Unwrapping Gift Cards

    Card currency creates customer touchpoints for c-stores.

    By Anne Baye Ericksen, Contributing Editor to Convenience Store Decisions

    Gift cards and open-loop prepaid cards offer gift-givers a means to show their generosity while simultaneously allowing recipients the freedom of making their own purchasing decisions. This convenience continues to grow in popularity.

    First Data reports nearly 100% of gift cards purchased last year were redeemed. Perhaps the best statistic for convenience stores, though, is that, for the first time, more gift cards were picked up from a card mall or display units than directly from the retailers issuing them.

    What’s more, most analysts anticipate the category to continue to gain value. ResearchandMarkets.com projects the global gift card sector to reach $750 billion by 2026. Mercator Advisory Group Inc., estimates open-loop cards—such as a prepaid Visa card that can be used anywhere—could surpass the $350 billion mark in less than two years.

    However, there’s more to the business of these cards than convenient gift giving. Both open-loop and closed- loop (for a specific store) card types present multiple sales possibilities; whether c-stores sell the actual cards or individuals are redeeming those cards in your store, whether it’s a proprietary version or prepaid cards functioning like debit accounts.

    “Gift cards are closed-loop connections to customers because they’re captive sales. People have to come back to my location to use the card, and that offers a relationship-building opportunity,” said Marina Hodges, board chair and spokeswoman for the Retail Gift Card Association, a trade association representing the closed-loop gift card industry.

    Subsequent retail visits can occur if shoppers don’t spend the entire balance during their initial use. According to research, customers also often exceed the card balance, splitting the transaction with more traditional payment methods. First Data states that three-fourths of gift card holders in 2017 overspent the original value of a closed-loop card by at least $23.

    BRANDED CURRENCY

    Of course, c-stores have been selling closed- and open-loop cards for years. In fact, many chains have created proprietary gift cards, often referred to as branded currency.

    “We started that many years ago because it creates brand loyalty,” said John McHugh, director of public relations for Kwik Trip. “Our guests like them because, in our market, they make very popular gifts.”

    Headquartered in La Crosse, Wis., the company owns and operates more than 600 retail and car wash sites. In addition to their general gift cards, Kwik Trip offers rechargeable car wash cards that owners can add funds to and gift cards for Karuba coffee purchases.

    Although the category may not be a regular basket item such as snacks or beverages, Hodges said c-stores could lose out on future card profits, if they don’t address the changes taking place with how, where and why consumers use the alternative payment methods. Of course, technology plays a big role.

    “There’s been a proliferation of smartphones and apps, and that drives cards to the digital age,” said Hodges.

    For the past few years there’s been a buzz around e-wallets and mobile pay apps. Some of this enthusiasm stemmed from the mass appeal of the Starbucks’ mobile pay program. Customers pay for their caffeine cravings with the scan of a barcode on their smartphones.

    “The Starbucks app is built on a store-value platform for customers to build up points they can spend later. The first thing customers have to do, though, is to have an e-gift card in order to [authorize] the app,” said Hodges.

    However, other e-wallet programs haven’t experienced similar acceptance rates. According to the Mintel Group, most people still prefer to pay with credit cards (38%), closely followed by debit (33%). Another 18% deals in cash, while only 2% use prepaid cards and 1% rely on e-wallets.

    Although prepaid cards—closed-loop gift cards weren’t specified in the survey—are only preferred by a small percentage of consumers, they do meet the needs of certain transactions. For example, because prepaid cards basically function as a debit card, consumers can use them to purchase goods at any c-store, retailer or restaurant that accepts debit payments. Also, because they pull from preloaded funds rather than linking to a bank account, prepaid cards offer a security buffer for online shopping.

    “If you don’t have access to physical retail locations, you can get purchases online with open-loop cards. That’s something more and more people are taking advantage of,” said Hodges.

    Also, research indicates consumers would welcome more flexibility regarding where and on what closed-loop cards can be used. According to the State of Consumer Gift Card Preferences in 2018 survey by Blackhawk Network Inc., 60% of respondents would be interested in gift cards that could be applied to multiple brands within a given category. Nearly two-thirds would be interested in gift cards accepted by a variety of local restaurants.

    CHANNEL SURFING

    Traditionally, gift and prepaid cards have been marketed with displays near registers. While this functions as a reminder to customers as they check out, there are more active approaches that could motivate more sales. For example, retailers can tie proprietary cards to store loyalty programs. Hawk Incentives found that more than half of shoppers believed they’d be more likely to stay engaged with a loyalty program if gift cards were a bonus rather than additional merchandise or discounts. Additionally, 82% of Millennials would prefer cashing in loyalty points for gift or prepaid cards.

    Of course, social media presents opportunities for contextual commerce, or empowering consumers to make purchases from the platforms of their choosing. Pymts.com reported this spring that 36% of consumers made a shopping transaction directly from Facebook.

    “Retailers want to reach their customers where they are, and where they are is on social media,” said Hodges. “It’s all about touchpoints. The more you touch customers and become relevant to them, the closer relationships you build.”

    Another trend in the category is employee recognition.

    “We give $20 gift cards to every coworker on their birthday. We also give gift cards for perfect Secret Shopper scores and hitting food goals on focus days,” said McHugh.

    It’s not just c-stores gifting employees. Corporations across all industries are in on the trend, too, and employees apparently appreciate this type of gesture. Nearly 70% of respondents to the Blackhawk Network survey admitted they would like a gift card as a reward from their employers.

    “Some local companies use our gift cards for employee recognition. We also use them to reward our employees for going above and beyond,” said Sean Bumgarner, vice president of Scrivener Oil Co., which operates 11 Signal Food Stores in Missouri.

    Analysts also suggest consumers will continue to seek out more e-gifting options. That said, anecdotal evidence indicates it’s still a minority.

    “We are not equipped to accept digital e-cards. In our market it seems like customers still prefer the physical gift cards, although it will just be a matter of time before they shift to e-cards,” said Bumgarner.