Promotions & The Power of Gift Cards
August 13, 2018
Gift Cards are a powerful tool and an important offering for merchants to acquire new customers. However, their power extends beyond just driving new sales: they also serve an integral role in building and retaining loyalty in an existing customer base. To better understand exactly what can be accomplished through promotions that leverage gift cards, it can be helpful to understand how they impact customer behavior at every point along the customer lifecycle.
How Gift Cards Drive Customer Behavior Throughout the Customer Lifecycle
Merchants can leverage consumer preference for gift cards to drive awareness and capitalize on relevant and seasonal events. Gift cards are the #1 most requested gift at holiday (11 years in a row) and consumers prefer gift cards as incentives 2:1 over anything else. Taking advantage of this preference can drive awareness and create feel-good experiences for both the gift card buyer and recipient.
New Customer Acquisition
Gift cards present a unique tool to acquire new customers and drive incremental visits. Gift cards have the power to increase awareness and purchase activity among new customers when used for the following types of promotions:
- Trial/First Purchase—Gift cards can be used as part of an acquisition effort to encourage trial, visit or first purchase.
- Trade-In/Up—Trade-in programs allow consumers to bring in gift cards with remaining balances from other retailers and “trade them in” for a gift card from the retailer running the promotion.
- Registration/subscription—Gift cards can be used to encourage registration with a merchant or to drive subscriptions to newsletters or other promotional content.
Gift cards can also drive incremental visits through partnerships with other brands offering promotions to their customer base. Additionally, these instruments can increase sales when gifted to new recipients that were not previously exposed to the brand.
Merchants can grow revenue and increase purchase frequency and lift by incorporating gift cards into promotions. Customers overspend by 40% more when using a gift card, so merchants can enjoy the financial benefits of up-spend and lift that goes beyond the initial purchase price.
Increase Loyalty & Engagement
Gift cards provide great customer experiences for both the gifter and the recipient. Promotions that utilize gift cards offer even more benefits by the inherent engagement that occurs during promotions. Merchants that market gift card promotions through social channels, email, and customer service (returns/remediation) are building and strengthening relationships with core customers. Merchants can grow existing relationships and driving incremental purchases by using gift cards to:
- Encourage specific payment methods that drive incremental value and make customers more sticky with your brand
- Leverage loyalty programs with rewards
- Deepen your relationship and generate brand advocacy through social media engagement
Payment & Spend Shift
Merchants can take advantage of the payment and spend shift driven by gift card sales. Payment shift occurs when merchants avoid credit card fees by driving sales via gift cards. Spend shift enables merchants to increase sales using gift cards at slower times of the year or by offering promo codes during specific time windows. Gift card breakage—where merchants gain revenue through unredeemed gift cards—is another benefit where merchants derive increased income at no immediate cost.
Service & Retain
Merchants have an opportunity to leverage gift cards to keep existing relationships in good standing and to provide an excellent branded experience. Potential strategies include using gift cards for merchandise returns, warranty claims, trade-in programs, and remediation and appeasement.
Gift Cards & Promotions: An Ideal Match
The benefits inherent in gift cards make them the perfect tool for executing successful promotions. These important yet complex offerings can have a considerable impact on gift card programs when executed with care. Merchants should consider the following success factors that make gift cards an ideal match for promotions.
Consumers prefer gift cards over other marketing incentives like coupons, bonus dollars, and rebates. As NAPCO research points out, consumers prefer gift cards as incentives 2:1 over anything else. In fact, 58% say gift cards are their most preferred store or restaurant promotion vs 30% for coupons. Taking documented consumer preferences into account when running promotions can help make promotions as effective as possible.
Popular Gift Card Promotion Types
According to the NAPCO Research 2017 Merchant Gift Card eCommerce Evaluation sponsored by CashStar, nearly half of the merchants evaluated used gift cards as more than just a sales channel and most notably as a tool to drive behaviors in marketing programs within the past year. While this is good news, there is still opportunity to further leverage and optimize promotions to meet business goals. Consider the following promotion types:
- GOGOs (Give a Gift Card Get a Gift Card)
- Product Incentives (give a Gift Card, get a product)
- Discounts (buy $100 egift, get 15% off)
- Give one, Donate One
- Buy a gift card, get free shipping
- Top-up (receive bonus funds when funds are added to a Gift Card)
Typically, promotions and incentive campaigns experience strong open rates, as illustrated below:
- GOGOS: 86%
- Discount (% and amount): 96%
- No Reward: 93%
- Free Shipping: 91%
- Top-up: 97%
- Raffle: 91%
2017 Holiday Promotions Impact on Sales
As mentioned earlier, the holiday season is prime time for merchants to leverage consumer preferences for gift cards. In fact, during holiday months, brands that run promotions see a much higher increase in sales than those that don’t. Alternatively, brands that do not run promotions miss out on an average of 37% annual sales volume compared to brands with promotions. The results speak for themselves:
- 8.4x sales for brands with promotions.
- 3.5x sales for brands without promotions.
- 2.5x higher holiday sales for brands who run promotions.
Key Considerations for Promotions
Promotions should aim to solve for something a merchant wishes to achieve. This may be a goal, objective or challenge. These need to be identified before merchants execute and should be addressed early on in the planning phase. Some questions to ask include:
- How do I sell more gift cards?
- How do I get a lapsed shopper back into my store?
- How do I motivate customers to download my app? Or sign up for my loyalty program?
- How can I interact with my customers using social media?
While this is just a sample of some objectives and challenges a merchant may face, merchants should consider their own use cases when considering promotions. The key takeaway is that these questions must be answered prior to executing on a promotion of any kind.
For more information about leveraging gift cards for holiday promotions, view our Holiday Promotions webinar.