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'Virtual' Gift Cards: Choices and Challenges

The evolution of gift cards has presented its share of opportunities and hurdles. Here’s how one industry insider views the future of eGift engagement…

By Alex Calicchio

It is no surprise that gift cards have remained one of the most popular gift items among consumers. According to Michael Hursta, Vice President of payment transaction firm First Data Prepaid Services, the gift card market is growing at least as fast as the general consumer spending market. The latest trend in gift cards, the virtual gift card (or “eGift” card) gained momentum in 2011 and is positioned to continue its growth over the next few years. While this growth has primarily been focused in B2C, the stage has been set for the same growth experience in B2B due to the benefits of instant delivery, promotional opportunities and tracking capabilities.

“The core of our business is providing ‘plastic’ services to the incentive and loyalty space, but in June 2011 we added eGifts with both digital and mobile delivery,” says Jim Leroux, President of Des Plains, IL-based SVM. “We think it’s going to grow. It won’t beat plastic, but there are real benefits to digital in terms of speed of delivery and instant gratification for participants.” 

Continuous Evolution

Being in the gift card industry for a number of years has given me the opportunity to see firsthand both the benefits and risks this segment has faced with the continuous evolution of technology. 

First, we endured the struggles of paper certificate with their host of fraud and financial issues. Then we wondered how consumers would adapt to the idea of swiping a piece of plastic at the point of sale. While some visionaries saw this medium as an ideal marketing tool, most took years to completely embrace it.

Now, having evolved to the digital age, retailers and resellers alike are searching for a digital solution. I often compare this business to a rather large octopus – with lots of moving parts. With multiple sales channels, it can become overwhelming and complicated to find a viable platform that works for all (or at least some) of those moving parts for a gift card program.

A Complex Mix

One such channel of concern is business-to-business (B2B) sales. Finding the right solution for this complex mix of retailers and resellers who require program management and administration, fulfilment and reconciliation, discount scheduling and payment solutions within one platform has made a good number of companies play the waiting game when it comes to digital technology.

With consumers pushing technology forward and suppliers creating platforms to respond to consumer demand, no one can afford to wait any more. The introduction of the iPhone changed the way we use our mobile phones, and these profound changes will only continue to occur in years to come. In the U.S., 74 million of the 285 million mobile phones are Internet-enabled, and that figure is expected to double to 158 million by 2015. Though we call these devices “phones,” they provide a service more akin to a portable personal computer.

In a recent article on the CreditCards.com website, Doug Schneider, president and CEO of San Diego-based Transaction Wireless, was quoted as saying that while the evolution of technology – both at the point of sale and at the mobile level – will take some time, the ultimate goal is to create the right user experience. “The user experience has to be magical in [order] to become the big market that we think it can become,” he says.

All Shapes and Sizes

B2B programs of all shapes and sizes are leveraging digital technology for numerous reasons. For instance, the technology can assist consumers with the selection of a restaurant, allow them to view the menu and get directions to the location, comment on their culinary experience and share it immediately with friends. They can receive special notices, coupon offers and even gift cards for the restaurant via their phone. The application of this technology in a rewards & recognition context – and especially from an engagement perspective – is obvious and compelling.

Also, as program managers struggle with budgetary constraints and increasing competition, employing digital incentives makes more and more sense. First of all, delivery time is quicker – and you can easily add a delivery message so recipients are clear as to why they were reward. Secondly, the reward is always with the recipient, as long as they carry their mobile phone (and these days who would be caught without one?). Most importantly, it’s easier for program managers to maintain, measure and analyze digital programs. Some may even argue that it’s a sexier product. If the whole idea of motivation is supposed to elicit a “wow factor” response, digital certainly has that capacity. 

Consumers are becoming increasingly empowered by the capabilities their mobile phones provide. Both B2B program managers and retailers need to move quickly to assure they are capitalizing on the consumer’s experience at the point of sale. Managers of recognition and incentive programs must be careful to choose a digital solution that will support their consumers’ expectations.

Compelling Technology

Rich Killian, President of RK Incentives, a reseller in the B2B market and President of the Incentive Gift Card Council, has seen many of his clients take advantage of a digital approach to enable gift card clients to redeem through their iPhones and other mobile devices. “The technology is so impressive that the client is compelled to show it off to their friends and family,” he says, “and we see that as 10 to 20 positive impressions for the brand. This technology is a win-win for the merchant and a win-win for the end user”

Industry Veteran, Thomas Niedbalski, Senior Vice President of Transaction Wireless, agrees that there is an upsurge in the interest of digital gift cards in the B2B market. When asked about what he has seen in the market of the past few years, he notes that prior to last year interest barely existed; it was more of a waiting game. “Now, it’s a completely different landscape. Both the retailers and resellers can clearly see the benefits of digital gifting and have embraced the technology.” Niedbalski goes on to say that the challenges once faced by resellers have been largely addressed. “Now everyone is getting it and getting on board.”

Choosing the right mobile solution is also a critical part of deploying an effective digital strategy. Consumer expectations for a speedy checkout process mean retailers rely on bar codes and bar code scanning. Evan Shuman’s Storefront Backtalk e-commerce site reports that 59% of the 66 major retailers it surveyed in 2010 wanted to be able to scan mobile barcodes within the next year and another 15% within 2 years. That’s 74% of retailers who want to scan mobile barcodes; however barely 2% are able to do it today.

This illustrates the significant gap between the number of consumers with smart phones and the number of retailers who can actually accommodate the expectations associated with their use. Fortunately, mobile gift cards can still be printed out, or the gift card number can be input at the point of sale, so there are ways to work around the “scanability” issue until retailers catch up.

The Downstream Effect

As more and more retailers create robust mobile applications that include product searches, gift card purchases/redemptions, coupons, price comparisons and other such functions, they need to remain aware of the downstream effect these enhancements will have on their point of sale (POS) systems. 

Interviewed for a recent article in the Incentive Gift Card Newsletter, CashStar CEO David Stone noted that in 2008, fewer than 5% of retailers had electronic offerings. Now 59% of the top 100 retailers have egift cards. “When 80% of retailers have ecards,” he said, “you’ll see a dramatic shift,” adding, “we’ll be there in the next 18 to 24 months.” 

Consumers have embraced the idea of shopping, receiving coupons and using their loyalty cards through digital technology and are becoming increasingly receptive to different variations of the mobile experience. They are the ones leading this shopping paradigm shift, pushing all of us to a new level. 

We should listen and respond – quickly. 

Alex Calicchio is President of C2 Consulting Services and EVP of the Incentive Gift Card Council

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