchasing a mailing list and printing physical cards, your costs will be significantly higher.

3. What usage restrictions make sense?

Many retailers have usage restrictions on their promotional gift cards. If these restrictions are similar to the restrictions on gift cards sold in-store (e.g. cannot be redeemed for cash or used on specific purchases), consumers will be delighted. However, sometimes it makes sense to add restrictions to promotional gift cards. In this case, make sure you evaluate the promotion from an objective consumer perspective to determine if the promotional gift card will be of interest with a long list of restrictions on its use.

A restriction that differentiates promotional gift cards from regular gift cards sold in stores is the expiration date. Promotional gift cards that use effective expiration dates can help you deliver a better ROI on your program. Expiration dates urge consumers to use the gift card and can help you limit the term of your liability. When handing out ‘free money’, we recommend using expiration dates.

4. Are you prepared to deliver an exceptional customer experience?

Promotional gift cards delight consumers. Who doesn’t love the feeling of getting free money? If you provide the customer with a great in-store experience when they come to redeem the promotional gift card, you will create a loyal repeat customer. Make sure your staff treat the promotional gift card customers like long-term loyal customers and ensure that they’re briefed on the usage restrictions and capable of steering customers away from products they can’t purchase with their promotional gift card.

Overall, the redemption process should be smooth. Bar code or magnetic swipe gift cards are easy to redeem. If you use an e-gift card, make sure that you can handle it at checkout. Having to print out the e-card or recite a long numerical code to the cashier is prone to errors and increases wait time at the cash register, which leaves customers dissatisfied. Redemption is often overlooked by retailers as an opportunity to build loyalty, but in many cases it serves as the last point of contact to entice a new customer back into your stores. Make sure that the customer’s last impression of your brand is a positive one.

Gift cards are excellent promotional tools when the campaign and in-store experience are well thought out. We hope the preceding tips will help you grow your profitable, loyal customer base.

To learn more about how we can help your retail business achieve success, visit our retail services page or contact us for further information.