The secret holiday bonanza

If you sell to consumers, you know that Christmas is the big selling season of the year.

In the offline world, many consumer retail business operate at breakeven or a loss until the Christmas season rolls around. The term “Black Friday” comes from the fact that most stores are in the red until the day after Thanksgiving when Christmas present sales start to heat up in earnest.

Imagine that.

Keeping physical stores open with all the accompanying expenses of staffing, rent, inventory, utilities, maintenance for twelve months just to squeeze out a profit in a narrow six week window.

Internet marketers sure are spoiled. Here’s an idea that will spoil some of you even further. It’s a product that sells like wildfire, costs nothing to inventory, and automatically stimulates additional sales…

I don’t sell retail to consumers, but in the last few years I’ve been studying this end of the business intensely. Strangely, in all my research, which has included conversations with dozens on sharp online store operators, no one has ever mentioned online gift cards to me.

Gift card sales are not applicable to every business, but it they make sense for your business, this could be the single most profitable article you read all year.

First some numbers…

Of all the online stores surveyed by the magazine Internet Retailer, more than half 52.4% sell online gift cards. Of that number, 40.3% say they are very important to their profitability and another 21.60% call them important.

Here’s just a few reasons why so many gift card sellers like the business so much:

1. Gift cards are a wildly popular gift choice

According to the Consumer Reports Holiday Shopping Poll, 73% named clothing as their most common gift choice and a whopping 60% named gift cards making clothes and gift cards the #1 and #2 winners at holiday time.

2. Gift cards are a cash flow dream

Gift buyers give you cash today for a promise from you to provide a credit for a purchase later.

Not all gift cards are redeemed immediately. In fact, not all gift cards are redeemed at all which means that not only are you getting what is in effect an interest free loan, but also, because of “breakage” (cards that are not redeemed), you’re getting what is in effect free money.

According to the Consumer Reports article, a year after sales, 19% of gift cards purchased have still not been redeemed.

3. When gift cards are used, merchants profit again

As attractive as the idea of “breakage” may be (free money), it’s even more profitable to you when a gift card recipient redeems his or her card.

Here’s why:

1. You may acquire a brand new customer or re-activate a lapsed one – always a good thing

2. Gift card recipients are more likely to pay full retail for their purchases than consumers who pay with their own cash or credit. They’re less likely to wait for sales or negotiate for lower prices.

3. I’ve seen various numbers tossed around, but it appears that 50% or more of all gift card recipients spend more than the face value of their gift card. One study claims that for every $100 card, consumers spend $152 in the store. How sweet it that?

Warning: Some gift card sellers play dirty tricks on consumers like tacking on monthly maintenance fees, short expiration periods, shipping and handlings costs. Don’t do it. It’s greedy and like most greedy moves incredibly bad business. Gift card sales are already a total win for the seller. Why alienate customers with conditions and hidden fees.

OK. Now the million dollar question…

Are their systems you can get to help you manage your gift card sales?

Answer: Yes. but having not personally used any of them, I’m not in a position to recommend, but maybe you are.

If you’ve added gift card sales to your business, how has it worked for you? What management tools do you use? How have they worked for you?

Happy Selling!

– Ken McCarthy

P.S. For over 25 years I’ve been sharing the simple but powerful things that matter in business with my clients.

If you’d like direction for your business that will work today, tomorrow and twenty years from now, visit us at the System Club.

Two birds with one stone
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16 Responses to The secret holiday bonanza

  1. Michael Thompson November 26, 2006 at 4:56 pm #

    Hi Ken,

    I read your newsletter regularly, and just wanted to let you know that I appreciate this blog posting. We are actually looking into gift card systems as we build the prototype for our retail stores. And you are right, it is a bit confusing…there are too many “systems”…but that has given me a great idea too!

    Thanks!

  2. Arthur Rego November 26, 2006 at 5:00 pm #

    Ken,

    I have really appreciated all the information you have shared with me this year.You are
    an expert in the field your have
    shared with us and I enjoyed
    your recent book as well.

    Arthur

  3. Stephene November 26, 2006 at 5:04 pm #

    Ken, do you know where we can go to get those plastic gift cards printed with out name on them and how to get a code on them???

  4. Robert Kimberley November 26, 2006 at 5:19 pm #

    I like cards but did not think of providing gift, money cards as a product. I on’t know if ahome base dbusines can. I am very intersted. I would certainly like to promote them from my site. I use amazon.co.uk so much I would welcome all my gifts to be their store cards. But giving store cards is a nighmare as you don’t know even where your best friends shop, (If your a man!. A welcome improvement is some book stores have a variety of cards. One of the card sytems does allow the receiver to buy at almost any book shop although the stores name is on the card. Not only that but most book shop cards also cover the purchase of magazine subscriptions, DVD,s, stationery and more.

    Online you can send money by Paypal say, but a card sounds nicer.

    Now a twist I would like to make is have a discount gift card. Internet readers know well the value of a new customer. This may not make sense offline. If the card was a discount people would buy them for themselves, so is that good or bad? A time limit discount would be possible. “Spend before end of January and get 10% extra value from this card”. Anything like this may be difficult to administer..

    I am writing a creative thinking E-book and will make gift cards an example. I have not applied the creativity on this yet. If a reader wants this chapter free I will happily send it when it is done.

  5. Mitch Baldwin November 26, 2006 at 5:24 pm #

    Hi Ken,

    Great article…

    Now that’s a smart online business decision = using gift cards.

    Mitch

  6. Mike Myklin November 26, 2006 at 5:42 pm #

    Ken,
    We went one step further and offered gift certificates that showed a higher face value than what they cost. For example, a $10 card only cost $8. We reserved this type of added-value offer for our corporate and high volumn clients.

  7. Buster November 26, 2006 at 6:26 pm #

    I use gift cards off line all the time. I am a contractor and I do renovations for mostly home owners. I give the client a gift card and they go pick out there own
    light fixtures, flooring, paint, etc. It’s
    much more convenient for both me and my client. Home Depot is the one I ues the most. I have been watching all the place where phone and gift cards are sold and I got some new ideas it would be cool if someone came out with a package deal like those Visa card that you puchase
    with out all the dirty tricks.I would be very interest if someone had such a program.

    Buster Boudreau

  8. Marian Turgeon November 26, 2006 at 6:52 pm #

    I had never even considered gift cards for our online business but what a GREAT idea. If you have a friend who has secretly been dreaming of being a published author, what better way to say “go for it!” Thanks for some inspiration, Ken!

  9. Mark Riffey November 26, 2006 at 7:20 pm #

    Ken,

    You have to be careful on breakage, some states have implemented laws related to it. However, you dont want any – you want customers to use the cards for obvious reasons.

    Gift cards can be obtained from any card manufacturer who can make them. Typically, they just have a unique number printed on them and the same number is encoded on the mag stripe. The stripe readers are available for well

  10. Mark Riffey November 26, 2006 at 7:22 pm #

    Ken,

    I left a fairly lengthy reply here, but your system truncated it:( Be happy to discuss further if you wish.

    Mark

  11. Ty November 26, 2006 at 10:49 pm #

    I like this gift card idea, but have some ideas from my experience helping clients with merchant accounts and shopping carts…

    Usually when you go into a store the gift cards are right at the counter and you can “physically” grab them and hand them to the recipient. Online, it would be easy to purchase for someone, but then the merchant would have to mail a card to the person it goes to. Unless you gave a “virtual gift card” where the recipient gets an email with the code to use. You would have to make an order form to get the recipients email address, and let them know they’ve gotten a card from the person and personalize it so it doesn’t look like email spam!

    Otherwise, you’d have to mail them a physical card.

    Then they would have to call in to redeem the card and order, or your shopping cart system would have to be tied into some system to “know” what is on the card! Not sure that is easy to do. Somehow you have to keep track of the balance of the card and how it’s processed on your site. Maybe there are 3rd party vendors that have a brandable system to keep track and process orders? So there is a cost for that, and a cost for the cards. Unless you know how to provide camera ready artwork a price for 250 (minimum order) color gift cards is $230 (art and shipping included).

    Nice idea if you have the sales to back up the system to put it in place.

  12. Brian November 27, 2006 at 4:13 am #

    If anyone is looking into adding Gift Cards or Gift Certificates to their business, here is a company that could be of help:

    http://www.thegiftcardcompany.com

    If anyone has a really good idea, I know that the President of The Gift Card Company, Keith Guevarra, would be open to discussions.

    To your success,
    Brian

  13. Jonathan November 27, 2006 at 8:15 pm #

    We have a gift card business as an affiliate of Quixtar.com. True, there are the
    Pros – everything set up, no/little maintenance on my part. No over head, no inventory, no employees, no web management. No cost – no risk.
    Cons – Typical affiliate program with template websites and standard site address.

    Bottom line: You still need the skills, and do the grunt work of on & off line MARKETING.

    Live life abundantly,
    Jonathan

  14. Alex November 27, 2006 at 11:33 pm #

    One of the tricks with gift cards is to know:

    a) who your customer is
    b) who is likely to buy this type of gift (your product) for (a).
    c) what the best media is to reach (b)

    For example, a friend of mine owns a string of successful beauty, skin care, spas, massage, etc. salons. She makes a killing around every Holiday, but especially around Valentine’s and Mother’s day by running radio ad spots on stations catering to guys, like those that cover a lot of sports.

    The idea, apparently, is that guys who frequent those stations just about that time would be raking their brains to come up with ideas for presents for their girlfriends, wifes and Moms…. and what a better present for a woman than a gift card for a beauty treatment.

    In her case, she rings up 100K-200K in single Holiday gift card promo.

    Now, if only I could figure out who I should motivate to buy my products as gifts for their loved ones, and where to find them.

  15. Sabrina November 28, 2006 at 5:17 pm #

    Ken,

    You’re right.

    In addition, even if you just offer an unexpected Starbucks gift card to your client you may still foster a great deal of goodwill.

    Especially if you know who your best customers are, and see them face to face you could ask them if they patronize Starbucks, Borders, etc.

    Plug that into your database and surprise them with a gift card inside a greeting card expressing your appreciation. I’m sure that’ll bring even more goodwill your way.

    There’s a way to systematize that process somewhat too…

    Sabrina..

  16. <ADMINNICENAME> November 29, 2006 at 9:18 pm #

    Gift cards in the news…

    The New York Times reports there’s regional variation in interest when it comes to folks buying gift cards…from a high of 57% of gift givers in Chicago to a low of 34% in Miami.

    The DM News arrived today. On the cover: a story about gift cards. $18 billion spent on gift cards last year. $20 billion expected this year.

    Some highlights:

    1. “Catalogers need to get their hat in the ring,” according to a marketing consultant quoted in the article. Why? Because brick and mortar stores are marketing them aggressively soaking up consumer dollars.

    2. Few companies are set up for mutli-channel redemption (by phone, in store and online.) There’s an opportunity for someone there.

    3. LL Bean, the super-savvy clothes catalog, dedicated half of the inside of its Christmas catalog thsi year to gift cards and plugs them throughout the book.

    4. The article concludes: Gift cards are a “win-win for both retailers and consumers.”

    There you go…

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