Gift cards can make a fabulous addition to any small business and even have some built-in advertising benefits. There are several gift card programs that can help you get started, offering both plastic gift cards and e-gift cards, but you’ll want to do your homework before choosing a program. Once your gift cards are out in the wild, you'll have to honor those gift cards even if you've switched to another gift card provider.
Regardless of what type of store you have or how big your business is, you'll likely benefit from carrying gift cards in your shop. The reason? People who use gift cards tend to spend more than those who don't. In fact, the National Retail Federation estimated that last year's holiday shoppers spent $32 billion in gift cards alone. Moreover, most people love to receive gift cards as they are convenient and easy to use, making them a gift that the receiver is guaranteed to love. Don't let this opportunity pass you this holiday season. Start selling gift cards now!
Reach New Customers
More than 10% of gift card recipients aren’t regular shoppers at the gift card’s merchant and many have never done business with that merchant at all. One out of 10 gift cards you sell will bring a new customer through your doors. There’s also an opportunity to earn the business of the person purchasing the gift card if they aren’t regular customers and purchase the gift card for someone else who they know visits your business.
For every gift card sold, you’ll have at least two customers - the individual who purchased your gift card and the recipient. Gift cards can definitely spread the word about your business more effectively than standard word-of-mouth advertising since your loyal customers are actually paying you money to get new customers. It is also a cost-effective advertising tool as your customer will be reminded of your business when they see the gift card and be compelled to visit your store.
Unlike discount coupons, you aren't giving discounts to customers, therefore you won't lose profits. Gift cards give customers the perception of having the money to spend. This means that when a customer uses a gift card they’ll need to return more than once to deplete their cards.
Gift cards outsell gift certificates
For most businesses, paper gift certificates are fossils. Not only are they less convenient than gift cards, but they often must be hidden from sight to prevent theft or improper use. Out of sight and out of mind means that your sales staff will be less likely to discuss gift certificate sales with customers and that your customers are less likely to inquire about them. Gift cards can be put on display because they aren’t activated until purchase. As an extra measure of safety, you can simply put a few in a showcase or use point-of-sale display materials to advertise the availability of your gift cards.
- Gift cards are less time consuming than gift certificates due to the fact that all that is needed is a swipe to purchase, unlike paper gift certificates which need to be verified manually.
- Gift cards are easier to carry and use. Paper gift certificates can get crumpled, wet, or even get destroyed; therefore losing its value.
- Gift cards provide real-time tracking and reporting. You can easily and automatically track their usage, redemption, return on investment, and balances, whereas a paper gift certificate would take months to accomplish this as everything is done manually.
Consider the pros and cons of closed-loop gift cards
First, you will hear a lot about two types of gift cards: open loop and closed loop. In basic terms, the main difference is that an open-loop gift card can be used at multiple merchant locations (like a Visa gift card) whereas a closed-loop gift card can only be used at one location (like a Starbucks gift card). For your purposes, it’s most likely you only need closed-loop gift cards.
You'll want to investigate the options available through your merchant processing provider. Typically, the gift card options that are available for your merchant card processing provider are inexpensive or may even be free. However, choosing a gift card program that’s tied to your bank or credit card processing company can be limiting as you may wish to switch credit card processors at some point in the future and there may still be some older gift cards or e-gift cards in circulation.
Closed-loop program through merchant banks
The easiest method to start offering gift cards is by talking to your existing card processor or merchant bank. Though gift cards aren't their primary business, credit cards and merchant banks can offer one that you can use at your store.
- Merchant banks will usually offer gift cards for little or no cost at all. This is because they make a huge profit from processing credit cards.
- Selecting a gift card program provided by your merchant bank means that you won't have to deal with integration issues. If the terminal you have isn’t fit for your gift card, the credit card processor or merchant bank will consider upgrading it for free.
- The program works anywhere. Your merchant bank or credit card processor already has a system in place to track transactions, so your gift card program will work seamlessly as well.
- Gift card programs offered by merchant banks tend to be fairly basic. There is no social or electronic integration in place. You are on your own in trying to market and make a profit from your gift cards.
- The card design is boring. Merchant providers and credit card processors typically create the design of the card. You have no say in what your card will look like. If you are given a white card with a black and white logo of your store, you'll have to put up with it.
- Fewer features. The only thing the customer can do is buy the gift card and check the remaining balance. The bank can provide reporting, but this information is minimal.
Closed loop gift card program from a gift card issuer
Third-party gift card vendors offer a full-feature solution for small business owners. This is an excellent solution if the gift card program offered by your payment processor or merchant bank is restrictive or if the features are limited.
- Comprehensive reporting tools. You can keep track of customers that bought your gift card and look for opportunities for them to use your gift cards more or to reward them. This allows you to build relationships and makes your marketing efforts more effective.
- Easier to customize. You can create your own pricing structure and create custom designs of the actual card.
- Your business could require an additional gift card processing solution, which could involve an increase in the overhead expenses and the need to navigate the complexity of integrating it to your existing systems.
- Closed-loop gift cards can only be used at one store or with the corporation's brands. Only specific gift card processing programs can accept closed-loop cards.
- The cost would likely be more than the gift card program provided by your bank.
Weigh up the advantages and disadvantages of open-loop gift cards
An open-loop gift card is not tied to your bank or point-of-sale system, as opposed to processing payments through well-known credit card brands such as Discover or Visa. The potential downside to utilizing open-loop gift cards is that in most cases the gift cards can be used elsewhere, which means you aren’t guaranteed future traffic or additional business from an open-loop gift card.
Unlike traditional solutions where money is loaded onto the card when the customer buys it, open-loop gift cards require the business owners to prepay the gift cards in advance.
- Can be redeemed almost everywhere as open-loop gift cards can run on almost all credit card systems. Mastercard gift cards, for example, can be redeemed online, in stores, or via phone wherever Mastercard is accepted.
- Can be used almost like a cash or credit card.
- Require payment of an activation fee, ATM fees, and recurring monthly charges. There are also gift cards that charge per use of the card.
- Cannot control the use of the card. You may or may not gain profits from the card you issued to your customer.
- Some older credit card terminals put pre-authorization amounts on cards, however this issue is becoming less common as equipment gets upgraded.
Start planning your gift card program early
If you want to capitalize on the holiday season, you’re already well aware that shopping begins in earnest in November. You’ll want to start well before the season begins so that you have time to analyze your options, have cards printed, perfect your point-of-sale displays, and, of course, wait for your cards to be shipped.
- Before everything else, make sure that you have a good idea of the gift card options that you can use. Pay close attention to the associated fees as you might be paying more on the fees than instead of reaching your target profit.
- Start even before any of the major holidays kick in. Also consider how long the cards would take to arrive so you can be sure that you have enough stock especially when demand is high.
- Just putting a stack of cards on your counter area won't work. If you want to sell a lot, make these cards presentable. Customizing the design of the card and offering them with free envelopes can go a long way. You can also add in freebies that come with the card. If you are a coffee shop, for example, toss in several of your samples along with the gift card. This makes the card more special.
- Put the cards on display. Make sure that the cards are displayed where people will see them. The best place to put these is on your countertop as this aids in encouraging customers to impulse-buy. Make sure that your stack of gift cards stands out by adding a few creative touches to your display.