Starting a Gift Card Program: What You Need to Know

By Dave Jones, CEO, TOTUS

Gift cards are for sale everywhere, at physical stores and retail websites worldwide. There are two main reasons gift card programs are ubiquitous for brands in sectors like retail, hospitality, restaurant, travel and other consumer-facing businesses. The first is that people love gift cards — consumers want choice and convenience, and gift cards deliver both. That’s why they’ve transcended the “last-minute gift” category and become the first choice for many givers and receivers.

The second reason so many companies now offer gift cards is that they’re great for business. With a well-designed program, marketers can use gift cards as an essential component of a successful branding and revenue-generating strategy. As more businesses discover the benefits of utilizing gift cards, they’re creating gift card programs of their own. Gift cards’ popularity with consumers and businesses is steadily driving gift card sales higher worldwide, and by 2026, sales are expected to top $1.4 trillion.

So, if you’re thinking about rolling out a gift card program to promote your business, you’re in good company. That said, it pays to be fully informed and thoughtful about program implementation, especially since building and managing a gift card program isn’t a core competency for most marketers or business leaders. Here’s a closer look at the opportunities and challenges you should be aware of before starting a gift card program.

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How a Gift Card Program Can Help Grow Your Business

A gift card program can be a gamechanger for new brands and established businesses alike. If you’re marketing a new brand, gift cards are a great way to create a presence and capture consumer attention. The company logo on a gift card keeps the brand visible, and the value attached ensures the brand stays top of mind for the recipient.

Gift cards drive new customers into stores, whether in person or online. Anywhere from 20% to 40% of gift card users will be new customers for most brands, so implementing a giftcard program is an excellent way to introduce people who haven’t shopped with you before to your business. A gift card program is an effective way to drive incremental sales, which typically range from 3% to 8% in a mature program.

People who visit your business or website with a gift card are likely to spend more than the face value of the card, contributing to incremental sales. According to survey data, customers spend an average of $59 over the card’s value. Fine dining establishments, fast-casual restaurants and drug stores reported that more than 80% of customers who use gift cards spend more than the card’s value.

Another factor to keep in mind is that people use gift cards for more than gift giving. While many purchase gift cards to give to someone else, some use gift cards as a tool for budgeting so they can save for a purchase or have funds on hand for discretionary spending.

Gift cards can also be an effective way for a business to reward loyal customers or make amends when the business falls short on customer service or product availability. In the first instance, a gift card can entice loyal customers to visit again soon. In the latter scenario, a gift card can inspire a dissatisfied customer to give the business a second chance.

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How to Navigate the Challenges of Launching a Gift Card Program

These benefits explain the popularity of gift card programs, but before implementing one, it’s important to be fully informed about the challenges involved. Practical issues that must be addressed, such as card production, processing, marketing and distribution, as well as legal issues related to compliance and fraud. Most businesses don’t have the in-house expertise to handle these challenges.

Rushing a program launch without the requisite expertise jeopardizes program effectiveness and can result in significant legal exposure in a worst-case scenario. The rules governing gift card programs vary from state to state and across jurisdictions, and they’re subject to change. It’s challenging to keep up with the rules, and even corporations with large legal teams can run afoul of regulations.

Fashion retailer H&M recently agreed to pay $36 million in a settlement with New York after the state accused the brand of illegally keeping millions of dollars in unused gift card funds. A class action lawsuit has been proposed against Dunkin’ Brands, alleging that the company has no mechanism to refund the value of gift cards even in situations where state law requires it.

You can avoid the hassles of program administration by working with gift card program experts who can handle the important details, including regulation, finance, legal, marketing and fraud issues. Should you decide to outsource your program, make sure you partner with a gift card specialist with the cross-disciplinary expertise needed to create an effective program and protect your business.

Also make sure you find out who the prospective partner’s primary client is; some gift card program administrators serve retailers or other third parties. Find a partner whose top priority is your business. Once you find the right partner, you’ll be able to enjoy the many benefits of a gift card program without the hassles. That will be good for your customers — and great for your brand.

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