In an up and down economy, retailers (large and small) simply cannot afford to leave money on the table. To do so ultimately requires laying off loyal employees or missing out on opportunities to sustain their business until the economy stabilizes. Whether by lowering credit card processing costs, or accessing cash advances when traditional financing is no longer an option, retail merchants must come to know of the equity they build simply by accepting credit cards in their business. In most cases, tapping into this equity enables retailers to sustain, expand, and reposition their businesses into dynamic profit centers.
One way for retail merchants to become more profitable is by selling gift cards. In the retail landscape, gift cards are game-changers. Major retailers such as Walmart, Target, and Starbucks know this; however, this fact remains a mystery to many independent retailers that continue to think like “mom and pop shops”. Gift card programs can be set up through the merchant’s credit card service provider or independently, depending on the retailer’s preference. Most times when a retailer hears about gift cards, it is when they are approached about switching credit card service providers, which are (by far) the more lucrative account. Because most merchants are reluctant to change, they often forgo adding gift cards, thereby missing out on the many advantages this product delivers to the retailers’ doorsteps. For example, once merchants are ready to attract new customers, increase sales as well as increase their store’s foot traffic and keep sales revenues in their stores, gift cards become the most effective customer acquisition and retention tool they will find anywhere.
Attracting New Customers
Retailers offering gift cards enjoy wider marketing reach than merchants that do not. In fact, offering gift cards is akin to tapping into social networking, as each gift card sales affect no less than two customers (buyers and recipients). Typically, a store’s most satisfied and loyal customers will buy gift cards for members of their family, friends, and colleagues (network) as the ultimate way to refer new customers to the merchant. These added purchases in turn increase average ticket sales as well as the merchant’s cash flow, providing him or her with a cash surplus without requiring immediate changes to their inventory.
Increase Sales
Gift cards also drive retailers’ sales upwards as well as better enable merchants to keep hard won revenues in their stores. For example, Starbucks’ 2010 income statement would be markedly different without the $1.5 Billion consumers loaded onto its gift cards. Additional profit occurs when gift cards go unused. A conservative estimate is that 20% of all gift cards sold go unused; therefore Starbucks enjoyed a handsome $300 Million cushion on gift card sales in 2010 (eMarketer Blog). Merchants can also bundle gift cards with products to create dynamic sales offers with higher perceived value for consumers. When customers return to shop, they typically spend as much as 33% more than the gift card value. Merchants can also use gift cards to implement new refund or store credit policies. Instead of giving cash back, reversing credit or debit card charges, or issuing store credit, stores can issue gift cards that also act as “mini-billboards” and keep the store on the mind of recipients.
Conclusion
Every retailer with desires to acquire, retain, and establish lasting relationships with customers should be offering gift cards. Gift cards are powerful marketing tools that will energize any retailer’s point-of-sale and create new cash flow and profit dynamics for businesses even as a fluctuating economy causes consumers to reduce or cut discretionary spending. Simply put, merchants that offer gift cards enable customers to expand their purchasing power…merchants that do not offer gift cards leave money on the table for those that do.