Gift cards acquire new purpose for retailers as direct marketing vehicle

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Victoria's Secret sent messages reminding gift card holders to redeem their cards on Dec. 25
Victoria's Secret sent messages reminding gift card holders to redeem their cards on Dec. 25

Even before holiday decorations were put away, shoppers hit the malls armed with the gift cards they received as presents — and retailers have now begun to embrace gift cards as both a product and a marketing vehicle, not just a way to grab stray dollars from indecisive shoppers.

Helped by a weak economy that makes them a practical gift, and by new personalization options for recipients with smartphones and tablets, gift cards have gone mainstream. Their use peaked again in holiday 2011, when the National Retail Federation (NRF) estimated shoppers spent more than $27.8 billion on gift cards, which amounts to more than $155.43 per person. For Valentine's Day 2012, the NRF estimated 13.3% of shoppers bought gift cards, up from 12.6% from the previous year.

“They're extremely mainstream,” says Brad Wasz, cofounder and COO of CouponTrade, a website that enables shoppers to buy and sell gift cards. Merchants “are pretty much pushing these gift cards on everyone,” Wasz adds.

Merchants ranging from department stores to eateries used gift cards as a promotional incentive during the holidays. The Belk department store chain gave away $1 million worth of gift cards in amounts of $5 to $1,000 to the first 250 shoppers in each of its 303 stores on Black Friday. Belk is always looking for new ways to attract customers, explains Jon Pollack, executive VP of marketing.

“We like offering free gift cards because they offer value, an immediate reason to shop, and they give our customers the flexibility to purchase anything they want,” Pollack says. “Redemption of these gift cards is extremely high, and by all accounts our customers love them.”

About 22% of retailers emailed messages to subscriber lists regarding gift cards during the week following Christmas, according to Responsys, up from 17% during the same period in 2010. Responsys research director Chad White noted in his blog that Victoria's

Secret emailed messages about redeeming gift cards on Dec. 25.

Experts say the boom in tablet and mobile shopping will only help gift cards, which can now be sent to the recipient's phone. Wasz says CouponTrade is developing an electronic gift card for Target with a near-frequency communication chip that theoretically could let the store send offers to the holder when it senses the card is in the store.

For retailers, the cards can boost revenue an entire year later. A quarter of all consumers had gift cards left over from 2010 at the start of the 2011 holiday shopping season, according to Consumer Reports.

“For a retailer, it can actually be a very profitable way to drive enthusiasm and traffic into the stores and may well cost them less from the profitability standpoint” than a sale or discount, says Mary Delk, director in Deloitte Consulting's retail practice. She notes that one of her clients looked at what kinds of items gift cards were being redeemed for in

January and changed its marketing approach in those categories.

“For general merchandisers, 50% of what they sell is done on impulse,” Delk says. “So for every trip that brings someone in, they'll generate more business. And with a gift card, that means a second trip.”

Michael Brown, VP in the retail and consumer group at consultants A.T. Kearney notes a gift card drives two trips to the store, one for the giver and one for the recipient, increasing traffic.

“What retailers are looking for in their marketing plan is what we call the bounce-back promotion,” he says.

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