Using gift cards for small business promotion can be an efficient way to increase customer engagement — and your revenue.
We’ll answer some frequently asked questions about gift cards and walk you through how to set up your own gift-card system.
How Popular Are Gift Cards?
The gift-card market was growing steadily before COVID-19. The pandemic has accelerated digital purchases of electronic gift cards (also known asr egift cards), according to a report by market research provider Research and Markets. During 2021, the gift card industry will expand 9.7% on an annual basis to exceed $170 billion.
This strong performance will continue through 2025, increasing at a compound annual growth rate of 8.8% to reach nearly $239 billion. Factors driving this trend include online purchases of gift cards and use of gift cards for digital content such as streaming services and video games.
What Are the Benefits of Using Gift Cards?
Businesses that use gift cards enjoy a number of important benefits:
- Digital gift cards appeal to customers who purchase online or who shop online for gifts for others
- Gift cards provide a cost-efficient way to build awareness of your brand
- Offering gift cards associates goodwill with your brand
- Gift cards are easy for customers to use, which encourages transactions
- Customers may purchase additional products when using gift cards
- By attracting new customers, gift cards create opportunities for repeat business
- Gift cards can be given to employees as incentives
- Gift card programs are easy for businesses to set up
These benefits help make gift cards an attractive promotional tool for businesses.
How Do Companies Make Money from Gift Cards?
Gift cards can increase sales in several ways:
- When gift cards are purchased by someone to give to someone else, you earn money from the initial purchase
- Gift cards encourage prospects who might not otherwise buy from you to start interacting with your brand and use your products, which may lead to them becoming repeat customers
- Customers who use gift cards spend an average of $59 above the value of their card, according to a survey by financial services technology provider Fiserv
- The goodwill that gift cards promote builds your relationship with customers, which can promote customer loyalty
- Customers who receive gift cards may be inspired in turn to purchase them for others
These factors turn the cost of gift card programs into a good return on investment.
What Types of Gift Cards Are There?
Gift cards come in several varieties:
- Electronic gift cards
- Bar-code gift cards
- Magnetic stripe gift cards
Electronic gift cards are digital gift cards that can be purchased online and then used online or in-store by either the buyer or someone they purchase the card for. To use the egift card, the card owner can present a numerical code, a scannable barcode or a Quick Response (QR) code to be entered through a point-of-sale (POS) system or credit card terminal. An advantage of these virtual gift card programs is that there is no cost for physical production of cards. A compatible POS or credit card terminal may be required.
Bar-code gift cards normally are physical cards, although they can be scanned digitally. The code on the card is associated with a customer account which acts as a credit line. The customer can spend up to their credit limit with the card. Some cards allow credit to be reloaded after use by adding more funds to the account. Bar-code gift cards require a bar-code scanner or QR code scanner.
Magnetic stripe gift cards are physical cards similar to credit cards with magnetic stripes. They are swiped like credit cards and require a compatible reader.
Closed-Loop and Open-Loop Gift Cards: What’s the Difference?
Closed-loop gift cards only can be used at one merchant. An example would be an Amazon gift card.
Open-loop gift cards can be used at a range of participating merchants. An example would be a Visa gift card.
Open-loop gift cards offer more flexibility for users. However, frequently, they require an activation fee to use. Also, some older credit card readers have difficulty distinguishing them from credit cards, which can create hassles when using them at some locations.
Small Business Gift Certificates vs. Gift Cards
Gift certificates represent the pre-digital ancestor of gift cards, and they continue to be used. Gift certificates come in print form rather than card form or electronic form. Gift certificate purchases can be tracked through POS software or entry into digital accounting software.
Gift certificates can be useful for promoting in-store purchases. Their printing costs typically run less than the cost of using the technology to support gift cards. However, they have some drawbacks. They usually can’t be reused, unless they are designed so they can be marked after each use. They can be counterfeited and are less secure than gift cards. The video rental chain Blockbuster invented gift cards in 1994 to fight counterfeit gift certificates.
How Can I Get Gift Cards for My Small Business?
Gift cards for small business owners can be arranged in a variety of ways.
The easiest method to implement is to use an egift card platform. Some egift card programs for small business work entirely online or with an app you can use in combination with a mobile device or scanner, eliminating the need for compatibility with your POS system. Others may require compatibility with your POS or credit card terminal.
Another option to check with your current POS provider or payment and processor and find out if they offer gift card options. Some providers include gift cards with your account, while others offer them as an upsell. Not all providers accept gift cards, so check with yours.
An alternative is to find a third-party gift card provider which integrates with your POS system. If you use a third-party provider, make sure they’re compatible with the POS system you’re using. Some POS providers allow you to migrate gift card data from third parties.
Another option is to use a standalone third-party provider which doesn’t offer an integration with your POS system. In this case, you can either process gift cards separately from your regular transactions using another system, or you can build a customized software script that integrates your card system with your POS system.
How Do You Choose the Right Gift-Card Program?
When selecting gift card programs, you’ll need to consider a few fundamentals:
- What is your budget for your gift card program?
- Do you want to offer closed-loop or open-loop cards?
- What options does your current POS or credit card provider allow?
- If your current provider doesn’t do what you need, is an integration available or would you have to build one?
With these considerations in mind, you can check with your own POS or credit card provider first and then start considering other options if necessary. Review sites can help you compare the pros and cons of different gift card services. Some leading options include:
Compare the features of different providers with your needs to determine which program is right for your business.
Setting up a Gift-Card System for Small Business
You can approach setting up your gift card system as a 6-step process:
- Set goals for your gift card program
- Select your gift card system provider
- Input gift card information into your system
- Train your team how to manage gift card purchases
- Promote your gift cards
- Track your gift card campaign results
Your selection of a provider in the second step will dictate some of the specifics of the following steps, but here are some general tips:
1. Set Goals for Your Gift-Card Program
Start by setting some goals for your gift-card program. Is the purpose of your program to:
- Attract online gift card shoppers?
- Acquire and engage new customers?
- Generate revenue from upsells?
- Promote customer loyalty?
- Offer employee benefits?
For best results, express your goals in terms of measurable key performance indicators (KPIs). For instance, if your goal is to attract online gift card shoppers, how many new gift card users do you hope to reach? Quantifying your goals will help you set benchmarks and track your results.
2. Select Your Gift Card System Provider
You’ll want to consider some of the factors mentioned earlier in the section on choosing the right gift card program:
- Your budget
- Whether you want to offer closed-loop or open-loop cards
- Whether you can go with your current POS or credit card provider
These types of criteria will help you make your selection.
3. Input Gift Card Information Into Your System
No matter which provider and type of gift card you go with, you’ll need to enter card information into your system in order for customers to use your cards.
The exact procedures will vary with your provider and card type. With physical cards, this typically involves scanning or swiping a new card and selecting the amount which will be on the card. With digital cards, this information can be entered digitally.
4. Train Your Team How to Manage Gift Card Purchases
Employees who handle customer transactions will need to be trained how to process gift card purchases. This includes technical training on how to issue and accept gift cards as well as policy training. For example, you may have a limit on how many gift cards customers can buy at one time.
Be sure that your policies comply with federal gift card laws, summarized by the Federal Trade Commission. Cards must clearly display expiration dates and can’t expire less than 5 years after activation. Inactivity fees can only be charged if a card hasn’t been used for at least a year, in which case they can only be billed once a month. Fees can be charged for card purchases or replacements.
5. Promote Your Gift Cards
For a gift card program to work, prospective card users need to be aware of its availability. Promote your gift card program the same way you would promote a marketing campaign for a product or service.
For example, you can email customers on your mailing list letting them know your cards are available. If you’re promoting cards as an employee incentive, use internal marketing strategies to let your workers know about your program.
6. Track Your Gift Card Campaign Results
To make sure your investment in your card program is yielding the results you want, track the results of your campaign. The best way to do this is to use the KPIs you established when you defined the goals of your program. If you find you aren’t achieving your target numbers, make appropriate adjustments.
Use Gift Cards to Lift Engagement and Sales
Gift cards encourage new customers to interact with your brand, while generating revenue both from initial sales as well as upsell sales and repeat business. Gift cards come in electronic, bar code and magnetic stripe forms, and can be used with or without a POS system. Selecting what type of system you want to use is the first step toward getting started.
Promote your gift card program to encourage card use, and track your results to see how much your gift card investment can add to your revenue.