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Gift Card Landscape Has Shifted, Bringing New Vistas, Values

Four industry experts discuss how recent changes in the market are affecting the use of gift cards as a motivational tool

Overall sales of gift cards might have leveled off somewhat in 2010 as a result of economic conditions, but that doesn’t mean the industry was also stagnant, particularly when it comes to how gift cards are being used in the incentive, recognition and performance improvement programs.

Specifically, use of gift cards has grown, even while margins for incentive companies handling gift cards have not. The number of retailers offering store cards has increased, and the use of open-loop cards such as Amex, Visa, MasterCard and Discover has also increased (even surpassing the use of closed-loop cards, according to some sources). Technological advances have increased the use and availability of e-cards and mobile cards that can be delivered to a program participant’s cell phone, and end-users are finding new and interesting ways to use gift cards of all types in a variety of different programs

Technology: Pluses And Minuses

Perhaps the most exciting developments are technological in nature, with the increasing availability and use of e-cards or virtual gift cards, and gift cards delivered via mobile technology. Rich Killian, President of RK Incentives in Orlando, FL, believes that e-cards and virtual cards are clearly the number one trend. “The merchants that I represent who have this technology and are offering virtual cards and the ones that are growing their business right now, and who have increased their sales by 50% to 100% over last year,” he says.

Dennis Borst, President and COO of Patriot Marketing Group, agrees that virtual cards – and mobile cards in particular – are the biggest new thing. He observes, however, that “although [they’re] cool, and it’s certainly a trend, the dollar value being used in most of these programs is quite a bit lower than the average value used in plastic and even virtual programs.” As a result, says Borst, cards for restaurants and fast food chains are the primary candidates for mobile programs, “though a secondary group would be cards that are popular with a younger demographic, like FootLocker or iTunes.”

And while the use of virtual cards delivered by via email is likely to grow, there are a few obstacles in the way of mobile card delivery, primarily the lack of “scanability” of such cards for most retailers. “Retailers have to be able to scan the mobile card at the point of sale,” notes Betty Weinkle, Area Vice President at InteliSpend Prepaid Solutions, “and a lot of them don’t have – and don’t really want to invest in – the infrastructure necessary for POS scanning.”

Weinkle, who is also the current President of the Incentive Gift Card Council (IGCC), suggests that what we’re seeing a present is a curious mix of old and new technologies at work. “You’re emailing a code to someone, and that’s really cool from a delivery perspective. But when they print it out to make a purchase, there’s this old-fashioned hand-keying that has to happen,” she says.

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Fulfillment And Cost Trends

Virtual cards, and the ability to transmit codes and PIN numbers electronically, have made it a little easier on incentive companies to offer gift cards as part of a program, largely because a number of gift card distributors and so-called “aggregators” have recently emerged who can bear the cost of inventory until incentive companies are ready to use them.

As Adam Van Witzenburg, President of National Gift Card, puts it, “There’s no need anymore for a small, mid-sized or even large incentive house to store any inventory. Where we used to send somebody 1,000 cards, now many of them just say, ‘We want the 1,000, but here are the 1,000 addresses to send them to.’ We have the ability to print a carrier, customize it, fix a card there, stuff it, meter it, mail it and send them a file with a small fulfillment fee when it’s finished.” Van Witzenburg says he hopes the days of active cards sitting on incentive houses’ shelves or in a vault somewhere are coming to an end.

Borst says Patriot Marketing Group (PMG) has taken on a similar fulfillment role to some degree. In the mid-1990s, the company began to build an inventory of gift cards for its own “Smart Tracker” awards platform. More recently, it has begun to handle individual gift card fulfillment for a number of other incentive companies, bearing the cost of that inventory until the plastic cards or the e-cards are sent out.

Incentive companies are also controlling costs in other ways. “We’re saving money on shipping with virtual cards,” says Killian. “Another positive is that there are so many merchants out there now offering cards that some are offering better discounts. It’s only a couple of points – not a lot – but some merchants are sharpening their pencils and trying to make their discounts competitive.”

In general terms, however, gift cards still aren’t a huge profit center for most incentive or motivation companies. “Margins are still pretty tight,” explains Van Witzenburg. “With the Gift Card Act eliminating expiration dates and other fees on closed-loop cards, there’s not a lot of play out there. In fact, margins are probably going to get slimmer.”

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Incentive Frontiers

Despite any challenges associated with technology, margins and discounting, the changes affecting inventory and delivery outlined above will only make gift cards more popular as incentive and recognition items.

“We find that companies are embracing incentives and card programs on a more enterprise-wide basis now than in the past,” says Weinkle. “Historically, incentives were used more as a sales reward. Now companies are recognizing the value of adding enterprise programs that include things like recruiting, referrals, peer-to-peer recognition, service awards and others, and putting it all on one platform that ties it all together.” She adds that gift card offerings are especially suited to those type of enterprise programs.

As part of that enterprise-wide expansion, Weinkle also sees wellness as an emerging opportunity – “one that I personally find very exciting because I have very strong interests in employee health and wellness,” she says. “It’s a matter of corporate America beginning to recognize the value of having healthy employees.”

For example, InteliSpend offers a Wellness MasterCard that’s being used as a reward for enrolling and participating in a corporate wellness program and can be used to provide wellness-oriented rewards like health club memberships, athletic equipment, etc.

Killian also cites a number of companies that are using gift cards to promote wellness in their organizations. One is doing a variation on the TV program The Biggest Loser. “They’re offering prizes and awards for people who volunteer and participate in an ongoing ‘weigh-in’ program, and it has turned out to be a lot of fun,” he says,

Borst notes that PMG has had a proprietary wellness program for Footlocker for a number of years called “Smart Moves” that rewards people for losing weight, stopping smoking, exercising, taking yoga classes and other similar initiatives. In fact, he says that one of the Blue Cross/Blue Shield companies took the program on for its own wellness offering, using FootLocker gift cards as the reward and offers it for free to all of its corporate clients. “With healthcare costs going out of reach,” Borst says, “it makes sense to take every step you can to keep employees healthy and at work.”

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Gift Card Trends

What other important trends are we likely to see in the use of gift cards over the near term? The experts we spoke to had some different views and suggested different opportunities, but all agreed that the use of gift cards as incentives and performance and recognition rewards will continue to grow.

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