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Gift Card Consolidators Offer Protection, Peace of Mind

By William Keenan Jr.

While most people would agree that gift card consolidators are a significant force in the incentive industry, there seems to be some confusion about just what a gift card consolidator is and who stakes claim to the title.

Adam Berenson Executive VP of Operations for IncentOne, for instance, offers the simple definition that “a gift card consolidator would be a company that represents multiple gift card brands and resells retail gift cards to clients.” But, he adds, “IncentOne is not a gift card consolidator – although we have relationships with most retailers and purchase their gift cards, we provide our incentive clients with technology solutions to help them manage their programs.”

Shawn Barrieau, Co-Founder of DimpleDough, also demurs when asked if his company could be described as a gift card consolidator. “Consolidator almost has the connotation that your whole purpose is to consolidate gift cards,” he says. “The way we look at it is being a central source for our customers to buy gift cards. We do all of the data connections necessary – and we also buy and sell cards. We’re a consolidator because we want to service our customers, not because we want to be a consolidator.” Barrieau suggests that “distributor” might be a better term to use.

Teri Llach, Group VP of Blackhawk Network, also confesses some confusion with the word consolidator. “That’s the first time I’ve heard the term,” she says. “We have partnerships with some of the best brands in the world – over 350 now – and we basically take the product and create a gift card mall with it in grocery stores, convenience stores, drug stores, etc.” Blackhawk also resells card to its industry clients, both incentive companies and corporate incentive buyers.

Marti Beller, President of Affinion Loyalty Group, understands the term but doesn’t necessarily want to see it used as a tagline for her company. “We have every characteristic of a gift card consolidator, but it’s just an offshoot of our core business,” she says. “We’re more a rewards and incentive company, and part of what we do is gift card consolidation.”

Customization and One-Stop Shopping

Despite the confusion over terms and definitions, gift card consolidators – whether they embrace the label or not – are playing a growing and important role in the incentive industry, both for incentive companies that want to include gift card offerings in their programs and for corporate end-users.

According to Ashley Sakai, Manager of Corporate Incentives at Blackhawk Network, gift card consolidators offer convenience to end-users and incentive companies. “They provide the one-stop shop for best-in-class retail gift cards, fulfillment services, custom packaging and more,” she says. “Leveraging the expertise of gift card consolidators allows end-users to and incentive companies to focus on their core businesses.”

Besides convenience, many of these companies also offer a great deal of customization and program support. For example, Barrieau notes that “the number one thing customers could get from us is a pretty enhanced custom order set – stuff that a retailer like Best Buy might not be able to pay attention to in terms of card customization or carrier customization. They could also do things like multiple ship-to’s, messaging, card carriers and other add-ons. Managing different relationships can also be tiresome – and they can be technically complex, depending on how you do it. One of the things we can do efficiently is carry the technology burden for customers.”

Beller notes that one of the primary benefits of doing business with her company is economies of scale and price. “We’re buying cards on behalf of some 37 large corporate users, and that level of volume is just going to drive your highest discount rates, your off-sheet discount rates, etc. And that kind of value is going to create an investment in an infrastructure to support fulfillment of those items far beyond what most companies can do on their own.”

She adds that the ability to maintain those relationships with merchants isn’t an afterthought or add-on: “We have people who aren’t only talking to every new retailer and getting contracts with them, but they’re making sure we’re representing all of our brands properly when we go out to consumers. We know all of the rules and regs, and we can tell our customers, ‘This is the type of marketing you can do around these gift cards, and this is the type you can’t.’ All it takes is one misstep, and a customer can limit its ability ever to offer that gift card again. That could be a huge competitive disadvantage.”

Due Diligence in a Shifting Economy

One question that has come up about gift cards in general as a result of the recent economic crisis is, “What happens if I buy gift cards for my employees or for a consumer program and for some reason – store closings, bankruptcy, whatever – my program participants can’t use it?” Many clients wonder if using a gift card consolidator offers some protection in that kind of situation.

Teri Llach says there are no formal guarantees, “but there is always the protection of the fact that we have extremely good relationships with all of our card partners, and in many cases they’re exclusive relationships. So we’re able to understand a lot more about their business, and we’re not going to sell cards if we have concerns about a specific business situation.”

Of course, no one can foresee every possible scenario. We’re not going to be perfect, and someone may take us by surprise, but we’re going to work very hard to make sure that every card we issue is going to be very good,” Llach adds.

Marti Beller echoes Llach’s point about relationships: “Our company has a 30-year reputation that it is unwilling to tarnish, and we have a ton of protection built in. Not only do we manage the market to know where the risks are, but where there are concerns we’ll actually call the client – and in some cases we’ll call program participants to do everything we can to make sure they’re getting the value out of the program that they expected.”

The best providers, Beller says, are trying to create a sense of assurance among clients that will give them peace of mind. “We’re actually trying to see if we can create an insurance product that could become a built-in component of our programs,” she adds.

Struggling with Margins

One of the issues that incentive companies often have with gift cards and gift card consolidators is that there often isn’t enough of a discount or margin involved to make their intermediary role worthwhile.

Shawn Barrieau agrees that this could be an issue for some incentive companies. “If you’re a gift-card-only survival company – if you need to make your entire profit off the face-value discount plus whatever pennies you can get in shipping – you wouldn’t use a consolidator unless there was a speed-to-market concern,” he says. “You would try to develop those retail relationships directly. But if you have some sort of differentiation – some value-added that eases the customer’s pain by saving them time or enhancing the packaging – then you might use a company like ours to help with the product offering and how it looks, and streamline the technology.”

Margins might be less of an issue if an incentive company is dealing with one of the larger consolidators. Beller explains: “I think our volumes are so high that they’re driving the best discounts possible. And if you have the biggest discount on the front-end, and you have the most efficient back-end – which is helped by our size and scale – you can put those two things together to allow everyone to make money off of it.”

Adam Berenson notes that discounts and margins are dealt with on a case-by-case basis. “In some cases, our partners do retain margin, and discounts may be available even at lower volume levels,” he says. “But each consolidator is different. While most offer some volume discount, in some cases you may be able to do better by going directly. It depends on the relationship.”

Consolidators Will Have a Continuing Impact

While some confusion is likely to remain about the definition and role of gift card consolidators in the incentive marketplace, there’s little doubt they’re here to stay – the rest is just semantics, most say.

According to Ashley Sakai, “Over the next several years we’ll see the role of the gift card consolidator growing. Companies like Blackhawk Network will continue to focus on their core retail business, but [they’re] likely to see the incentive market as a natural extension of this business, and more consolidators are likely to become involved in this space.” The key, she says, is that “the fulfillment services being offered by consolidators are becoming more and more efficient, making this a natural service fit for incentive companies looking to outsource this function.”

Marti Beller feels the economy will drive certain changes in the role of gift card consolidators: “People are going to continue to see gift cards as being a huge mainstay in rewards and incentive programs, but they’re going to have to look at consumer trends outside the incentive industry to know which gift cards will drive the audience they’re looking at or the behavior they’re looking for. You can’t just say anymore that one gift card gets the same response regardless of the audience. And we can help with that. Understanding consumer behavior trends will be the number one thing for us.”

Berenson says he expects the importance of gift card consolidators to the incentive industry to ebb and flow in cycles. “Consolidators come in and out of favor with particular retailers, and whoever is making the decisions at the retail level determines how this moves,” he says. “Some see discounting gift cards as detrimental to their brand, or as cannibalizing their clients. Other retailers would rather focus on what they do best – which is selling to consumers – and let an outsourced partner or consolidator build their brand in the corporate markets.”

Gift Card Trends to Watch in 2009

The growth and influence of gift card consolidators is one important trend that will affect the incentive industry in the coming years. But there are some other gift card trends that the incentive industry should be on the alert for as well. Here are some things to watch for in the coming months:

  • Gift card margins will be pushed both ways by retailers. “You’re going to see two different reactions to the poor economic climate expected in 2009,” says Shawn Barrieau. “You’ll see some retailers trying to pull back on the amount of margins they give to consolidators and bulk orders in general. But certain retailers that ‘get it’ are actually going to be giving away more discounts to keep their products moving.”
  • Value-added services will become more important. Besides being able to offer cards, customers will be asking incentive companies what else they can offer. “It will be things like, ‘Can you service? Can you help me track my accounts? Can you do complex orders like multiple ship-to’s?’” says Barrieau. “And then the last thing will be: ‘Can you do custom cards – because we want our employees’ smiling faces or our big logo on the card?’”
  • Companies will spend less on employee incentives in 2009. “Incentives will remain a key component of employers’ strategies, but we may see a decrease in employee reward and recognition programs and an increase in consumer incentives,” says Ashley Sakai.
  • Cutbacks may help boost prepaid card sales. Program participants are more likely to appreciate the flexibility and practicality of gift cards over other types of rewards in poor economic times, says Teri Llach.
  • Card redemptions will move to everyday purchase categories. In past years, leading redemption categories were home improvement and specialty retail, says Marti Beller. With a tighter economy, popular categories will also include everyday purchases – gas, department/discount stores, and dining and entertainment. “People are really hunkering down and trying to make their day-to-day ends meet,” she says.
  • Price points for gift cards are moving downward. “We see a huge shift from $100 gift cards down to a lot of $25 gift cards,” says Beller. “Our average gift card redemption was well over $50 in 2007; it dropped below $50 in 2008.”

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