While gift cards are a good tool squeezing extra money out of customers, and getting new customers to try the store brand, they have been slow to take off outside the USA, where consumers spend over US$70 billion a year on gift cards, according to research from UK-based consultancy Giftex Ltd. But why?
According to research published today by Giftex, the main inhibitors of gift card growth in Europe are rooted in the retailers themselves, not the consumers they serve.
A plastic jungle
As Giftex points out, gift cards are yet another type of card to complicate an already complex mix of plastic in the consumer's wallet. It used to be so easy. Greetings cards were for greetings. Cigarette cards were for collecting. But then came the debit cards, the loyalty cards, the pre-payment cards, and the stored value cards.
There are now pay-as-you-go cards and top-up cards, travel cards and savings cards. We see money transfer cards and transaction cards, refund cards and insurance cards, entrance cards and collectable cards. Cards for your lunch. Cards for the tube train. Cards for your coffee. And soon, in London, cards for your newspaper on the way to work.
Growth trends
So what about gift cards? Consumers buy them and give them to their friends and family. Businesses buy them to give to their customers, staff, or suppliers as a reward, an incentive or a motivator. The US has seen 25% per annum growth in gift card sales for the past decade, slowly but surely driving increasing profits. And now many European retailers are starting to catching on.
To satisfy the new European thirst for hard facts about the use of gift cards, and how they can help transform a retailer's customer base, Giftex researched 82 retailers for the report, 'The Giftex Guide to Gift and Stored Value Card Programs in Europe' (written by Professor Dan Horne from Providence College, USA).
Consumer-driven
According to the report, consumers are the key driver of the rapid growth of the gift card programme in the USA, and many more retailers are planning to launch gift cards in the next 12 months to satisfy consumer demand.
Professor Horne's research found that the total number of gift card programmes in Europe is expected to triple within a year, and that more and more retailers are moving from traditional paper-based vouchers to more profitable electronic gift cards. Most of this growth is expected in time for the Christmas gifting season in 2006, while the first 50% growth is expected by the end of 2005.
Balance shifting
The research was conducted over the past three months, examining UK and other European retailers. The findings suggest that the balance between retailers offering gift cards and gift vouchers is about to change dramatically: Of the companies that do not currently have gift card programmes, nearly 3 out 5 plan to launch a gift card programme, either in addition to a current voucher system or as their only offering.
Perhaps more surprising than the 60% who were planning to offer cards was the speed with which they say they are migrating to this platform: More than one-quarter of those are planning to have gift cards in time for the Christmas 2005 season, while over 80% expect to be up and running within one year.
Consumer education needed
According to Professor Horne, "There is still a consumer education process to occur in Europe, but the retail community is rapidly embracing the benefits of a card-based system. With this diffusion process you see more consumers becoming aware of the products and purchasing them. This leads to recipients enjoying the benefits, becoming educated themselves and then seeing this as an attractive gift option. It's a geometric progression and we are currently at the start of a rapid growth curve"
Tony Craddock, CEO for Giftex, was also optimistic about the future: "In a tough marketplace, retailers are looking for products that are winners with consumers and have a strong impact on the bottom line. This data shows that the retailers who are running gift card programmes have beat expectations on a number of important metrics. Given the current retail climate, good news like this travels very, very fast."
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