What is a gift card?
What is a gift card? What are the benefits of gift cards to brands? Why should a brand consider a gift card program?
These are the kind of questions that we get all the time, even from leading global brands. As experts in gift cards, we wanted to keep things simple with the answers for you, whether you are sharing with your Chief Financial Officer, or suggesting a new concept for the head of brand development, we trust that this post can be a go to resource for you.
What is a gift card?
At its very core, a gift card is a promise of funds. The card is ‘pre-paid’ – so a balance is taken from the purchaser and held until the card is redeemed with a merchant or an issuing store.
Just like a bank note, a gift card can be used in a variety of different ways. An open loop gift card is a card which is accepted at multiple merchants, whereas a closed loop gift card is only valid for use at one retailer or merchant.
The global gift cards market is valued at USD 415.00 billion, and there’s a reason why – almost everyone has received a gift card at some time or another.
Then of course – there are digital codes.
What are digital gift cards and codes?
eCodes, digital gift cards, Digi codes, digital vouchers, online gift codes – there are plenty of names, but all follow the exact same remit of a gift card – to act like cash. A digital code or voucher has a cash value that is taken from the purchaser when the code is sold. When it is redeemed, the balance is taken down. eGifts codes are rising in popularity because we increasingly expect results faster than ever. An Arise Study has shown that when in an online call queue, “almost two-thirds of customers said they would wait two minutes or less and 13% said that “no wait time is acceptable.” 3 years ago the wait time was 14 minutes.
We really are getting less patient. With delivery in minutes instead of days, digital codes are only going to increase in popularity. With any physical item, there’s a cost in terms of packaging, delivery and in store space. Digital codes eliminate these problems for brands.
Topping up gift cards and digital codes
Brands with gift cards and digital codes also can accept top ups and additional balances.
This is done with technology that allows a user to scan or input the details from their gift card or code, input payment information, and add additional funds to the gift card. In this process, the gift card (physical) or code (represented by a redemption site/ portal) in effect becomes a payment wallet.
Why would the user want to have gift cards funds as opposed to adding money into a bank? Simply, adding money to a gift card balance can help with saving, segregating money, or storing money. For many people, a gift card represents something between ‘normal cash’ and ‘spending money’.
Replacing a digital gift code is something that has a benefit for the brand too – in that the company can replace them is needed. As each digital code has a unique identifier, it’s easy to confirm that the card has or hasn’t been used, allowing an old code to be cancelled, as well as tracked.
Why do businesses need a gift card?
Why do businesses need a programme for a gift card, or a gift card itself? There are three core reasons to consider.
1. Gift cards can be used as a tax free benefit by millions of employees.
Whether someone is a director of a Limited business or a chairman of a company of thousands, gift cards fit the remit for many areas of reward and recognition. Across the EU and in the UK, after 20 years of service gift cards of different values can be given as a reward to employees. Many EU countries also allow tax-free giving of gift cards (or other rewards that are not cash) to recognise company and personal milestones. There are also tax benefits for general employee recognition and reward where gift cards meet the bill perfectly. This is part of the reason why the gift card sector has such a prevalence in the employee reward and benefits space.
Brands who have a gift card, open themselves up to a significant portion of the working population through these free benefits and perks. Either you can work with a B2B provider of employee benefits and rewards and sit on their programme, working with them in partnership, or you can hope that your card is purchased by managers directly. You can also get included with a multi store gift card and be added to their range.
2. Gift cards are prevalent everywhere – and boost your brand
Customers can purchase physical or digital gift cards from retailers in store, online, or through mobile apps, third parties, as well as gift card malls and supermarket stations. Even fuel stops have gift cards, and it benefits the seller to have a wide and varied brand range on offer. Each sighting of your brand represents a little touchpoint of brand recognition, and that’s why it’s key to have a gift card presence. If a gift card is purchased, again, it sits in a digital wallet or physical purse, acting as a brand memory each time it’s seen.
3. Uplift and breakage make money for retailers, effortlessly.
No one is keen to talk about breakage and uplift, but it’s a key part of gift cards. Let’s address the elephant in the room. For the convenience of buying a gift that everyone will love is the risk that they may not spend all the balance or spend it at all. Life may get in the way, and this is how many people think brands see gift cards – as the ideal situation being that they get money for nothing. In fact, it’s the opposite. Many studies show that there is an uplift in purchases made with a gift card. Instead of spending the card balance, most people top up the card and add more for a bigger gift. For a business, this is far more lucrative over hundreds and thousands of interactions than making a ‘free’ sale of a low value forgotten gift card. In fact, most retailers are so interested in uplift that they have exceedingly long redemption periods, far over what’s mandated by their countries’ laws.
So, there we have it! A quick guide to all things gift cards.
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