What's the one gift everyone likes to receive? It's cash.
Seriously, have you ever seen a person trying to return a cash gift or leaving it on a shelf to collect dust? I have never. For some gift-givers, however, cash is too simple and impersonal, so they go for the next best thing: gift cards.
Needless to say, retailers love gift cards, too. They're easy to implement (especially if you're an online seller), and besides increasing revenue and ensuring cash flow, gift cards also help with customer acquisition and loyalty.
But the question is, does offering gift cards affect brand equity? In other words, how do consumers, in general, perceive businesses that offer gift cards?
And finally, after all is said and done, should you offer gift cards in your store? (Here's a hint: gift cards come with some risks but also great rewards for building a brand.)
Risk: Unused gift cards can make your brand look bad
Here's the thing.
That's where your brand equity could suffer.
Stats show that out of $130 billion spent on gift cards, approximately $1 billion is lost in unredeemed gift cards. The gift card & credit card marketplace CardHub even found that between 2008 and 2014, consumers had lost over $44 billion in the form of unused credits.
A study by Dan Horne analyzed the impact of unredeemed gift cards on businesses, and it concluded that too many unused gift cards can harm the brand's image. When gift cards are left unredeemed, the company basically gets money for nothing. "Consumers feel that retailers have taken advantage of them," the author concludes.
Besides the people who forget about their gift cards, there's another group: those who try to get rid of an unwanted gift by reselling it online. The problem is, the more often your brand's gift cards are sold off online—via social media or on platforms specifically created for reselling—the less valuable they're perceived to be.
Think about it.
The fact that many people are trying to get rid of your store's gift card makes the products you sell look unwanted. Besides, the more users selling gift cards from the same brand, the lower resale price they offer. That may lower consumers' perceived value of your products, and your business may start to find it difficult to sell them for the full price.
Rewards: Increased brand awareness, trustworthiness & reliability
Despite the challenges gift cards may pose for your brand, they're still a great marketing & branding tool.
First of all, gift cards increase brand awareness.
"Imagine a gift card as a tiny billboard advertisement for your company inside the wallets of your customers. Every time they open up their wallets to pay for something, they see your brand on their gift card," explains Ruby Camara, Chief Customer Officer of SixthContinent.
By offering gift cards or certificates in elegant custom packaging, you can boost your brand's perceived value. Perhaps even more importantly, it helps your gift-buying customers look as though they've put more thought & consideration into choosing the gift.
"Gift cards may be small in size, but these mini-billboards come with very large branding opportunities," concludes Dana Lambert, Associate Creative Director for The Motion Agency.
Secondly, gift cards can boost your brand's trustworthiness.
Let me explain.
Having your gift cards placed in stores next to big players like Apple & Starbucks makes your business look like one of the big players, too. That's a great way for lesser-known brands not only to attract more eyes but also to improve their trustworthiness.
Now, if selling your gift cards in stores is not an option for your business, offering digital gift cards might do.
According to Canadian POS, "Stores that sell gift cards are representative of the upper echelon of retailers." That is, adding gift cards to your product catalog causes shoppers to perceive your brand more seriously. "This is most likely due to the fact that all major retailers offer gift cards," Canadian POS assumes.
SixthContinent, a platform that offers gift cards for brands of all sizes in one place, believes that it's beneficial for small companies to be placed next to big brands. "That increases the visibility and, eventually, the sales of that company as well," they observed.
Finally, gift cards increase customer loyalty.
And loyal customers make your company look reliable.
When shoppers keep returning to the same retailer for more, it shows other potential customers (and the general public) that this company is doing something right.
When it comes to gift cards, studies show that it's an effective way to build a loyal customer base. It's been found that referred customers—including those who've discovered a brand through a gift card received from a friend—are likely to become loyal return customers as well.
By giving gift cards to friends and family, we show that we trust a brand enough to recommend it to people we care about. We put those mini-billboards into friends' wallets, and that way, we make sure they keep thinking of the brand. That's the perfect recipe for building brand loyalty.
Gift cards offer great possibilities for improving brand equity—on the condition they're actually redeemed. Companies that see gift cards only as an additional revenue source and hope to make extra money "for nothing" will lose the game in the long-term.