The following is a guest post from Roy Erez, CEO and co-founder of Loop Commerce. Views are the author's own.
Retail has evolved rapidly over the last 20 years, and shoppers are now able to browse and purchase seamlessly via smartphone apps, social media platforms, online marketplaces and, of course, brick-and-mortar stores. They can interact with products in fun, new ways via augmented and virtual reality technologies, and choose from products that are recommended for them personally based on their past browsing and purchasing behavior. Once they're ready to check out, they can choose from an array of payment options, many of which have been introduced only in the last five years or so.
Despite these major improvements in the customer experience, there's one area retailers have largely ignored: the global gift card market, which Statista estimated was worth $160 billion in the United States last year. For both the giver and the receiver, the gift card experience has barely evolved and it remains underwhelming.
Just as they did 25 years ago, gift cards still fail to provide the personal or emotional experience that is core to most exchanges of gifts. Many people consider them a fallback option, a "check-the-box" item reserved for last-minute gifting or something to choose when the giver doesn't know enough about the recipient's likes and dislikes to confidently pick a thoughtful gift. Redemption rates are lower than they should be, likely because gift cards don't reflect much of a spark in the relationship between the two people involved in the exchange. As Lifehacker put it, gift cards are widely regarded as "the lazy man's way of gift giving" or taking the easy way out when gift moments are intended to ignite excitement, thoughtfulness and an enhanced social appreciation.
The truth is gift cards were never the right gift option. They were a utilitarian solution for the consumer dilemma of not knowing what to give or running out of time to get a physical gift. Although the cards are an integral part of a more holistic gifting economy, the experience of giving and receiving them fails to foster the personal connection that drives brand loyalty. Today's gift cards do next to nothing to encourage repeat store visits or additional sales and they offer little, if any, personalization. They focus mostly on the dollar amount rather than the experiential aspect of gift giving and receiving. They do not delight recipients, who are left to figure things out and find their own gift. The customer journey they send shoppers on is likely to be frustrating. Put simply, gift cards have no "wow" factor.
This presents a significant opportunity for retailers, which can not only increase gift card usage, but also use gift cards to elevate the overall brand experience for customers. While people would often rather give and receive something more personal, the demand for gift cards is huge and always will be, because there certainly are situations when they are called for and there will always be gift givers who appreciate not having to risk picking a gift the recipient won't like. But by building interactivity, seamlessness and excitement into the gift card experience, retailers can ensure that it deepens brand engagement with both the giver and the receiver. Gift cards, with the right updates, hold the potential to evolve from a last-minute, thoughtless gifting solution into an interactive, dynamic and personal gift that customers are excited to give, receive and use.
Keep it simple, make it easy
Gift cards are a mainstay at the top of consumers' wish lists for holidays and other celebrations because they give recipients the freedom to purchase what they want. In late 2017, a holiday spending survey from the National Retail Federation found that "for the eleventh year in a row, gift cards remain the most popular items on wish lists, requested by 61 percent of those surveyed." Gift cards' popularity is a major boon to retailers because recipients who choose the products they want are much less likely to return those items — and driving down return costs is imperative for retailers, especially when holiday returns alone total some $90 billion in value, according to return optimization platform Optoro. Additionally, gift cards can be digitally delivered immediately, freeing retailers from the high costs of expedited shipping and other costs like gift wrapping.
For retailers to make the most of the gift card opportunity, they must make the cards easy to purchase, use and manage. In 2018, market research firm Packaged Facts found that around 71% of gift cards were purchased as physical cards in-store, often from a shelf display at a convenience store. Digital gift cards offer even more convenience for consumers, particularly those shopping for a gift at the last minute, but they have one important drawback: Many consider them even less personal than physical cards because it's so quick and easy to purchase them online. That means there's an even greater need for innovation on the digital side of the gift card market.
Personalized gift cards may drive repeat customers
Retailers have much to gain from making gift cards more exciting and personal as part of their overall gifting strategy, especially since some $1 billion in gift cards go unredeemed every year, according to a CEB TowerGroup study cited by MarketWatch. Those unredeemed cards represent a massive missed opportunity for retailers, which could gain new, lifelong customers and incremental sales by offering an elevated, delightful experience that makes all recipients want to redeem the full value of their gift card.
One thing retailers can do to increase customer satisfaction and generate loyalty through the gift card experience is to provide personalized, price-aligned recommendations to gift card recipients. An apparel retailer that is able to suggest a blouse to a young professional when she receives digital delivery of a $30 dollar gift card, or an electronics retailer that can suggest a light-up keyboard to a gamer with a $50 balance, is not only ahead of competitors that make no personalized suggestions, but also is making the shopping experience easier and more personal. Individualized suggestions also help push the gift card recipient to return to the same retailer again at a later date, especially if she or he ends up with a great product or has never shopped at the retailer before.
Customizable decorations and delivery options that allow recipients to virtually unwrap a gift can also go a long way in making the gift card experience more fun and enjoyable. Providing recipients with an easy way to send a digital thank-you note and a follow-up note sharing what they used the gift card for also helps make the experience less transactional and more engaging and emotional. Small improvements like these allow both gift givers and receivers to feel more like they are part of a thoughtful, real-world celebration, leading to deeper brand engagement and additional purchases.
Another important thing for retailers and brands to remember is that gift cards are absolutely not limited to consumer-to-consumer interactions. A recent report from WiseGuy Reports estimated that "approximately 25% to 35% of a merchant's gift card value is driven by B2B sales of gift cards." There are dozens of business case uses for gift cards, and all of them present retailers with the same opportunity for innovation and enhanced customer journeys that personal gifting does. Corporate gifting, whether intended to show appreciation to employees or vendors, drive loyalty, appease customers following a less-than-ideal experience or just show customer care and appreciation, could become much more satisfying for those on both ends of the transaction through increased personalization.
Shopping has changed drastically in the past two decades, but the gift card experience has not kept up. Retailers and brands can help this market evolve and catch up to the convenience and personalization that customers expect from a modern retail experience. By making gift cards easy to purchase, use and manage, as well as more personalized, retailers can boost sales and deepen their relationship with their customers.