A Gift Card Good For 100 Competing Retailers?

Written by Evan Schuman - storefrontbacktalk.com
November 30th, 2009

A group of about 100 competing restaurants in Connecticut is trying an experiment: Each is putting out a joint gift card, one that would theoretically be much more attractive because it would give consumers far more choices. Could this idea possibly have value beyond food?

Restaurants are, by their nature, very different from most other retailers (to the extent that they are considered retailers at all). They tend to attract a strongly local customer base, so if another restaurant is just a few ZIP codes away, it’s not likely to be too competitive. That could make the downside of such a program—giving dollars away to rivals—less of a problem.

But the radical idea of such a joint gift card does address the fear of bankruptcy, which is what the Connecticut Attorney General stressed when his office announced the Connecticut card.

“A rash of restaurant and retail closings last season turned expensive gift cards into worthless plastic. Consumers rightly need reassurance that gift cards are as reliable as cash,” said Connecticut Attorney General Richard Blumenthal. “This gift certificate program should be a model beyond the holidays, for all retailers.”

In a sense, this program is sort of a cross between a traditional gift card and a Visa gift card. Even a gift card with 100 retailers participating—especially if many are smaller merchants—is a lot more restrictive than a credit card brand’s card.

Such a card also raises the issues of “Who carries the administrative burdens?” and “Who holds the cash until it’s used?” But in days of economic uncertainty, joint gift cards may not be such a ludicrous concept.

No Visa Or MasterCard Gift Cards This Year, Please

By: Chris Walters [consumerist.com]

If you want to spread some fiscally sound good cheer this year, consider asking your friends, relatives, and coworkers not to give gift cards backed by the major credit card companies. Why am I making such a sour suggestion? Because a new study from two consumer advocacy groups indicates that most of the population still doesn’t recognize what a money trap those little plastic cards can be.

Most consumers do not know that it costs $4 to $7 to buy a general purpose gift card or that they may be subject to monthly fees of up to $4.95 as soon as six months after the card is purchased, consumer advocates said on Monday.

More sad factoids findings from the survey, which was commissioned by the Consumer Federation of America and National Association of Consumer Agency Administrators:

* Only 33% of consumers “knew the fees involved in purchasing general purchase gift cards.”
* Only 54% “knew that that monthly fees sometimes kicked in six to 12 months after their purchase.”
* 17% said “they sometimes had trouble spending the entire amount of the card because a store refused to split a payment between the card and another payment method.”

The consumer groups told Reuters that “An estimated 10 percent of this value (the card’s original value) is never used.”

If you want to give someone the gift of money, there are so many better ways to do this—personal check, actual cash, or store-specific gift cards. Buy someone a general purpose credit gift card, however, and you’ll just be inadvertently giving a nice big gift to the card company.

Making Your Loyalty Program More Valuable to Your Most Valuable Customers

I have 8 loyalty cards on my keychain right now. Of those 8 I regularly use 3-the remaining 5 just stay on there in case I happen to go back to any of those stores or restaurants which I happened into at one point and signed up for the card to get the immediate discount—well, that and pure laziness. After seeing some recent statistics it seems like I am part of the norm. Families belong to about 14 different loyalty programs at any given time—of those 14, they actually use about 6 of them. So, how do you become one of the 6 that are actually used, and not one of the 8 that get all but forgotten about? That’s easy. Give your customers something they actually want. Be valuable.

Ok, so how can you make your company and loyalty program more valuable to your customers? In this economy the obvious answer is money. Instant gratification is pretty great, so why not give your customer something for free when they sign up for the program—say, a free dessert—and then, give them a coupon for $5 off their next visit. So, they tried the dessert for free today and then they are going to come back next week spend way more than $5 and maybe, just maybe splurge on dessert because it was so good last time and what the heck, they got $5 off anyway. Plus they are earning points for both meals and working their way towards their next reward. So, you just got an extra visit and an increased check average out of that customer. They got a deal that’s a lot better than, say, the loyalty card in the back of their wallet that is good for a free t-shirt after five visits, and at $50 a visit that’s one expensive t-shirt.

One of the simplest loyalty programs is the idea of a rebate, spend ‘X’ amount of dollars get ‘Y’ dollars back. Now, show your customers that it’s free money—it’s all in how your employees talk it up. I had a regular customer once that used her Loyalty card every time she came in (even when it required me going and looking up the card number in the middle of Happy Hour because she left it in her other purse—but that’s neither here nor there), and every time she earned her $25 reward she saved it to put towards her sister’s bachelorette party. By the time it rolled around she had $150 in “free” money to party with—but I had a bar full of 20 women spending way more than $150 and all signing up for the program because “Wow, isn’t it amazing that she got so much for free?”

Restaurants aren’t the only ones that can make their loyalty programs more valuable either. Retail stores and service-oriented stores can do it as well. What about hosting VIP parties for your highest spending regulars? Track the spending, then plan a VIP event—let your VIPs shop a sale a day early, or see a collection before it’s available to anyone else, a free manicure at the spa when you buy a haircut—make sure your staff is telling people about these events and perks and a few things will be bound to happen. One, your regular customers are going to feel appreciated and two, some elitism will kick in and those customers that are close to the next threshold in the program will want to be a VIP too and might just increase their spending.

So, train your staff, they should know the program backward and forward and be willing to talk it up at every single transaction, market it wisely (it’s not a 10% savings, it’s a free $25 or whichever way gets your customers excited) and give your customers something they really want….because who needs another tacky t-shirt?

Sharper Image Gift Card Debacle

by Josh Reynolds, AP

I was sent the following link from about a dozen friends and clients this week.

Bankruptcy makes gift cards worthless

If you don’t feel like reading it, that’s fine…here’s the meat of the article.

The Sharper Image filed for Bankruptcy protection, and as a result, aren’t honoring their gift-card program any longer. My initial reaction was “Of course…if a company goes under, you can’t spend it there either.” Then I started reading between the lines for the deeper meaning of the issue at hand.

Merchants rely on what is referred to as “Breakage” to help offset the cost of a Gift Card program. Normally, a merchant can expect that somewhere between 12%-18% of the money put on a card won’t ever be redeemed. One guy may spend all $20, another $5 before he looses it, and another may throw it out mistakenly in a pile of wrapping paper while trying to straiten up the house before Christmas dinner. (That’s NEVER happened to me!)

Retailers bank on this because they generally pay $.25 for the transactions coming and going. If you buy a $100 card, the retailer gets all $100 up front, and a network like SparkBase keeps track of the money for the merchant. Over time…2-3 redemptions will happen, and the merchant will have paid out $1.00-$2.00 in fees for having someone else process the transaction. Normally, they don’t mind because the law of breakage says they’ll keep about $13.00 of that $100.00. Now, back to the matter at hand…

Because they have to honor the card indefinitely in some states, Gift Card revenue isn’t required to be reported as income until they redeem it. If I buy a $100 card to “Moe’s House of Shoes” down the street, and loose the card, it’s the same as loosing a $100 bill. Moe never has to honor the card, but if I DID bring it in, he’d have to. It’s like an IOU that never expires, and is completely transferable. So at the end of the day, if I loose my card, and never spend that $100…Moe never has to pay income tax on it, because if I show up with it…he’ll honor it. The Home Depot recently had to deal with $43,000,000 in breakage.

The Home Depot tallied gift card breakage from 1998, when it began its gift card program, to 2001, and reported it as income in its June 2 filing. “Since we had not reported breakage before, this was essentially just catching up,” said Home Depot Marketing Manager Diane Linke. “Going forward, there will be additional breakage reports, but not nearly on the magnitude of this quarter.”

So back to our friends at The Sharper Image. I don’t have access to the totals, but they may have HAD to expire the cards in order to comply with bankruptcy laws. I’m no attorney, but I’d hazard a guess that this is the reason.

The question I was asked most often was “Does this effect your business?” Not in the slightest. Consumers are still choosing Gift Cards as the standard for all their gift giving needs. My business is doing nothing but growing.