In Praise Of Plastic

Phillip Perry Square Headshot

On sales counters everywhere, gift cards are popping up like mushrooms. And no wonder: They are great vehicles for generating cash and attracting new customers.

Retailers also benefit from the third-party endorsement implicit in every gift card purchase. "Word-of-mouth advertising is one of the most powerful ways for retailers to extend their brands," says David Ehrlich, president of Track Marketing Group, an Alexandria, Va.-based consulting firm. "The gift card says, 'This store represents a brand I respect and I want to share it with you.' That endorsement packs more punch because the individual contributes money."

You may already offer paper gift certificates. While gift cards share all the benefits of their paper cousins, they offer even more. First, they are easier to manage than paper since cash payments and redemptions are tracked automatically as cards are swiped through terminals. Second, you are saved the hassle and financial penalty of refunding cash to recipients who do not spend to their limits. "With paper certificates, shoppers who don't use the entire gifted amount get cash back," says Scott Cruickshank, chief marketing officer of Paymentech, an electronic payments processor based in Dallas. "That cash could be spent elsewhere. Gift cards are different: Because they can maintain a balance, shoppers retain them and spend the rest of the gift later in the store." Third, points out Cruickshank, some gift cards are reloadable. These promote a continuing revenue stream.


One factor about gift cards trumps all others: Shoppers seem to take to them more readily than to paper certificates. Why? Maybe it's because gift cards have the look and feel of the ubiquitous credit card. "We are a credit-card-consuming society, so gift cards have a greater perceived value than paper certificates," says Karen Martin, vice president of sales for eCard Systems, a gift-card vendor based in Brentwood, Tenn. "Recipients look upon gift cards as free money."

And gift cards seem to inspire the same freewheeling spending pattern of revolving charge cards. "We find that on the average people will overspend the value of cards to a level of 161 percent of face value," says Martin. "They will also shop for more-expensive items."

Yet another gift card benefit: Security. Stolen paper certificates can mean big losses for retailers. Not so with gift cards: "Plastic cards are inactive until they are loaded," says Cruickshank. "There is no risk of loss if a thief grabs a display and hijacks it out of the store."

For all these reasons, gift-card usage is on the upswing. They are now offered by 80 percent of the top 200 retailers and 25 percent of mid-sized operations, according to eCard Systems. "The big store, early-adopters have stayed with their programs," says Martin. "This shows that gift cards are profitable."

Estimates from eCard Systems indicate that only about 2 percent of small retailers have caught the gift-card wave, but times are changing. "What we are seeing now is the mass adoption by merchants with one to 50 locations," she says. Part of the reason is a slew of new entry-level programs geared to the needs of small businesses. (See the sidebar "Test The Waters.")


Taking on a card program is one thing; selling cards is another. The enlarged selling horizon offered by gift cards has a down side: greater competition from outside your field. Customers can just as easily buy gift cards for entertainment, travel and dining establishments as they can for your store.

To benefit from a gift-card program, then, you have to promote. "The retailers who merchandise effectively are the most successful with these programs," says Martin.

Here are some ways to merchandise gift cards:

  • Encourage last-minute purchases. Point-of-purchase displays are great vehicles for gift cards. "Displaying them at the cash registers makes sense," says Ehrlich.
  • Add value. Make the gift card complete by packaging each one in a little box with attractive wrapping paper and ribbon.
  • Promote during holidays. Your pitch might be: "A gift for people who have everything: Why not give them our whole store."
  • Keep drumming. Make sure customers are continually aware of your gift-card program. Post signs in your front windows and imprint receipts with invitations to buy cards. "Because the gift card is often an impulse buy, you want to make sure the customer can see it, touch it, grab it and buy it," says Martin.
  • Tie-in promotions. "Once you have your cards in customers' wallets, think of new ways to attract them," says Martin. "For example, you might give a percentage discount to shoppers who present their cards during certain periods. Think of reason after reason to give card holders an incentive to come into your store."
  • Offer bonus cards. Award gift cards to customers who make especially large purchases.


A major benefit of gift cards is automation: The cash payments to purchase the cards and subsequent deductions for merchandise purchases are processed and tracked as cards are swiped through your in-store terminal. "A central database holds all of your gift-card accounts and transaction records, making it easy to track card activity and outstanding liabilities," says Cruickshank. "Management and reporting tools also give you all of the data you need to reconcile accounts."

This electronic communication takes place in a closed loop moving from point of sale to the host data system and back to your store. All funds attributable to any one gift card are kept in your own account, unlike the revolving nature of funds in an openloop credit card system.

To process such payments, you'll need to install dedicated software. Can you use your current credit card terminals to process gift cards. In many cases the answer is yes, but compatibility is not guaranteed. Around 50 percent of current systems can process the cards from eCard Systems, for example. Retailers with incompatible systems may have to spend $250 or so for a new terminal.


Traditional paper certificates usually have expiration dates. Opinions differ on whether retailers should hold shoppers to those dates. Sometimes it's better to honor an expired gift certificate to keep a customer happy, goes the reasoning.

Same goes for gift cards. Many cards have declining cash values based upon time retained by the customer. Retailers have the opportunity to achieve higher profitability by capturing funds not redeemed after a certain date. Indeed, around 15 percent of the funds loaded on gift cards are never spent, according to eCard Systems. On the downside, customers may get angry when they find their cards have become worthless.

To expire or not to expire. It's a controversial question. State and federal agencies are tackling regulations to protect consumers from the loss of their gift-card funds. Stay informed about these pending regulations and consider open-ended policies that sacrifice short-term profitability for long-term customer satisfaction.


You may want to start laying the groundwork now by investigating some of the sources of card programs. Visit other retailers in your town to see if they have launched their own programs. Ask how they are doing and how they like their card vendors.

Electronic gift cards are the latest tools in your sales-and-profit workshop. Skillfully applied, these tools will help you develop a program that gives you a big-buck payback from a little-dime investment.

Buck The Chains

Looking to compete against the big chain stores? Consider getting together with other merchants in your neighborhood to offer a common program that allows gift cards to be used in any participating store.

Group plans are a small but growing segment of the gift card scene. "Some chambers of commerce are now starting to issue cards that can be used by any of their members," says Karen Martin, vice president of sales for eCard Systems. "For such a system to work, each merchant has to have a card reader and each has to be contracted with the same host data company."


Test The Water

A growing list of vendors now offers plastic gift-card programs with the software and hardware systems to maintain automated record keeping. Smaller retailers can try it out with modest investments in new promotional programs. One example is a program called FlexCache, from Paymentech ( An entry level $550 investment covers 500 gift cards and a setup fee of $50.

eCard Systems ( offers a $99 entry-level program called "Jumpstart," that includes 100 imprinted cards and an acrylic display.

Want to avoid using computers and transaction data service bureaus. Look into the program at Gift Certificate Central ( A starter pack of 50 cards and a display stand is $129. It includes a journal to keep hand-written entries.

In addition to these initial investments, retailers pay a charge per transaction for those systems with computerized processing.

Which vendor to choose. Answer these questions:

  • What is the cost of the program.
  • Can the card design be customized.
  • Are attractive displays provided.
  • Are current customers happy with the vendor.

When using a vendor with computerized processing don't overlook security concerns. Recall that financial records for your store and your customers will be maintained on the vendor's computers. Does your prospective vendor have reliable security systems in place?

— P.P.

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