How Gift Card Programs Are Beneficial for Business Growth

Gift cards can be a powerful way to grow sales and maintain customer loyalty. Even nowadays, smaller companies, retailers, and many different industries can take advantage of these benefits, but they must be ready to implement them creatively and aggressively.

Gift cards are sold to customers for their own use or can be given to family or friends.  These cards can be redeemed at store locations just like a credit card and balances can be debited from the card upon purchase. Cards are swiped through traditional credit card terminals and POS systems and payments are collected by the merchant at the time of sale.

Gift cards have been proven to be advantageous to big retail and restaurant chains, generating sales and bringing in new customers.  But small businesses typically miss out on capturing the benefits of using this marketing tool because of cost and technology constraints. Gift and loyalty cards can provide a powerful way for smaller companies to compete. It is estimated that combined gift card sales will reach $100 billion in 2010.

Only about 10% of small businesses offer gift card programs. This is primarily because the technology can be expensive and hard to integrate with less sophisticated small business point of sale technology and cash registers.  The small businesses that do offer gift programs typically offer paper gift certificates, which create their own challenges in accounting and management. But as cloud-based and mobile POS systems become more affordable for small businesses, the world of gift-card programs is opening up for small business owners.

Gift cards were originally introduced by retailers like McDonalds™ and JC Penney™ in the early 1970s and 1980s using thin plastic cards with the purpose of tracking purchases and redemptions more efficiently and securely than paper. Gift card programs began getting more exposure and recognition in 1995 with their introduction by a few larger retailers, such as Blockbuster™ and K-mart™. These retailers adapted their gift card systems to replace paper gift certificates and to help streamline tracking and reconciliation.

The gift card programs continued to gain momentum and popularity after several other large retailers began promoting the cards through the media and TV. Over the years the gift card concept has proven its worth and overall necessity to retailers of all types. Gift card technology continues to grow and become an important tool and cash flow generator for businesses involved in various types of industries.

One the most basic psychological benefits behind gift cards is that people perceive the value on the card as "free money" or "found money". The psychological effect is similar to that of a credit card, only much, much stronger. Consequently, people spend more.

For instance, someone with a $50 restaurant card will usually indulge in a dinner for two, spending $120. Another shopper in a retail clothing store with $15 left on his or her card will splurge on an item that is $15 more than they would otherwise be willing to spend. A person who has a FREE $5 gift card is more likely to visit that retailer instead of another store. What's more, they will probably use the gift card to buy something for a friend or colleague.

The key to having an effective gift card program is to never let a card balance run out. This method is known as "cycling" in the industry. A business savvy merchant will work aggressively to continuously cycle their gift cards, because as long as there is an amount on the card then customers feel the need to come back. However, if you allow the card to reach a zero balance then the customer has no benefit to return to your business. Cycling enough times creates an unconscious habit in your customers over time to shop at your location.