What is the primary advantage gift cards provide to retailers? Incremental sales, says Brenda Gilpatrick of Your Fantastic Plastic, referring to dollars spent that are above and beyond what shoppers intend to spend when they walk into a store.
It is a well-known fact, Gilpatrick says, that half of the people using gift cards end up spending at least $40 to $50 over the amount of their gift card because they consider the card as free money. So they say to themselves, "If I add another $50, look what I can get."
Retailers have gotten creative about how to use gift cards to market their stores — or restaurants. Gilpatrick knows of a restaurant group that gives gift cards to other businesses to hand out as thank yous to customers.
"The restaurant group has tracked those cards, and they´ve shown that they do a significant business above and beyond the value of the card," Gilpatrick says. Thus, diners might receive a $25 restaurant gift card as a thank you gift from company. When they decide to use the card, they bring in a friend or spouse for dinner or lunch and the two spend the amount on the gift card plus however much more it cost to eat whatever they want off the menu.
A retailer in a small shopping center might do something similar, Gilpatrick says, by providing $5 gift cards to a restaurant in the same center. It´s up to the restaurant to hand out the cards to whatever customers it chooses.
If the retailers wants to control it a bit, they can put a short-term expiration date — maybe 30 days — on the card, and they´re likely to pick up some business, Gilpatrick says, because, to consumers, receiving a gift card is like receiving cash.
"I´ve seen a lot of stores, upon their grand openings, mail out a $5 card. And then I´ve seen stores use them as bounce-backs, so that a customer making a purchase today receives a $10 card that´s good after a certain date." That brings customers back into the store again a month or so later.
Retailers also have become adept at turning gift cards into loyalty cards, Gilpatrick says. In this scenario, a customer makes a purchase with a gift card, and the retailer suggests that the customer keep the card and let the retailer put a little more value on it. A reward system kicks in, giving the customer points for continuing to add value to the card. Eventually, the customer gets a little money back based on the number of points earned. Neat.
Coming up in Retail Strategies: A by-the-numbers look at online retailing