Gift and loyalty cards can provide a powerful way for smaller companies to compete.
It is estimated that combined gift card sales will reach $100 billion in 2010.
The fact is, what you get out of a gift and loyalty program will depend on the effort and commitment you invest.
Gift and loyalty cards can be a powerful way to grow sales and retain customers. Today, even smaller companies can take advantage of these benefits, but they must be ready to implement them creatively and aggressively.
In this guide we will help you understand the costs, profitability and psychology of gift and loyalty card programs. We will also outline some creative, real-world examples where smaller companies have used gift and loyalty cards to compete against larger chain stores.
The Cost of Gift & Loyalty Card Programs
Upon review - some gift and loyalty cards programs can seem expensive, that is not the case if you understand how they work. Once you understand what the costs of the program will be, it is then easy to implement a profitable campaign for your business’s gift and loyalty card programs.
Setting up a Program
Consider a typical small business that has ordered 250 cards. The cost for 250 custom printed cards can be as low as $199.00. To track the card activity a business can setup the gift card program to work with their POS terminal in the following ways:
Typically 20% of gift card holders do not spend the card's full value - the remaining balance goes to your bottom line
A business can also use the cards as a promotional tool by activating the cards with a specific value and using them as incentives to attract new customers or bring current customers back again. Customers who return to your store usually spend 30% more than the card's face value. Gift cards can be used as payment for returned items. Dollars remain on the card, where the customer can use them for future purchases from you and nothing comes out of the till.
Breakage and uplift increase profits
Gift and loyalty cards have indirect benefits. Not everyone will use all of the money on their card and many people will spend more than the value of the card in your store.
In fact, studies have found that people will usually spend 30% more when using a gift card, which is known as "uplift" in the industry.
An important note about your legal requirements
As cards become more popular, it is important for business to be aware of new legislation that may affect your gift or loyalty program. For example, The US governments recently passed card legislation that prohibits expiry dates or fees on gift cards. Under the new legislation expiry dates can only be used on a gift card if the card is given away during a promotion for a specific good or service. When implementing your program, make sure that you comply with existing or emerging legislation. You can read the new government rules at: federalreserve.gov/consumerinfo/wyntk_giftcards.htm
The psychology behind gift & loyalty programs
One the most basic psychological benefits behind gift cards is that people perceive the value on the card as "free money" or "found money". The psychological effect is similar to that of a credit card, only much, much stronger.
As a result, people spend more. Someone with a $50 restaurant card will usually indulge in a dinner for two, spending $120. Another shopper in a retail clothing store with $15 left on his or her card will splurge on an item that is $15 more than they would otherwise be willing to spend.
A person who has a FREE $5 gift card is more likely to visit that retailer instead of another store. What's more, they will probably use the gift card to buy something for a friend or colleague.
Strategies to make your gift & loyalty programs successful
Gift and loyalty card strategies can get quite sophisticated. However, you don't want to rely only on a display at the cash register to promote your program, this approach is used by large companies that invest in costly marketing strategies to drive people to their locations.
Suggestions for small companies include adding cards to mailings, instruct sales people to offer cards to customers, offer cards to other businesses as holiday or promotional gifts, offer special discounts to card users, promote your gift cards on your printed marketing material (window signs, menus, flyers, ads etc.) and use gift cards as charitable donations.
Smaller businesses need to employ more creativity.
The trick to having a great gift and/or loyalty card program is to never let a card balance run out. This is called "cycling" in the industry. A savvy merchant will work aggressively to continuously cycle their gift cards, because as long as there is an amount on the card then customers feel the need to come back.
If you allow the card to reach a zero balance then the customer has no benefit to return to your business. Cycling enough times creates an unconscious habit in your customers over time to shop at your location.
Successful Strategies in Action
You should have 2 goals when planning your gift & loyalty campaigns:
1.Increase your customer base
2.Maintain your existing and new customer base.
Let's look at a few real life strategies that have been successful gift & loyalty Campaigns.
Florist Increases Sales with Delivery Gift Card Strategy
A florist we worked with knew that most of the flowers they were delivering were to people who could become potential customers. The company wanted to try to increase their customer base to include the people receiving the flowers.
After working out their "cost of goods and services" they determined they could maintain profitability and still include a free $10 gift card with each delivery. They tastefully added a free gift card with every flower delivery and soon saw a dramatic increase in orders due to their gift card campaign.
Clothing Retailer Challenges Larger Chain Stores with Savvy Strategy
A clothing retailer who was finding it challenging to compete against larger chain stores used a loyalty/rewards strategy to turn things around.
The owner trained his staff to ask new customers if they had shopped at the store before. If the answer was no, the sales person would offer them a key tag with a face value of $5.
The free key tags were a big motivator. The store owner observed that patrons would begin to shop and would buy something due to being given a gift or discount (This is a sales technique called the 'reciprocal agreement').
Using cards as rebates on products instead of holding a sale.
A sale gets people in the store, but it doesn't encourage them to return. Rebate gift cards do both. For example, a high-end jewelry store giving out $50 gift cards during the holiday season to shop browsers, to mall visitors, to other businesses and by mail, will have a much higher chance to boost sales compared to just holding a traditional sale.
Gift and loyalty cards have been used successfully by retail outlets, automotive repair shops, massage therapists, beauty salons, restaurants, home improvement companies, accountants and many other businesses in most consumer industries.
This is no longer a business marketing method that is limited to larger companies, but a strategy that you can put to work in your business immediately. Custom programs start at as low as $199 and can be configured to most any budget.For assistance in starting your Gift Card and/or Loyalty Card program we invite you to speak with one of our program specialist. Call 845-507-0220 or use our Contact Form and we will call you.
All card images used with permission.