Feature Article - May/June 2010

The Gift That Keeps On Giving

Gift Card Reward, Incentive Programs Continue to Thrive

By Deborah L. Vence

Gift cards are everywhere. They are convenient to give as a Christmas or birthday gift, are easy to use and offer consumers plenty of product choices. Well-known retailers such as Starbucks, Home Depot and Best Buy, just to name a few, epitomize a market that thrives on offering consumers a chance to try a new product, while repeatedly etching the brand names into their minds.

"Gift cards have evolved immensely over the last few years, including new personalization and customization options, and flexible new technology-focused delivery options, including print on demand, e-mail and mobile phone delivery. We believe technology, choice and convenience will continue to be drivers in the gift card industry," said Marcell King, senior manager of corporate gift cards for e-commerce giant Amazon, based in Seattle.

"Gift cards are a convenient way to provide a memorable, motivating experience to multiple populations simultaneously. We've seen the popularity of gift cards continue to increase year over year," said Matt Harris, vice president of marketing at American Express Incentive Services (AEIS) LLC, a Fenton, St. Louis County, Mo.-based company that offers business-to-business reward solutions for corporate incentive and consumer promotions programs. "Part of the appeal of reward cards is their flexibility in numerous applications and programs, including idea generation, safety, anniversaries, employee referrals, lead referrals, bonus payouts and new business development."

For businesses involved in incentive, reward, loyalty and recognition programs, gift cards are considered particularly effective for a number of reasons, including how businesses continue to recruit employees, reward customers, motivate dealers, recognize employee contributions and even get customers to spend their money on a specific brand.

The Nuts and Bolts

We're most familiar with the physical form of gift cards as being a shiny, slim piece of plastic that fits snugly inside a wallet, or an electronic gift certificate—a seemingly growing trend among retailers, according to a November 2009 article in Forbes magazine that indicated that Home Depot, CVS pharmacy and the Container Store are among many national retailers adding electronic gift cards to their Web sites.

But, beyond that, gift cards are divided into two distinct categories in the incentive market: prepaid closed loop and prepaid open loop.

Open loop cards—single load and reloadable—are issued by a bank, carry a card brand, such as Visa or MasterCard, and are accepted anywhere debit is accepted. Closed loop cards are merchant-specific cards, such as Starbucks or Macy's, and only are accepted by the issuing merchant.

"Single load cards are used very heavily in consumer-oriented promotions. Open loop largely replaced a check. And so, now we're talking about single load in a single promotion. Consumers like convenience and choice—those are two big themes," said Juli Spottiswood, CEO of Parago Inc., a Lewisville, Texas-based company that specializes in the design, development and management of customer service-focused marketing programs.

Reloadable open loop cards, which are largely used in corporate incentive programs, are geared toward a sales channel, such as to sales employees, for instance, anything other than a consumer.