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Gift Cards Deal a Winning Hand
By William Keenan
MotivationStrategies.com

There’s no stopping gift cards –these days, two out of three corporate incentive programs include at least one gift card or gift certificate offer, according to the Incentive Marketing Association’s Incentive Gift Card Council. That’s more than doubled in the past five years. So it’s no surprise that the segment continues to reign as the fastest growing part of the non-cash incentive industry, according to the Incentive Federation.

“Incentive customers are definitely asking for more gift cards,” says Diane R. Gillespie, director of marketing and communications for Marketing Innovators International Inc. “As gift cards become more popular with consumers ... demand starts to filter back up.” Gillespie says that in December, the busiest time for creating annual programs, almost every package MI put together was either all gift cards or a mix of cards and merchandise.

The growth of gift certificates for incentives is a microcosm of the spectacular success these pieces of plastic have seen in the market overall—posting an estimated $55 billion in sales in 2005. By 2008, the TowerGroup, a market research firm, expects that sales will reach close to $75 billion.
Gift cards are turning up in just about every kind of incentive situation, from spot rewards to ongoing programs to consumer promotions. Saturn is offering $50 Target gift cards to prospective customers who test-drive a Saturn vehicle, Chase Bank offers $100 Best Buy gift cards to customers applying for educational loans and any number of car dealers are offering free gas cards with each new car purchase. In fact, a survey by ValueLink/First Data Corp. finds that, of companies using some form of customer incentive, 40 percent are using gift cards. And 28 percent of those using customer incentives say that their primary audience for gift card incentives is the business-to-business market.

Expanding the range of choices

The runaway popularity of retail gift cards is putting pressure on incentive companies to include cards in their incentive programs. Marketing Innovators, for example, offers some 300 different retail merchant cards through its incentive programs, “so anybody can buy bulk cards from us and we can either ship them in a bundle or ship them individually to people,” Gillespie says.

That doesn’t mean that they’re giving their programs over entirely to gift cards, however, nor does a gift card program automatically resolve the issue of “choice.” Gillespie says that education and expertise is critical in matching the card to the program.

“We might have a client [request] a particular gift card, but when we start to ask them questions about their program, we find that the person has picked out a card that they personally like, and assume that their program participants will like it too. When we drill down into the demographics of the participant group, or look into some of their past programs, however, we find that they want to mix it up a bit by offering a variety of cards, including some entertainment or dining options. We might try to move them over to our voucher/certificate option, which mixes gift cards with the company’s traditional merchandise offerings.”

Profit margins are slim

While incentive buyers are demanding gift cards, some incentive companies and resellers are hesitant to add them, in part because of the profit margin -- leading retail cards might offer a discount in the range of only 5 percent to 15 percent for those buying in large volumes.

Some resellers are solving the problem by creating their own gift card. Top Brands Inc., for instance, offers a gift card program “designed for resellers, who can make 25 points when selling it at face value,” says Norma Jean Knollenberg, president of Top Brands. “Resellers like making that kind of margin, because they can’t get it using retail cards…Redemption is through our proprietary website, and the merchandise is drop shipped to the card holder’s address, adding, we think, to the ‘trophy value.’ ” Top Brands also offers a customized program that allows the customer to design a custom card and select rewards that will appear on the customer’s unique Web site.

Rymax Marketing Services Inc. also offers its own card, redeemed through an online catalog, that can be customized for any corporation and for any purpose – recognition, retention or loyalty. “The only difference between our card and most retail gift cards is that there’s no swipe bar on the back,” says Alan Traiger, vice president of sales for Rymax.

Corporate Express Inc. is rolling out a similar product that combines a gift card with online redemption. Jack Schecter, division sales manager, promotional products and incentive plans, notes that the Corporate Express program offers its customers something traditional retail card programs can’t–trackability and accountability. With its expertise in administering traditional incentive programs, Corporate Express “can provide reports to our customers on how much money they are spending for six different types of reward and recognition programs by plant location, office location, or division – even by individual manager. Companies can use that information against other metrics to see how successful their programs were,” says Schecter. Most other card issuers, he adds, “don’t have the ability to track why a card was given or what the employee might have gotten from it.”

Too close to cash?

While Corporate Express has jumped onto the gift card bandwagon, Schecter has some reservations. “It goes against the normal model of what you do for rewards and recognition,” he says. “It moves you more toward the cash side of the spectrum than to the tangible reward, and there is so much evidence that you want to offer tangible rewards because they have more lasting value.”

“Cards seem to have a high appeal from the participant’s standpoint, but in terms of their motivational reinforcement value, I think they have some drawbacks,” agrees Linda Wodele, relationship manager for Hinda. “Incentives work because of the ability for people to visualize a specific reward. And when you use a gift card, that ability is diluted. You visualize the retailer, but you don’t visualize yourself using the barbeque grill that you picked out as the personal goal that you are working towards.”

Perhaps because of this concern, Hinda thus far has generally resisted the temptation to create a gift card or add retail gift cards to its incentive program offerings, although they do have retail certificates that they can add to the general merchandise selection if a client requires it.

Boosting the trophy value

Ensuring that a gift card delivers on its motivational potential has led end-users to focus on creating trophy value—giving the award a longer-lasting motivational impact and distinguishing it that much more from cash. This can be achieved in a number of ways, by bulking up the packaging, customizing the message or formalizing the award presentation, among others.

Purchasers can customize cards with a photo and a personal message--you can even give a card with a jingle or personally recorded message. The ability to customize the cards themselves, says Rymax’s Traiger, makes it more attractive to companies using a card in a corporate recognition or incentive program, and at the same time adds to the card’s inherent trophy value. For instance, a company can create different looking cards for different purposes – safety, service, recognition, spot rewards, etc. In fact, Traiger says, Rymax has one client that gives limited edition cards to its employees, because the customer’s product line includes limited editions. “It’s almost like a collectible,” he says.

For other customers, Rymax has “customized our gift card to look like a certificate, mounted it on an easel, and put it in a beautiful little gift box. So the cost of the presentation vehicle is relatively inexpensive and most of the money going into the program can go into the value of the product, but it adds to the trophy value,” Traiger says.

A certificate/voucher program offered by Marketing Innovators International Inc. also allows it to make something special out of the award presentation. “Since the paper voucher is really just a number, we can put that number on picture frames, key chains or any other item that you might want to hand out,” says MI’s Gillespie. “A card, on the other hand, can go in a box, or be presented along with something that can be engraved and displayed, giving the award more staying power.”

In January, fruit and gourmet food purveyor Harry and David rolled out a new offering to ramp up the trophy value of their gift cards. “We thought, ‘there’s no wow factor in a gift card,’ so we put together a gift card box that has a Harry and David confection in it along with [the] card,” says Ken Schiliro, regional sales manager in the corporate incentives and promotions division. The customizable box has an opening in the top to insert the gift card, along with a separate compartment in which the giver can elect to include goodies like Harry and David truffles or chocolate-covered cherries.

The factory-direct gift card

Trophy value can also be enhanced by using a card from a particular manufacturer or service provider. Callaway Golf Sales Company, for instance, offers a Callaway gift card to corporate users through incentive houses and promotional products dealers. According to Tim Romine, sales manager, special markets, for Callaway, while golf items are often a popular gift, it’s difficult to offer premium golf equipment in an incentive program because much of it needs to be custom fit.

“That need for personalization led us to want to give the end-participant the freedom to choose the best product to fit their game,” Romine says. “In doing so, we basically put our entire product line – including clubs, balls, footwear, apparel, watches, and even some travel accessories – onto a gift card program.” Callaway customizes the cards in each of its programs in a number of ways. The card carrier – a 3 x 5 folded envelope –can be customized or the card can be delivered in a collectible tin box with four logoed golf balls.

When the participant goes online to redeem his card, a customized splash page can repeat, reinforce, or add to the message on the card carrier, and each page of the online catalog is
co-branded with the Callaway logo and the logo of the company offering the program, so the program message is reinforced right through the reward selection.

Distributors love the program, says Romine, in part “because there are 30 points of margin built in for resellers. Companies love the program because of its simplicity of use, and participants love it because it’s easy to redeem and they get to choose.”

Georgette Klinger Spas & Salons also offers a gift card targeted toward corporate incentive and rewards programs. With spa attendance on the rise and with a cultural trend toward “wellness and pampering of the whole being – mind, body, and spirit,” as Michael Andrea, vice president of corporate sales, puts it, the company is looking to cash in on both the wellness trend and the gift card trend.

“When you look at all the corporate gifts that are available – it’s certainly different than sending a bottle of champagne, or flowers, or candy. It’s a little more personal,” says Andrea. He adds that a client recently brought in five of her best clients for a massage and a signature manicure and pedicure. “She said that it was a nice way to give a pampering gift to her clients -- one that treated all of them as VIPs at a five-star location.”

Give an experience

The Georgette Klinger card may be at the leading edge of a new trend – gift cards that offer an experience instead of a product. According to Alan Townsend, vice president of Marketing Services at US Motivation in Atlanta, experience gift certificates provide employees “a once in a lifetime opportunity to do something thrilling and exciting that will create a lasting, motivational memory for years to come.” Because of this, US Motivation has teamed up with Atlanta-based Great American Days to offer more than 7,000 experiences ranging from hot air balloon rides to NASCAR racing. One incentive winner even saved up his points to take his girlfriend skydiving – then proposed when they were both safely on the ground. Now that’s an incentive with trophy value. Ms

State laws raise legal issues for gift cards

With the growing popularity of gift cards, many states have enacted laws that prohibit or restrict expiration dates and dormancy fees, and some states are claiming a portion of the value of unredeemed cards under escheat laws that govern unclaimed property. George Delta, an attorney with Gary & Regenhardt PLLC and legal advisor to the Incentive Gift Card Council, offers tips for avoiding legal pitfalls in gift card programs.

In California, gift certificates and gift cards that are sold cannot have an expiration date. The law does not apply, however, to certificates and cards that are distributed as part of a recognition, incentive, or promotional program. California also prohibits most dormancy and other service fees, and is among the states, including Virginia, Maryland and Ohio, that exempt cards from escheat laws. Because of this, a number of large retail card issuers are setting up subsidiary gift card corporations in these states.

While cards issued in New York are subject to the state’s escheat laws, the state “allows issuers considerable latitude as to terms and conditions, provided they are clearly and conspicuously placed on the face of a gift certificate,” says Delta. It also allows expiration dates.

In Delta’s view, to play it safe, gift card issuers should not have a lot of restrictions on their cards. Too many restrictions could end up generating ill will among consumers or other users of the card. “I would say that you don’t want to have any expiration dates, if you can avoid them, and you really don’t want to have dormancy fees that kick in too early,” says Delta.
Delta also advises that in general, for card programs in which the end user is not known, the laws of the state in which the card issuer is located apply. But for programs in which the issuer has information on the end user, the laws in each participant’s state might apply, depending on how the program is structured.

While all of this may be confusing, Delta suggests that the main thing to remember is that more states are moving in the direction of prohibiting expiration dates and restricting or prohibiting administrative or dormancy fees. He adds: “Make sure that you’re going to comply with your state’s consumer protection statutes if you are going to issue these cards. If you can avoid it, don’t keep track of who the end-users are. And make sure that you are not in a state that aggressively enforces escheat statutes and subjects these cards to escheat.”

Starbucks: One card, many uses

By altering denomination and presentation, a single retailer’s card can serve a variety of functions. Starbucks, for example, offers a gift card in multiple denominations with customizable card carriers that can include a business logo and message, notes Nick Davis of Starbucks, who adds that companies have used the cards in a variety of performance improvement applications. Here are a few examples.

• Customer incentive. The San Francisco Chronicle used a $10 Starbucks card to motivate cash-paying subscribers to convert to credit card payment. The paper’s market research indicated that customers who paid by credit card are retained seven times longer than cash-paying customers. The goal of a three-month promotion included in subscribers’ invoices was to convert at least 500 to credit card payment. The promotion resulted in more than 1,300 conversions.

• Employee incentive. A recruiting company for registered nurses on travel assignments wanted to boost response to a questionnaire and to reward the nurses for their hard work, so it offered a $5 Starbucks card to those who answered the questionnaire. The result was a 19 percent response to the poll – far exceeding expectations. The company also received letters of praise and thanks from the nurses. It plans to use the card again.

• Customer reward. A national home inspection franchise uses a $5 Starbucks gift card to show customer appreciation and to generate referrals. In a regional test, the company used the program to boost referrals to 10 percent, about ten times more than before the program. The company is now looking to expand the reward program to its entire network.

• Employee reward. A mortgage/financial company wanted to improve employee satisfaction by rewarding employee effort and contributions on a spot basis. To do so, it used Starbucks cards in $5, $10, and $25 denominations. The results: Employees have expressed appreciation for the cards, and managers have a nice incentive while still keeping their budgets under control.

• Business gift. A large accounting firm presented attendees at a national accounting conference with a box of chocolate and a $10 Starbucks card in a card carrier with the company logo and a customized gift message. Feedback from the conference on the gift from both clients and firm partners was very positive, and the company plans to use the card at other functions, including client meetings and in-house meetings.

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