More retailers are offering card-based gift certificates to customers and corporate clients, hoping the new products will spur loyalty.
The incentives market, a $23 billion business in 1996, has been dominated by paper gift certificates and cash awards. But marketers have begun putting them in the form of plastic cards that people can buy as presents or that companies can use as employee awards or incentives.
Industry observers said card-based gifts-which displace paper certificates and are in other ways cheaper and more convenient-could be the wave of the future.
"The incentive industry, which services dozens of other industries, is bringing this application to the market very aggressively," said Richard G. Barlow, president of Frequency Marketing Inc., Milford, Ohio.
Card-based bonuses have several advantages for retailers. They tend to be simpler to issue and to keep track of, and cardholders tend to spend more money. When a consumer uses only a portion of the gift certificate, the retailer does not have to give cash back, and the customer is likely to return later.
But research shows that card-based programs have a long way to go to catch up with other motivational devices. In 1996, the most recent year for which figures are available, only 4% of companies were using cards as gift certificates, according to a survey by the research firm of Ralph Head & Affiliates Ltd.
The Morris Plains, N.J., research firm found that 63% of companies made cash awards and 54% gave paper gift certificates to employees, clients, or customers. Many companies used several different types of rewards.
Experts said card-based rewards have gained favor since the survey was done, and they predicted cards would grow in popularity.
"People are used to using plastic," Mr. Barlow said. "If companies want to encourage consumers to redeem rewards or incentives by carrying a smart card or magnetic stripe card, it's a sensible way to do it."
Smart-card gift certificates, with value stored in their computer chips, made their mark two years ago, when Sutton Place Gourmet Inc., a specialty food chain, introduced them in the Middle Atlantic region.
Last month, Verifone Inc. and Rite-Aid announced the introduction of a chip-card certificate program likely to spread quickly through the nationwide drugstore chain.
"Over time you will see a convergence of these technologies, but for now the smart card requires an upgrading of electronic cash registers, which today read magnetic stripes," said Stanley W. Anderson, president of Anderson & Associates, Arvada, Colo.
One company at the forefront of prepaid debit cards is Louisville, Ky.- based Stored Value Systems, an affiliate of National City Corp. The firm markets Mobil Corp.'s "Go" card, a three-year-old program that lets consumers swipe a conventional magnetic stripe card at the gas pump instead of doling out cash. The card is available in denominations of $25, $50, and $100.
In the past six months, Stored Value Systems has also signed agreements with BP America and Exxon Company USA.
Stored Value Systems and K mart launched a major initiative last summer, introducing cash cards in place of paper gift certificates. The cards, available in any denomination, can be reloaded at any of Kmart's 2,122 stores.
"The aim was to stimulate sales and encourage customer loyalty, and the program has been a tremendous success," said Thomas L. Recktenwald, executive vice president of sales and marketing for Stored Value Systems.
Mr. Recktenwald said more companies are requesting card-based gift certificates with "value added." For example, the Kmart card doubles as an AT&T calling card, and Mobil's includes an MCI long-distance calling feature.
One observer said the add-on idea could be taken too far.
"If too many functions are added to a card, you get no trophy value, and the company does not get the consumer to change their behavior or have loyalty toward their brand," said Karen Ford, vice president of sales for Gift Certificate Center, an incentive firm in Minneapolis.
Ms. Ford said her company recently discontinued its card program to concentrate on paper gift certificates.
Blockbuster Entertainment Group said its gift card program has encouraged sales. The company, which began its program in 1996, said it had distributed more than 12 million debit cards in a year. Customers used them to rent videos and purchase Blockbuster merchandise. Another company, Consolidated Incentive Corp., Itasca, Ill., which has marketed a Shell Oil incentive card for the past year, also sees such programs as an advantage.
"With a card-based product, you can do more accurate data-base capturing," said Thomas Gilbert, vice president of Consolidated. "There are more control mechanisms than there are with paper-based products."
He said technology advances can make the products even more useful to retailers. "Card programs are geared toward tracking information and learning more about what retailers believe to be their cash customer," Mr. Gilbert said.
Not all gift certificates are closed and proprietary. S&H Citadel Inc. of Hillside, Ill., last year introduced a generic Visa-branded card called "Best of Everything." It can be used at 31 retail companies, including Walt Disney Resorts, Gap, and Eddie Bauer.
American Express Co. and Maritz Performance Improvement Co. recently created a business unit, American Express Incentive Solutions, to market employee-reward programs in the form of prepaid cards and gift checks.
More than 700 retailers, most of them upscale or travel-related, have agreed to accept the cards.
This summer, for the second year in a row, MasterCard International and Coca-Cola USA are sponsoring a national promotion with prizes in the form of cards redeemable through automated teller machines.
Mr. Gilbert said, "The transition from paper to plastic will continue as long as the retailers are able to adapt their technology to meet the needs of cards."