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Recession Rewards

By May 01, 2008

The economic downturn has spurred at least one positive: an increase in gift card usage.

If the number of retail store card displays and direct mail offers for them are any indication, it appears their use is on the upswing at a time when many consumers are cutting back on discretionary spending.

“When retailers see the economy turning tougher, they begin to develop their strategy of how to react and how to compete,” says Daniel Butler, vice president of retail operations for the National Retail Federation.

Butler’s point about competition may explain why specific retailers declined to answer any questions about results, which can be tracked through a barcode or magnetic strip.

“They might extend a sale, add a new product launch, or run special events,” says the NRF executive. “They do a lot of different things to promote their business. Gift cards are part of the equation.”

While most promotions are planned months in advance, companies might quickly jump into action, given the current economic climate, Butler says.

“The gift card industry is growing because the consumer has responded to that use,” he adds. “Businesses find it a convenient way to connect with consumers.”

Merchants such as Coldwater Creek have long offered incentives in the form of a card toward catalog purchases.

“In this economic environment, store traffic is key,” says Ann Raider, executive vice president of retail partner development, Affinity Solutions, a developer of retailer-focused rewards programs. “Retailers need to get people in the stores or on their Web sites.”

Discounts of $25 off a $100 purchase “get people’s attention,” says Dan Horne, associate professor of marketing at Providence College in Rhode Island. “The driving factor is they work.”

Ted Bohnen, vice president of retail innovation for Structural Graphics, agrees.

“Gift cards are tangible. They go in wallets with your credit cards and money,” says Bohnen, whose employer designs and manufactures interactive packaging and advertising materials. “You did not see retailers send out gift cards four years ago. But now people are comfortable with them.”

Sak’s Fifth Avenue did that last month with a gift card in a direct mail piece. Shoppers who spent at least $450 could apply a $50 gift card toward their purchases.

Expiration dates, although somewhat controversial (see letter, pp. 18), still serve as an impetus to get recipients to act.

“Most retailers want consumers to use cards quickly for a given event,” Bohnen says.

For example, when opening new locations, retailer Ikea distributes gold envelopes to the first 2,500 people who come to the store. Inside is a card ranging in value from $10 to $250 or a buy one/get one free offer.

“It helps create a celebratory atmosphere,” Ikea spokesperson Joseph Roth says of gift cards. “Our customers plan to buy items at Ikea anyway. It’s appropriate.”

Meanwhile, Shindaiwa Inc., a commercial outdoor power equipment manufacturer, is doling out $20 gas gift cards with the purchase of select C4 equipment, such as hedge trimmers or its multipurpose tool, through June. It’s the company’s first gift card offer, which vendor SVM is handling.

“With gas prices so high, we wanted to call attention to our good fuel economy machines,” explains Jay Larsen, Shindaiwa’s North America marketing manager. “There is a real popularity with gift cards.”

Is $20 enough of an incentive for products that cost more than $350?

“We think it’s a real good carrot,” Larsen says. “Twenty dollars in gas for power equipment will last a long time.”

Similarly, people who apply for a credit card with Shell Oil through June 30 can earn 25 cents per gallon off their first 100 gallons of Shell gasoline. Cardholders then receive a $25 Shell gift card by mail redeemable for gas, car washes, food or repair service.

For Shell, the aim is to build loyalty, says Karyn Leonardi-Cattolica, Shell’s external affairs retail channel manager.

“The Shell gift card is a proven way to motivate customers to try Shell-branded gasoline for themselves,” she adds, declining to cite specifics. “Hopefully, these drivers will become loyal to the Shell brand based on their experiences paid for by the Shell gift card.”

Not everyone uses the term “gift card” in their pitches.

Staples, for instance, sends to lapsed customers and prospects cards that act like coupons, but look and feel like gift cards. A recent mailing gave $25 off a $50 or more purchase. The company sees a 20% to 30% greater response with the card compared to a paper coupon, says Stacy Gilmore, Staples direct mail manager.

“People want the lowest price, and this is going to get them into the store,” Gilmore says. “It provides an incentive that says, ‘Here, come and try us out.’ It definitely gets people in the door.”

Best Western is using a $50 travel card tied to an event by Harley-Davidson celebrating the motorcycle company’s 105th anniversary. The hotel chain’s aim: generate interest in its Ride Rewards loyalty program, which is being promoted via Canadian Harley retailers. The card works like cash and can be used at more than 4,200 hotel locations worldwide.

“During this economic downturn, Best Western has actually increased its budget for marketing and sales,” says Dorothy Dowling, senior vice president, marketing and sales, Best Western International. “We’re stepping up our promotions and advertising to help move market share to our brand.

“The idea of a free travel card, whether it’s offered through our Harley-Davidson promotion or as a redemption option through the Best Western Rewards program or another loyalty program, can help people supplement their travel expenses in a slowed economy,” she adds.

For more articles on retail marketing go to www.promomagazine.com/retail