Gift card fever
Originally published by Sales & Marketing Management Magazine on July 1, 2018.
Use of gift cards as incentives and rewards continues to boom, but many users remain oblivious to volume discounts.
Gift card use by businesses continues to experience tremendous growth. The Incentive Research Foundation (IRF) reports gift cards are the most prevalent award type across all incentive and recognition audiences—employees, sales, consumers and channel partners. Businesses spent a total of $26 billion on gift cards in 2016, nearly 20 percent of the gift card industry’s total sales of $136 billion.
Megg Withinton, managing partner at Intellective Group, a market research and strategic consulting ﬁrm, says the continued growth of gift cards as B2B marketing and recognition tools is the main driver of growth for the non- cash incentive industry.
“We’ve seen a huge expansion in the incidence of non-cash rewards—from 26 percent in the 1990s to 84 percent today. I attribute much of the increase in the incentives marketplace to the gift card segment. The accessibility and availability of closed-loop cards (cards that have a deﬁned value) has opened the door for every company, regardless of size, to use gift cards as non-cash rewards,” Withinton says. “Gift cards are the foot in the door for most companies, especially the small ones. We didn’t have to convince people that non-cash was better than cash to capture attention and create energy in the audience. We just needed to make it easy for them to use non-cash rewards.”
Learning more about gift card use
To understand their prevalence deeper, the IRF researched how gift cards are sourced for incentive and recognition programs, how much money is budgeted toward them, what types are being purchased, and where opportunities lie for stakeholders. A survey was administered to 300 industry professionals who run incentive or recognition programs for their companies.
Results were broken down between medium enterprises (businesses with annual revenue between $100 million and $1 billion) and large enterprises (companies with more than $1 billion in revenue annually). In 2016, 69 percent of medium-sized businesses purchased gift cards for rewards and recognition, while 61 percent of large ﬁrms purchased them. This is up from 2014, when 56 percent of business with revenue over $100 million purchased gift cards for incentive programs. Companies—both medium and large—purchase B2B gift cards for an average of 2.5 to three different audiences, with employees, followed by sales, being the most frequent audience types. Budget allocation is a different story, though. For large enterprises, customer and sales audiences have the largest budgets for gift cards. Channel budgets are the largest for medium-sized businesses, followed by the budget for gift cards for customers.
“It’s really interesting that spend on channel incentives is disproportionately high for mid-sized companies,” says Withinton. “When we look at the data, we see a segment of companies with really aggressive channel spend, and that’s pulling the average up a bit. We see some of these mid-sized companies spending millions of dollars on gift cards for channel incentives, trying to keep pace with the big ﬁrms. They’re competing for both mindshare and market share, and they’re investing in making sure their channels are working for them.”
Rewards versus discounting
Success with gift card offers in both consumer and B2B promotions is driving the growth in their use. A separate study…