Why Retailers Still Find Gift Cards So Effective

Emma Miller
Emma Miller
Guest Contributor

Gift cards present the opportunity to create stronger relationships with customers, raise brand awareness, boost profits and attract new shoppers, and no time is better for gift cards than the holiday season.

The holiday shopping season is upon us. So, let me ask you, “What is a perfect gift for you?” The answer to this question is neither a sweater nor freshly baked cookies, I suppose. It’s cash, of course. The reason why we love money so much is pretty simple. We can spend it anywhere and anyhow we want.

However, for the majority of holiday shoppers, money is too simple and it kills the Christmas spirit. This is why they turn to gift cards. They are as effective as cash and, at the same time, they are more valuable and convenient to a recipient. Precisely because of this, nearly 93% of U.S. consumers either purchase or receive a gift card every year.

That’s all right, but why are gift cards important to retailers? Let’s find out.

Taking Advantage of Unused Cards

Studies show that, despite the 2009 Credit Card Act regarding credit card expiration dates, there is still $973 million of gift card-related revenue that goes unused by consumers. For you, that would certainly be a win-win scenario. Namely, the majority of retailers put a time limit on the gift cards they sell. In other words, once the expiration date has passed, you will no longer be obliged to honor the card, meaning that you will get your money in advance and, at the same time, boost your average order sizes.

Attracting New Customers

Even though the majority of people would purchase gift cards from the recipient’s favorite stores, agencies or restaurants, not everyone sticks to this rule. What about those who prefer surprising their friends or family by getting them gift cards for a place they’ve never been to? This is an amazing opportunity for retailers of all sizes and shapes. Namely, your gift cards may serve as a cost-effective and yet immensely powerful advertising and customer acquisition tool.

For instance, even if a person has never heard of your store, but receives a $100 gift card, they will probably want to check you online, find your location, and visit your store with family or friends. Of course, if they are satisfied with what they see and experience, this means that you’ve acquired a long-term customer or even a brand advocate.

Boosting your Profits

The financial perks that gift cards provide influence your business in the short- and long-term. Namely, when executed properly, gift card programs can help you boost your cash flow in several ways. Let’s learn more about them.

Gift card customers pay full price for products…

Statistics tell us that customers shopping with a gift card are 2.5 times more likely to pay full price for products than those making cash purchases. Clearly, they are less likely to price shop, hunt for bargains or wait for huge seasonal sales. Of course, for you, selling an item at a full price boosts your profits.  

…as well as spend more money

You don’t have to be an experienced retailer to know that most gift card shoppers end up spending more than the face value of their gift card. According to some recent researches, the majority of customers that walk in with a $50 gift card will spend 20% more while making purchases.

Gift cards boost a post-holiday shopping season

For business owners, the holiday season means significantly higher sales. However, it is the post-holiday slump that may be painful to you. That’s exactly where gift cards step in. Namely, they bring people back to the store in this slow season. Even if your customers are strapped for cash, they can use their gift cards to make purchases guilt-free and even end up buying a little more than the amount of money on the gift card.

You can have your money in advance

During holidays, your customers’ expectations are constantly growing. Parallel with them, your costs will rise, as well. This is exactly when gift cards shine. By selling them, you will get the whole sum of money up front, meaning that you will be able to cover all important business-related expenses, such as investments in new equipment, orders, payroll, etc.

They reduce the number of gifts returned

Research conducted by the National Retail Federation points out that 8.8 percent of holiday gifts get returned, which is tiresome for both customers and retailers. However, with the rise of gift cards, this practice has changed a lot. Given the fact that gift card recipients choose what they will buy on their own, gift cards may reduce returned merchandise, as well as the high costs associated with handling returns.

They Give Small Businesses the Opportunity to Compete with Larger Brands

The gift card industry is a multi-billion dollar industry and it will only get stronger over time. Of course, this means gift cards are now one of the most popular forms of gifts, and most importantly, the one most requested by gift recipients. However, the way gift cards work is constantly changing.

Many larger card issuers like MasterCard, Visa and American Express offer prepaid gift cards, also known as open-loop cards. This simply means that shoppers can use a prepaid Visa card to buy items from any retailer that accepts them. However, closed-loop cards issued and accepted by specific merchants have gained momentum over the past few years. This shifting preference for closed-loop gift cards presents a great chance for small businesses to compete with larger brands and, at the same time, tailor their approach to shoppers who want to get something relevant, emotional, and thoughtful to their giftees.

Wrapping It Up

Customers love gift cards because they are original, convenient, and as effective as cash. Most importantly, they are highly personalized and relevant to the recipient. For retailers, on the other hand, gift cards represent the opportunity to create stronger relationships with their customers, raise brand awareness, boost their profits, and attract new customers. So, if you haven’t taken advantage of this brilliant practice so far, you should definitely do so during this holiday shopping season. Now that Christmas is almost here, gift card programs may take your business to a whole new level.

About the writer: Emma Miller is a Sydney-based writer with a degree in marketing. Interested in digital marketing, social media, start-ups and latest trends, Emma’s a contributor at Bizzmark blog.

Join the #retail, #inspiringretail and #SmartStore conversations on Twitter @emma_k_miller & @RetailNext, as well as at www.facebook.com/retailnext.