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Loyalty Program, Retail

May 16, 2017

Implementing Gift Cards in a Retail Context

 

This article was written in collaboration with Yuan Ping Jin, Junior Analyst in Management.

 

Customer loyalty and acquisition are becoming big concerns in the retail industry. The implementation of a gift card program can be a good method to improve performance in those areas. However, choosing the right gift card can be a real hassle. While from the point of view of a customer, all gift cards are similar in nature, this is far from reality for managers.

To make an informed choice of gift cards, we first must understand the particularities of different types of gift cards. Broadly speaking, gift cards can be categorized as either :

 

 1. CLOSED-LOOP

A gift card that can only be used at a specific retailer or a group of retailers from the same banner. An example would be the Walmart gift card which can only be redeemed at Walmart locations. Within the closed-loop category, there are also hybrid/custom loop cards which can be redeemed at a group of locations associated with a same banner. For example, the Cara restaurants gift card which can be redeemed at any restaurant belonging to Cara Ltd (Swiss Chalet, Harvey’s, etc.).

2. OPEN-LOOP

A gift card that can be used anywhere credit cards are accepted. They are generally prepaid credit cards issued by MasterCard, Visa, AMEX. Within this category, we also find the Restricted Authorization Network (RAN) gift cards, which are powered by an existing network (Visa, MasterCard, AMEX) but have restrictions imposed on them so that they can only be used at certain locations. A good example of this are strip mall gift cards which can be redeemed only in the issuing mall or in a network of malls.

 

Armed with this knowledge, managers must evaluate the strategic positioning of their company and choose the appropriate gift card program that will fulfill their needs. Objectives must be clearly outlined along with the role of gift cards in the overall development plan of the company. Indeed, investing in a gift card solution can represent a significant expenditure which should be justified by a strong business case.

Once strategic considerations have been analyzed and a choice regarding the type of gift card wanted has been made, the next step should be to consider the integration process of the gift card into the POS solution of the enterprise. Managers should keep in mind that this can be especially challenging if the retailer has many locations with different POS systems, a common situation when implementing hybrid loop and RAN solutions.

Furthermore, plans for integrating with the ERP as well as the financial systems should be made so to maximize operational efficiency. Additionally, to get a maximum of leverage from the gift card program, data obtained from gift card transactions should be integrated into an analytics platform to generate customer insights.

Finally, the last point to consider is the alignment of specific needs and how the vendor offering can answer those needs. For example, is the vendor able to change the gift card design in a fast and responsive way for seasonal promotions? Do they also offer a virtual gift card option for e-commerce? Are they able to implement a mobile wallet solution if the need arises in the future?

This might seem like a handful to handle, but with the help of expert consultants the whole process will be smooth sailing.



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By Arthus Guyard Consultant
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