Giving cash as a gift is still largely taboo. Most people view it as tacky — but consumers are still often faced with the daunting problem of having no idea what to get a friend, family member, or work colleague for the holidays.
The numbers prove that gift cards have successfully filled this gap by offering similar spending flexibility to cash without the social stigma and perceived thoughtlessness of gifting actual money. Worth $19 billion in 1999, the gift card market has exploded to $124 billion in 2014 and is expected to reach $149 billion by 2017.
It has become spectacularly simple for consumers to purchase a variety of big box retail, restaurant, and even gas gift cards at discount and grocery stores, but any retailer can get in on the action. If you have ever thought about offering gift cards to customers, here is why you almost definitely should.
Feed the big spender illusion
Although gift cards are viewed as more discreet than cash, they still come with monetary value attached. For clientele that are concerned about this, there are several options available including values that are hidden under scratch off windows and even values that can not be seen until the recipient logs into a website or dials a phone number. No matter what is done to hide the value, however, the giftee will ultimately know how much the giftor spent.
This is very easily overcome by the simple act of discounting gift cards. Instead of discounting merchandise, retailers can sell gift cards at prices lower than their face values. While this sacrifices control over which merchandise is discounted, a portion of that can be regained by selectively marking down items whose margins allow for customers to double dip if they purchase them using discounted gift cards. Tap into consumers’ desire to look like they spent more than they actually did.
Circumvent minimum advertised price policies
Retailers that sell highly in-demand brands often find themselves subject to minimum advertised price (MAP) agreements that forbid them from promoting any discounts below a certain established pricing threshold. Effectively commoditizing products, this is annoying to both retailers looking for competitive advantage and consumers seeking the best deal. While MAP policies typically do not disallow retailers to mark merchandise down, inability to build awareness of the discount renders it largely ineffective.
Using the same principle as above, retailers that sell gift cards at a discount from face value are effectively putting their entire inventories on sale — including merchandise subject to MAP. Consumers frustrated with price consistency across retailers are quick to realize they can circumvent this by purchasing a discounted gift card and using it to purchase the item. Gift cards can therefore be used as an effective tool to hedge MAP constraints.
Catch-all merchandise pricing strategy
When the wrong inventory is marked down, even aggressive doorbusters can be huge busts. Selecting merchandise to discount and promote is almost always a risk, and retailers without access to piles of data and analysis are at distinct disadvantages. By the time promotional mistakes during holiday shopping season are realized, it is generally too late to take corrective action.
Gift cards take the guesswork out of selecting the best merchandise to discount by providing set percentage markdowns upfront and allowing customers to decide where to apply them. This is an excellent vehicle for attracting traffic; individual SKU markdowns can always be applied where margins allow. A little gift card planning and some smart promotion around it can avoid the pitfalls of having to forecast which items will be popular at a given time.
Perhaps the best thing about implementing gift cards is they require virtually no investment. All you have to do is buy blank cards. If you can accept credit cards, you can probably load and sell gift cards — it doesn’t require any special technology. Just about any retailer can open the door for consumers to purchase gift cards for loved ones quickly and easily, and not doing so is missing a huge holiday sales opportunity.
Zeke Hamdani is Director of Web Services for Celerant Technology.