Gift cards and e-money retail
products present significant opportunities around the world. But a
one-size-fits-all approach does not work. Christine Toner considers
the importance of cultural differences to the development of closed
loop gift products, and looks at where the biggest opportunities
could lie.
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In many of the world’s
largest economies, consumer confidence is low and even
previously-considered invincible brands are feeling the pressure to
better understand and influence consumer spending behaviour.
One market that continues to
attract attention in this context is gift cards. They can mean big
business for retailers.
In the UK, for example, most recent
figures from the UK Gift Cards and Vouchers Association (GCVA)
value the industry at £4bn ($6.2bn). Meanwhile, in the US, sales of
gift cards grew by 10% in 12 months (according to the Retail Gift
Card Association) despite the economic climate.
The same cannot be said for all
countries, however. While gift cards are clearly flourishing in
some locations. But in others they are failing to take off. So what
is it that dictates the success of gift cards in any given
market?
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By GlobalDataIn the UK the gift voucher market
has been established for over 80 years. Andrew Johnson is director
general of the GCVA.
“Gift cards are just a natural
replacement for paper vouchers,” he says.
“In the UK we already have a strong
culture of giving gift vouchers. This market is one of the biggest.
However, some markets, like Italy, are not doing as well, mainly
because they give homemade type gifts rather than cash based
gifts.”
Questions of
culture
Indeed culture plays a big part in
determining success. Giving money as a gift, which is essentially
what gift cards do, is seen as unacceptable in many countries.
And of course, changing a culture
that has been developed over many years is no mean feat.
“It would take time,” says Johnson.
“People are buying them, but the cultural differences have a
significant impact. You have to be in it for the long term.
“It is partly the reason why gift
cards and prepaid products in general are so popular in the US.
Giving cash based gifts there is fine.”
The gift card market in the US is
certainly doing well, something Rebekka Rea, Director of the RGCA
says developed over time.
“In the US consumers were
accustomed to using coupons or loyalty programmes like Green
Stamps,” she says. “When gift certificates were introduced they
were treated much like a promotional voucher for goods or services.
The transition to plastic really stimulated a rapid growth in the
acceptance and use of gift cards, which were much more durable and
convenient.”
Rea does not expect this growth to
slow down any time soon. In the eighth Annual Closed-loop Prepaid
Market Assessment by the Mercator Advisor Group, gift cards remain
the number one most requested gift.
It certainly helps that gift cards
in the US do not have dormancy fees or expiration dates.
“You can give a gift card to
someone and have confidence that whether they redeem the card in
three weeks or three years the entire value of the card will still
be available,” says Rea.
Brand
positioning
The cards also give givers the chance
to promote a brand of their choice.
“While a gift card provides the
recipient with the opportunity to choose their own gifts, it also
allows the giver the opportunity to promote a brand they like,”
says a spokesperson for Maine-based retailer LL Bean.
“In addition, gift cards help
gift-givers at those times when the inventory of a specific product
may have been depleted, yet the intent is still for the recipient
to have that item.”
This flexibility is an obvious
draw, and most major retailers have a voucher or card product.
According to the GCVA’s Johnson this is true of retailers at both
ends of the market from high street shops like Marks & Spencer
to designer names such as Lacoste and Burberry.
Salima Yala is divisional vice
president for layaway at one of the US’ biggest brands Sears
Holdings.
“Gift cards that are hassle free
and easy to redeem are most useful to both the purchaser and the
recipient,” she says. “All our gift cards [Sears Holdings brands
include Sears, Kmart and Land’s End] can be cross-redeemed at any
of our retail outlets as well as online.”
But does the fact that these
products are plastic cards, rather than paper vouchers really have
a big impact?
Persistent
paper
Over the Christmas
period, retailer John Lewis saw a significant increase in voucher
sales, with an especially strong performance in the final two
weeks, demonstrating a definite appetite for prepaid products.
However, according to spokesperson
Kerry Taylor, the retailer does not have any plans to change to
plastic cards.
This brings us back to old habits
and the need for cultural understanding. But the UK GCVA’s Johnson
would argue that retailers who stick to paper are ignoring
consumers’ preferences.
“We did a survey in 2010 and there
was a preference for gift cards over paper vouchers,” says Johnson.
“Part of the reason for that is you are just buying one card and
not buying several paper vouchers. The general view is security is
also better on a card.
“Of course, the other advantage to
the retailer is that they can displayed on the shop floor, rather
than being kept behind the till.”
Yvonne West, general manager at the
Prepaid International Forum and an expert in gift cards, says one
reason retailers may be sticking with paper vouchers above plastic
cards is the costs involved with changing.
“When we looking at the barriers to
adoption, the clearest is the cost to set up,” she says.
“There is still fraud to take into
account, and processes in store to manage. The positives are mostly
in line with liability on the balance sheet and knowing what is in
the market, which for many retailers they do not know when they
only use paper product, but it is cheaper to run.”
Opticard is a provider of gift and
loyalty card systems based in Omaha, Nebraska. Since it was
established in 1990 it claims to have serviced over 50,000
merchants and has seen the adoption of incentive based card
programmes explode.
“Today, few merchants exist without
providing a gift or loyalty card program,” says Andrew Kawa,
director business development at the company.
“The US certainly drives much of
the economy through retail sales. In the U.K. electronic gift cards
are relatively new to the process. It has really only been
approximately 10 to 12 years in which this technology penetrated
the UK Market. Certainly ‘vouchers’ are widely used in the UK so
the thinking is consistent and I believe you will see that the
plastic card will soon become very popular.”
Better value
proposition
Encouraging consumers and retailers to
adopt plastic cards however is dependant on whether their product
is adaptable.
High street vouchers, for example,
can easily lend themselves to the plastic card model. However
products like pre-paid ‘experience’ vouchers may not.
Smartbox is a unique product within
the gift category which allows the recipient to chose the what,
then when and the where of their gift. Garry Barone, head of sales
and marketing, says adapting this product to a gift-card format
would be difficult.
“Our goal – or challenge – is to
evaluate the potential of transferring our boxed product into a
card format,” he says. “This is not easy to replicate on a card
format – the boxes contain anything up to a 400-page glossy
brochure as well as e-vouchers.”
E-vouchers – or virtual vouchers –
are a fairly new addition to the prepaid family. Companies such as
Amazon, for example, offer downloadable paper vouchers. Customers
can buy and print the voucher at home, or simply send to the
recipient by email.
“They are becoming more and more
popular,” says Johnson. “More and more retailers offer them.
Virtual products generally are more appealing to a younger market.
Their popularity lies in the fact they are instant.
“You can send them virtually, even
through Facebook. Christmas day becomes a shopping day like any
other. If you find you got a gift from someone you didn’t expect to
get a gift from, you can send them something instantly.”
Further
development
The developments being made in the
gift card arena are certainly dynamic.
Recently prepaid automation
specialist Stanton Consultancy Ltd (SCL) joined forces with
Self-Service Networks (SSN), which provides self-service kiosks, to
introduce self-service gift card kiosks in shopping centres and
other establishments in the US. Following success in that market,
SCL and SNN now plan to roll the programme out in Europe.
“We have not only created an
additional low-cost and secure sales channel for large and busy
malls but also a viable way to open up new sales opportunities
within smaller malls, retailers and satellite locations that
currently lack a formal concierge desk or the staff to sell gift
cards,” says Ray Stanton, managing director of SCL.
“We see no reason why the same solution cannot be applied in
Europe where retail self-service applications are gaining
ground.”
See also:
