Closed-loop gift cards represent the oldest sector for prepaid cards, but new ways of thinking are needed for the market to grow, one research analyst suggests.
Indeed, there are multiple options retailers can use, says Ben Jackson, senior analyst at Mercator Advisory Group, tells PaymentsSource. “Retailers need to take a look at closed-loop gift cards as a kind of a Swiss Army knife of customer engagement,” he says. “There’s a lot of different ways to increase sales, manage inventory, build relationships and collect customer information.”
In his report “New Market Opportunities for Closed-Loop Gift Cards,” Jackson examines the state of proprietary gift cards and offers suggestions on how retailers can get more from their gift card programs.
Testing different options to get customers to use and reload gift cards is one key to tackling the growth opportunities in the prepaid market, Jackson says. He points to Starbucks’ successful closed-loop card program, which had $1.5 billion in loads in fiscal 2010, which ended Sept. 30. That represented a 20% increase from 1.25 billion in 2009 (see story). http://www.paymentssource.com/news/starbucks-customers-load-rewards-3003910-1.html
“That reload number is only a fraction of their business, and even they have room to add more customers to the program,” Jackson says. Starbucks tested different aspects to get the program going and landed on some good features, such as the automatic reloading of the cards, which customers can set up and manage online, he says.
Determining which data customers are willing to share is an important part of developing a marketing program around a closed-loop card. Taking a page from the private-label card business, in which retailers use such incentives as bonus gifts and discounts toward certain items or inventory to get customers to shop and use their store card for payment, is a good idea, Jackson says.
One of the limitations to growing closed-loop card programs comes from retailers themselves. In some cases, upper-management views the programs only as gift cards and not as marketing vehicles.
“We found that the attitude from higher-ups in management is ‘yeah, you’ve got gift certificates, stop bothering us,’” says Jackson. “But if you look at the potential like what Starbucks has, some experimentation to improve programs is in order.”
Retailers should consider offering promotions, such as giving away closed-loop cards to customers who buy a certain amount of goods, as L.L. Bean does, Benjamin suggests. “You know the money is coming back to the store, and you know the customer will spend more than the card amount,” he says. “It’s a license to spend.”
Still, though the segment could use some tweaking, closed-loop cards continue to dominate the gift card market. “Consumers can use them when they want to buy a gift but only have a general idea of what kind of gift would be appropriate,” Jackson wrote in his report. “Rather than worrying about what gloves would fit, givers can buy gloves in the form of a gift card.”
Consumers load more value in closed-loop gift card accounts than in open-loop card accounts, Mercator’s data show (see chart). For example, Mercator says consumers in 2010 will load $72.9 billion in value into closed-loop gift card accounts compared with only $13.4 billion into open-loop card accounts.
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