When the holiday season rolls around, or when we want to treat ourselves or our closed ones, we tend to look for gift cards. After all, they are easy to bring around, and its stored value can be easily redeemed.
Moreover, it appeals to customers’ sense of frugality. Who wouldn’t want to save a little more money when shopping?
Should I Sell Gift Cards
The gift card market is booming, projected to be valued at $510 billion by 2025. Moreover, 48.5% of leading online retailers currently accept gift cards. Moreover, 69% of consumers see receiving gift cards from their employers a reward.
Whether or not you are a big or small business, the short answer is yes. Gift cards give you a whole slew of benefits, such as better profits, greater loyalty, more sales, and new customers.
Or, well, it could, if you choose the right kind of gift card program.
2 Types: Closed and Open Loop
Closed-Loop
Closed-loop gift cards mean that the gift card can only be spent at your store. Customers need only to spend the amount in the gift card, since the cards don’t need to deduct a transaction fee.
Open-Loop
Open loop cards can be spent anywhere as long as it is supported by the system used to redeem gift cards. Take Mastercard and Visa cards for instance—those cards can be used just about anywhere.
Unfortunately, open-loop gift cards require customers—or the issuer—to pay a transaction fee.
Why Choose Closed-Loop Over Open-Loop?
Though both types of gift cards appear promising, each coming with their own set of pros and cons, closed-loop gift cards are ultimately better for your business, and here’s why.
Drive Traffic to Your Store
Closed-loop gift cards can only be used at your store. Because of that, it is great at incentivising customers to go to your online or offline store. By increasing interaction between them and your brand, you can generate more touchpoints in their customer journey.
More touchpoints mean more chances to engage with them and give them the best shopping experience of their lives.
A continuously good shopping experience can better your relationship with your customers, and it can instil in them trust in your company. And trust leads to better loyalty.
Open-loop gift cards, on the other hand, do not require your customers to spend them at your store. They can spend the gift cards elsewhere, which means that you cannot guarantee brand exposure.
Not only are you internalising the cost of their gift card, their customer journey with you will remain the same. No additional touchpoints, no chance of bettering their experience.
Greater Brand Awareness
Closed loop gift cards can help you spread the word about your brand to as wide an audience as possible. You can design the card based on your brand image, and sell them as another commodity in your store.
Customers can buy your gift cards for their loved ones, even people who has never heard of, let alone shopped from, your brand before. Not only are you getting your name out to more potential customers, but you are planting the image of your brand firmly in their minds.
Besides, a customer gifting your card to their close ones is essentially an act of recommendation. They trust your brand enough to want to introduce it to people they love.
That plays right into word-of-mouth marketing, which so happens to drive $6 trillion in annual global spending and 13% of all sales. And this is because 90% of people are more likely to trust a recommended brand, even if it’s from strangers.
Not only will you get new customers, you will also get them with a higher base loyalty than usual. They already have a sense of trust towards you that contributes to that loyalty. That makes it easier to convert them into paying customers, then loyal ones.
Open loop gift cards can also be designed with your brand image. However, since they can be used anywhere, they are not as effective in getting new customers to peruse your wares.
The impact of generating brand awareness through design and recommendation is lessened if they don’t have an incentive to check out your store.
Cultivating Loyalty
Increasing a customer’s loyalty by 5% can increase profits by 25-95%. Moreover, 60% of loyal customers purchase more frequently from their preferred companies.
Closed-loop gift cards are great at cultivating loyalty. Since customers love discounts, sending them a gift card to reduce their spending is essentially giving them what they want. And customers love brands that do that.
Basically, it shows them that you care. You care about them enough to send them a gift. This can be during the holiday season, or on their birthday, or some other special occasion. It makes your customer feel seen.
You can also show your appreciation for their patronage by giving them a gift card that they can use at your store. This can come in the form of rewards that they can redeem after spending a certain amount of money with you, which can be tracked via a loyalty program.
Closed-loop gift cards incentivise customers to come back to your store to purchase your goods. Since your customer is limited to the products that you sell, the entire touchpoint consists only of interactions between your brand and them.
Open-loop gift cards allow your customer to use it at other locations. Though they’ll feel glad that they received a gift from you, the impact on loyalty is weakened.
Upselling and Cross-Selling
More loyal customers mean more sales. But that’s not the only thing that gift cards can do. Gift cards can also be a way to cross- or upsell to your customers.
Since each gift card has a set amount, customers are inclined to use up all its value so as not to waste it. Because of that, they may end up settling for a product that is more expensive than the one they intended to buy.
They may even need to pay out of their pocket on top of what the gift card covers. This is how gift cards inspire upselling.
Sometimes, customers may also choose to buy more things to utilize the full value of the card. Just like upselling, cross-selling usually requires them to pay more than what the gift card can cover.
Either way, gift cards can incentivise customers to purchase more than they initially wanted to. 37% of closed-loop gift card users spend more than their card’s value.
With more sales, you can increase revenue. However, this can only work if your gift card is closed-loop.
With open-loop gift cards, you cannot incentivize upselling and cross-selling, because customers need not spend at your store. They may not even buy from you at all. Instead, your money is going to another store, losing you sales from your customer.
Increase Profits
Closed-loop gift cards are also good at increasing profits, in a different way from incentivising sales. The key of this method lies in the fact that gift cards have an expiration date.
Customers that forget to use your gift card essentially contribute to your profits. After all, they paid for a gift card, yet they do not cash in on it. Once the gift card’s expiration date passes, it is considered invalid and can no longer be redeemed.
That means that you now own the money that customers paid you for the card, and they no longer have a chance of claiming it back in the form of products. You have earned yourself a tidy profit from their forgetfulness.
51% of U.S. adults forget to use their gift card, and the estimated value of these gift cards is about $15.3 billion. Also, the demographic that is most likely to have an unredeemed gift card are millennials.
Though open-loop gift cards can help you gain profits the same way, but there is a chance that you would have to internalise the cost of transaction. You would take a hit to your profits since you need to bear the cost of using the card.
Closed-loop gift cards won’t have this problem, since you wouldn’t need to charge a transaction rate to your own company’s coffers.
Conclusion
From the points above, it’s quite clear that if you are looking to improve on your business, closed-loop gift cards are the way to go. Not only does it draw more customers to your stores, it also helps you to build up loyalty, increase sales, and also profits.
If you are keen on starting your own closed-loop gift card campaign, then I implore you to check out Vouchermatic! We are dedicated to providing you the best voucher management system that we have to help you keep track of the end-to-end lifecycles of your gift cards and vouchers.
We use an API-first approach so that we can incorporate our system into your existing ones, like your web page or app. The best part is that you don’t have to worry about the technological side of things. We’ll take care of all that for you.
If you are interested, be sure to contact us here to discuss your gift card marketing campaign, or even to request a free demo!
