By Stacey McAllister
The story of gift cards in the incentive market reads a lot like the “dot.com” boom and bust of the late 1990s. Gift cards exploded at around the same time, filling a need that all of us have struggled with at one point or another: how to always come up with the perfect gift. By combining the personal and the practical – allowing recipients to select what they want, where they want, when they want – gift card sales soared, and the incentive market had to put some of its high-margin merchandise in the attic to make room for box after box of 30mil branded plastic.
You know the rest: the bottom fell out of the economy, retailers lined up outside bankruptcy court, and consumers and incentive companies alike were left with millions in worthless cards. At the same time, taxpayers wrote a huge check to keep Corporate America afloat, and the incentive industry came under intense scrutiny. Things got so bad that reviewing a company’s financials became a necessary step in shopping for a birthday gift or adding new merchants to an incentive program.
So as we enter a new year and a new decade, what’s next? I asked Nick Balestino, Manager of Award Partnerships at Hallmark Insights; Dana Slockbower, Marketing Director at Rymax Marketing Services; and Joan Travelstead, VP of Business Development at National Gift Card Group to weigh in on the past, present and future of gift cards.
Q: What have you seen change the most in recent years as far as how gift cards are being used and redeemed as incentives?
Travelstead: Two things immediately come to mind, the first being the value of the rewards. The average redemption was $50 in 2008, whereas in 2009 the average redemption is now down to $25. The demand for lower denominations has greatly increased. Businesses have reduced their spending. The $5-$10 denomination has shown drastic increases in demand. The second thing we’ve noticed is the type of card individuals are redeeming. The high-end retailer’s gift cards have seen a sharp decline. Redemptions are higher in the discount stores and fast food/casual dining categories.
Slockbower: We’ve seen two areas of change within the gift card arena. The first is there’s a clear distinction between the need verses want type of choices in redemption. We’ve experienced a greater increase in clothing and department store redemptions as program participants are looking for everyday items like clothing and small appliances. The second is that we’ve also seen an increase in the demand for personal indulgences such as Spafinder.com and restaurants, since individuals don’t necessarily want to spend their income on these items but still want to enjoy treating themselves from time to time.
Balestino: Based on feedback from our Incentive Award customers, it seems more of them used their gift card redemptions to treat themselves, family and friends, whether it’s a nice dinner out, shopping with a loved one, or a weekend staycation. Many customers also indicated they used their gift card to offset a high-cost purchase such as consumer electronics, home improvement project, or new wardrobes. The bottom line is that they’re using gift cards for products and experiences they might not have had otherwise.
Q: How are open-loop products working with closed-loop products in the incentive market?
Travelstead: As a provider of both open- and closed-loop products, we’ve watched the trends very closely. The pricing for open-loop products has in the past made them less desirable than closed-loop products. However, as the pricing for open-loop products has become more aggressive and fees have been eliminated, they’ve become very desirable. In years past, a reward was a reward. It was something earned and looked upon as a “treat.” With the current economic difficulties, incentives and rewards are being used to supplement an individual’s budget. People are redeeming for the open-loop product and using this reward to pay utility bills, buy a pair of new glasses, or pay for car repairs.
Q: How do you see this evolving?
Travelstead: I believe open-loop products will continue to see huge growth in 2010. I also believe that as the economy begins to heal, the redeemer will return to treating themselves with their rewards rather than using reward to supplement their lifestyles therefore improving closed-loop sales.
Q: How are gift cards working within traditional merchandise programs?
Slockbower: Gift cards provide a variety of redemption levels for program participants. They also serve as a great add on. For example, if someone is redeeming for a large 50-inch HDTV, they may have a small remaining balance that can be used towards a $25 gift card from a specific retailer. Offering a variety of gift card price points allows us to offer something for everyone. We’ve also taken this approach one step further and are bundling gift cards with merchandise to enhance our offerings. Some examples include pairing an iTunes or Billboard Music gift card with an Apple iPod® or coupling a Wine.com card with a set of Baccarat stemware glasses.
Q: Many incentive companies are beginning to quantify the “shelf space” they offer to merchant partners as a valuable piece of real estate when it comes time for a participant to redeem their award. Do your companies have programs in place that allow merchant partners to advertise to the end-user?
Balestino: Although our current position on our redemption sites is to be brand neutral, we offer other marketing opportunities for our merchant partners by including their brand in our client newsletter and giving them a presence at tradeshows and conferences. This is an increasing topic of interest to our partners, and we’re working with them on partnership ideas that support both our current position and their desire to increase awareness and preference for their brand.
Slockbower: We afford all of our manufacturer and gift card partners with a variety of marketing opportunities. Whether in printed advertisements, online initiatives, trade show exposure, social media, or co-sponsorships, there are always tons of ways to get the word out within the Incentive Industry and across vertical markets.
Travelstead: This has become a priority topic for National Gift Card. NGC offers over 150 different gift cards, and many denominations for each retailer’s gift card. However, it has become increasingly difficult to keep up with the customers’ demands for all the denominations they require while keeping live inventory at a minimum. It has become necessary to limit the gift card options to programs where turnaround time is rapid. We’re actively requesting inactive inventory and direct activation from the processors to alleviate the issue of having to remove a merchant’s gift card from a program due to the lack of inactive inventory, slow turnaround times, high minimum orders, or for non-/slow-performing gift cards.
Q: How do you see mobile and social media affecting this channel?
Slockbower: Social media is on the rise across all business sectors. Rymax is consistently seeking new ways to promote our brands, and we plan on using this medium as a great resource in 2010.
Balestino: Mobile is quickly becoming a convenient method of accessing data, so any web-based, incentive solution product should be optimized for mobile. Mobile offers immediacy, since most people – especially those in the business inventive market – have access to their mobile devices 24/7 versus laptops and desktops. Mobile-optimized experiences will be key for our channel. For gift cards, it seems a handful of merchants are moving forward with mobile gift card solutions, but many more are showing interest. We will continue to monitor progress made by merchants on mobile gift cards. Our view on social media is that it’s a growing channel to connect with our customers, prospects and business partners in a new and immediate way.
Stacey McAllister is VP at RK Incentives and the Director of Media Relations at the Incentive Gift Card Council.
About the Incentive Gift Card Council
The Incentive Gift Card Council is a strategic industry group within the Incentive Marketing Association (www.incentivemarketing.org). The IGCC educates the incentive marketplace and the corporate community on the benefits of gift cards, including choice, value and service, and other key attributes recipients say they want their awards to incorporate. For more information, visit www.usegiftcards.org