Growing a small business is tough. With so many other merchants in your area offering similar products and services, attracting and retaining customers can be quite the challenge. In many cases, your loyalty and incentive programs are the only opportunities you have to set your business apart from the rest.
Running a gift card program serves two purposes: increasing revenue and customer loyalty. When you’re seeking a new and creative way to give yourself a leg up on the competition, a gift card program may be the solution you didn’t know you needed.
In this post, we’ll cover:
- How gift cards work
- How to start a gift card program
- How to run a gift card program
- Tactics to increase gift card sales
- How to measure success
- Common questions
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What is a gift card program?
A gift card program is an opportunity through which customers can buy cards that carry a small balance to be used in your business, usually at a later date. Similar in size and appearance to a credit card or debit card, gift cards are made of PVC plastic and can be loaded using a POS system with gift card capabilities.
In the grand scheme of commerce, the gift card concept is relatively new. While gift certificates have had a long history in retail shops and restaurants, cards themselves are only several decades old. The original gift cards, introduced in the 1980s, were thin pieces of plastic that could be used to track purchases and redemptions.
The appeal of this type of loyalty program began to gain momentum in the 90’s, replacing previous gift certificate systems, as stores quickly realized that these loyalty cards not only enabled the tracking of sales, but they provided free revenue from the volume of cards that went unredeemed.
The popularity of loyalty card programs is quite evident. Global gift card sales are expected to reach $1 trillion USD globally in 2020 alone and $2.7 trillion USD by 2027. Gift cards can be found in businesses of all shapes and sizes, from restaurants to retail boutiques.
How does a gift card work?
Using a gift card is extremely simple. When a customer wants to purchase a gift card in a specified denomination, typically:
- An employee collects payment up front, as in any other transaction
- The employee then selects the gift card program from the POS and swipes a new gift card through the terminal
- The employee keys in the dollar amount on the POS system to processes the payment
- A receipt with the card value is printed, which can then be presented with the card to the customer
When a customer chooses to use their gift card:
- An employee will take the card, as with any other payment type
- The gift card option is selected on the POS interface
- In similar fashion to chip-less credit cards, the gift card is run through the card reader
- The merchant account processor takes care of the approvals and the purchase balance is removed from the card
- A receipt prints to indicate the remaining balance
- If the purchase depletes the full balance of the gift card, an alternate payment method such as a credit card may be required for the remaining transaction balance
- The customer receives their card back, or, if the balance is used in full, the employee may dispose of or recycle the card
How to start a gift card program
Starting a gift card program is relatively simple and affordable. Most retailers, especially modern operations utilizing high-tech POS systems and other customer loyalty programs, will have few issues in creating a gift card operation.
Despite this, launching a gift card program will require some minor preparation on behalf of your business.
Select a gift card system
Most modern POS systems offer gift card integrations that provide comprehensive tracking such as redemption totals by location or the sales history of a gift card. To ensure maximal functionality, search for programs that come with:
- Transaction reports
- Redemption detail reports
- Outstanding balance reports
Purchase gift cards
Some gift card vendors will offer access to cards, but others will require you to purchase gift cards from a third-party vendor. If you need to purchase your own cards, be sure to select cards that allow custom designs for branding purposes. Buy cards in an adequate quantity to ensure access for all guests who may want one.
If necessary, you can also offer digital sales. In this case, you don’t need to sell physical cards. Instead, you can issue numbers or barcodes that can be used online or from a smartphone screen. This is most effective for companies that operate primarily in the eCommerce space, but some companies are beginning to phase out physical gift cards entirely.
All gift card programs run a little differently, but all must comply with local and national laws. For example, federal law in the United States prohibits gift cards from expiring for at least five years from the time of purchase. Similarly, inactivity fees can’t be charged unless the card has been unused for at least one year.
Before implementing anything like purchase limits, usage periods or any other stipulations, be sure to review all regulations thoroughly. If your business is a franchise, go over all company policies on revenue treatment and reporting before moving forward.
If you’ve never used a gift card program before, your employees will need to understand the ins and outs to avoid improper use or challenges when working with customers. Be sure all employees know how to run cards, sell and load cards, as well as advertise them to customers.
If you don’t know who’s buying your gift cards or in what quantities, how can you know that your program is working? Rather than looking the other way and assuming everything is going according to plan, spend plenty of time going over the statistics involved with use, like sales versus redemption and total gross sales over specified time periods.
Gift card programs for retailers
Gift card programs range from small, straightforward operations through your bank to multifaceted offerings from high-tech POS systems. How you choose to proceed is up to you, but be sure you consider all necessary functions before making a decision.
In general, gift card programs come in two distinct forms: closed loop and open loop. Closed loop cards can only be used at your store or brand, while open loop cards can be used at any location your card’s host is accepted. Most gift cards used for loyalty programs are closed loop, but open loop cards are growing in popularity, like prepaid Visa or American Express cards.
For some small businesses, especially those without complex POS needs, working through a merchant bank or credit card processor can be an affordable way to get started. These programs tend to be low cost with few fees, but often don’t provide customization or comprehensive reporting options, limiting the potential for innovative offerings or associated promotions.
Businesses seeking a dynamic program are encouraged to utilize opportunities made available through POS software, like Lightspeed. A seamless integration with a Lightspeed point of sale system allows users to order customized cards, set up reporting and liability tracking and handle sales on site.
With integrated cards, you can measure many aspects of your gift card program using your POS system’s reporting tools, rather than those of a separate tool. Reports can be broken out by just about any set of criteria, including employee ID, terminal number, date, transaction amount and type. This helps you to keep track of your program every step of the way.
How to run a gift card program
Once you’ve picked your gift card program, it’s time to ensure implementation goes smoothly. There are right ways and wrong ways to proceed with gift cards, so take time to consider all aspects of preparation and use.
Create a marketing campaign
Having gift cards is only the first step in establishing a gift card program. The second, and equally important, step involves making sure customers know about them. Yes, you can just wait until shoppers ask, but if you want to reap the benefits, you have to market accordingly.
Marketing your gift card program can happen in many ways, especially if you maintain an online presence. Ensure all marketing channels, including social media and email campaigns, highlight the launch of your gift card program, and advertise prominently in your store. Encourage your friends, family members and regulars to share your new program as well.
Establish employee policies
Employees need to know everything about your gift cards, including how you plan to advertise them.
In many cases, your employees will be the most valuable marketing option you have in your arsenal, sharing the perks of your program to everyone they encounter. If you operate a restaurant, have your employees memorize a pitch to give when they greet a table or mention dessert before bringing the check. If you run a retail store, urge employees to mention gift cards before closing a sale. When advertising becomes part of your process, selling cards will become the new normal.
Few businesses invest in a gift card program just for the sake of having one. To ensure optimal results, it’s important to set goals that you can use to track performance. For example:
- How much revenue do you want to generate?
- How many customers should buy gift cards?
- What ratio of purchases to redemptions would you like to accomplish?
Provide online access
Customers like to know the ins and outs of their gift cards. Instead of handing over a card, encourage them to get involved. When possible, allow customers to access cards online, check balances, add more funds and make online purchases. This expands your cards from a one-dimensional in-store program to an alternative method of engagement.
Why gift card programs?
With so many other ways to drive business, from successful marketing campaigns to loyalty and discount programs, you might be wondering how a gift card program would benefit your business. Offering gift cards to your customers can help you:
- Increase sales and generate cash flow, regardless of whether cards are redeemed
- Bring in new business, especially when given as actual gifts
- Promote impulse buys, as shoppers are more comfortable investing in additional goods or services when part of the purchase is covered. 65% of gift card users spend more than the face value of the card.
- Improve brand awareness, as most gift cards are branded with logos and business colors
- Offer real-time tracking, simplifying reporting and management
- Possess superior security measures to reduce fraud and minimize duplicate usage
- Offer speedy transactions with immediate benefits to the user
- Track sales trends and monitor outstanding activity
Affordable and practical, gift cards can provide plenty of opportunity for your operation. With so many advantages, the better question is, why not gift cards?
Tactics for increasing gift card sales
Gift cards are a great way to drive revenue and bring customers back to your store, but they don’t always sell themselves. Some businesses are content with limited sales, but if you want to build a successful gift card program, a little creative thinking and additional marketing may be required. While there’s no need to use every method under the sun, changing up your promotions and advertising techniques to account for gift cards can increase sales.
How will your customers know to buy your gift cards if you aren’t making them aware of their availability? Advertising online is an excellent way to market. It offers significant potential in exchange for a small investment, gives you plenty of opportunities to target your key demographic and helps you spread the news in a sharable manner.
If at all possible, make gift card purchases available online as well. When you incorporate a purchase link into your marketing, you’re far more likely to benefit from impulse buys.
It’s often a lot harder to say no to someone in person than it is over the phone, email, or text. As such, marketing in-person can trigger the results you’re seeking.
Whenever you or your employees interact with customers, be sure to mention your gift cards. Set up signs in your store, like banners out front or displays on the checkout counter or ask your employees to wear “Ask me about our gift cards buttons. Some in-person marketing tactics may seem a little hokey, but they’re sure to get your customers’ attention.
Notify all customers
If you want to see sales rise, you should never allow a customer to have an interaction with your business without making your gift card program known (within reason, of course). Talking to customers in person, sharing on social media and putting banner ads on your website are all great ways to spread the word. Another great way to grab attention is to display physical gift cards by your registers and announce the program in your email newsletter. No matter how you choose to advertise, make sure everyone you encounter knows about the program.
It may seem like overkill to make your gift card presence unequivocally known, but you never know who’s going to make a purchase. To be successful, it’s crucial to let no stone go unturned.
Establish employee competitions
Despite the importance of your employees pushing the gift card program, you may run into resistance. Not everyone is a natural salesperson, and some team members won’t necessarily enjoy the prospect of attempting to make a secondary sale.
To inspire compliance, consider implementing an employee competition. Offer the employee who sells the most gift cards a small perk, like a cash bonus, a better shift, free vacation days or some other benefit that will be in high demand. Alternately, consider offering a financial incentive, like a percentage of sales as a bonus, to get everyone involved.
Customers love getting things for free, so give them something to be excited about. When you advertise gift cards, add a little extra motivation with a free giveaway or gift.
Instead of just promoting gift cards, let customers know they can get a little something extra if they make a card purchase of a certain amount. You don’t have to give away anything of value if you don’t want to. A small trinket will work well. Alternately, you can use this opportunity to move inventory that you’re having trouble selling.
Price is a primary driver for building customer loyalty, ranking above the quality of products or service among a majority of consumers. A discount can help you stay competitive, positioning your company ahead of the rest.
When selling gift cards, sweeten the deal with a promo code for a discount on anything in your store or on your menu. For example, you can provide a 20% promotional code to everyone who buys your gift cards during your pre-specified introductory period.
Gift cards, as the name implies, are most commonly purchased as gifts. By playing up holidays, you’re more likely to inspire a need to buy. Advertise gift cards heavily around Christmas, Hanukkah, Valentine’s Day and other events that center on gift-giving.
To get customers to buy, consider adding something to sweeten the pot, like a $5 promo card for anyone who chooses to purchase a gift card during the holiday season.
A cool-looking card is far more likely to sell than one with an average look and feel. Instead of scrimping on design and sticking with a name in plain text, use your skills to put together something worth buying.
The adage says “you can’t judge a book by its cover,” but that idea is better in theory than in practice. When you have a pretty package to show off, your sales will reflect it.
How to measure the success of your gift card program
A gift card program can offer significant benefits to your business, but only if it’s performing as expected. Measuring success largely depends on the results you wish to see, like revenue increases, profit growth, repeat business or any other metrics you identified before implementation.
Track all metrics
Assumptions have no place in business, and that includes your gift card program. Track all metrics related to usage, from redemptions to total sales and maintain reliable records of all aspects of use. Consider costs as well, especially if you are paying to market your gift cards in any way. If expenses exceed revenues, you will need to make a change to your approach.
Analyze performance vs. goals
Before starting your gift card program, you likely had goals in mind regarding anticipated overall performance. As such, only proper comparative analysis will ensure you are hitting your targets efficiently.
Rather than eyeballing results, take time to keep data organized in tables, charts and graphs. Monitor performance over time, and watch for month-to-month changes. Honing in on the specifics will allow you to identify shortcomings and come up with plans to correct them.
Run reports regularly
As with other metrics in your business, like revenue, cost of sales and overhead costs, gift card performance should be a part of your regular reporting. Periodic check-ins likely aren’t enough. Instead, incorporate gift card usage and results into all of your financial management practices.
As your business changes, so will your goals for your gift card program, especially if your overall corporate goals are based on growth. Periodically, whether quarterly, biannually or annually, review your progress versus original targets and reevaluate your objectives as necessary. This may mean scaling back if your initial expectations were too aggressive, or stretching goals to accommodate higher performance.
Common merchant Q and A’s
Can you use a gift card to buy a gift card?
One thing merchants who sell closed loop gift cards should keep in mind is that from an accounting perspective gift cards are recorded as a liability to the merchant, not a sale. In other words using a closed loop gift card to purchase a closed loop gift card is a revenue recognition concern for small business owners and in our opinion should be avoided.
Can you use a credit card to buy a gift card?
Once you set up gift card processing for your business, you can accept any tender type approved by your processor, like Lightspeed Payments, to purchase gift cards, including cash, credit card or NFC-payments like Apple Pay.
How do I create and design my gift cards?
Most gift card providers allow you to upload your artwork or personalize gift cards with templated designs via a web page or online portal, similar to how many business owners order custom business cards online. Once you design your gift cards, you can contact your provider to place an order or submit the request via their online store.
How do you activate a gift card?
Once you set up your gift card program, you can sell gift cards the same way you would any other item at the register. Smart POS systems like Lightspeed will prompt you to swipe the gift card through your credit card reader to activate it and complete the sale.
Watch your gift card program grow
A gift card program has plenty of potential for your small business, offering a new way to drive revenue without cutting down on profits. From expanding purchase options to attracting new customers, a robust gift card program has the potential to take your business to the next level. With these tips and tricks for design, development, implementation and management, it’s possible to see positive results in the momentum of your company.
Ready to get started with gift cards? Talk to an expert and learn how Lightspeed’s Retail POS can help.