Freedom of CHOICE

Flexibility makes gift certificates an increasingly popular choice for premium incentive programs.

Tampa, FL-based athletic-gear chain Champs Sports this month launches an in-store promotion offering customers a gift certificate good for a free CD at Musicland Group’s 1,345 Sam Goody, Suncoast, Media Play, and On Cue stores for every $100 they spend before April 30. Both companies will support the promotion in-store.

Prism Marketing, Dallas, handles the Champs effort, which is expected to move 65,000 to 85,000 CDs, says Daniel Jesse, Musicland’s partnership marketing sales representative.

Meanwhile, Pittsburgh-based H.J. Heinz Co.’s upcoming Get Smothered summer promotion will feature instant-win gamepieces inserted into ketchup bottles. The grand-prize winner gets smothered in four $5,000 MasterCards. About 400 other winners score four-packs of Sam Goody gift certificates. Chicago-based Ryan Partnership handles the promotion for Heinz.

A motivation and incentive tool used for years by corporate America to reward employees (it’s the third most-distributed award, according to the Incentive Marketing Association (IMA) in Naperville, IL), gift certificates are coming out of the b-to-b closet and quickly moving into consumer marketing.

They’re moving so quickly, in fact, that the IMA won’t have specific consumer gift certificate figures until its next report comes out in 2001. Regardless, says association executive director Karen Renk, it’s “very clear” that brand managers have been giving gift certificates more attention over the last year.

Get on the bandwagon

Hormel, Ore-Ida, Pepsi-Cola Co., Nabisco, and Western Union are just a taste of the companies that recently inserted gift-certificate components into consumer promotions. There are several reasons why: Gift certificate programs are flexible and broad for both brands and consumers. CPGs choose a denomination and leave redemption up to the customer. Fulfillment requires minimal administration, since consumers redeem the certificates themselves (for exactly what they want).

“People choose what they want to choose,” says Stephanie Matolyak, director of new business development for New York City-based Spa Finders, which offers gift certificates redeemable at a network of 350 day spas. “That’s about as targeted as it gets.”

Cross-promoting with gift certificates from other companies, such as Block-buster Video or Lillian Vernon, can add extra brand power to campaigns. Menlo Park, CA-based online brokerage house E*Trade is currently signing up new customers with $100 gift certificates from Web software store Egghead.com. The three-month promotion ends later this month.

And the cost savings can be substantial. Aside from the fact that as much as 15 percent of gift certificates may never be redeemed, volume purchases translate to substantial discounts that retain their appeal. A bulk-purchase of gift certificates from Boston-based Loews Cineplex Entertainment, for example, costs $4.50 per ticket. In many areas – New York City, for instance – that’s a $10 value, allowing for “higher perceived value at lower conceived cost,” says Sundrine Kirchhoff, Loews’s marketing coordinator. (Ocean Spray used the theater chain’s tickets as prizes in a 1999 holiday-themed sweeps.)

Paper or plastic?

Most of the nation’s largest retailers have switched from paper gift certificates to plastic gift cards in their stores. Gift certificate suppliers, many of whom are among the retail ranks themselves (Best Buy, Circuit City, The Home Depot) have shifted as well. Why? Paper gift certificates are often used just once, with remaining balances handed over to shoppers in cash.

Therefore, suppliers maintain that gift card promotions represent a larger branding potential than paper gift certificates or cash rewards.

“With a [gift] card in their pocket, every time consumers use it they’ll remember where they got it,” says Darryl Hutson, ceo of American Express Incentive Services in Fenton, MO.

American Express offered several different cards, ranging from stored-value products to point-based loyalty cards. Its prepaid reward card is the focal point of Milford, CT-based Bic Corp.’s current Value Days promotion. The campaign, running through July and promoted in-store and via FSIs to 46 million households, offers up $100, $1,000, and $10,000 American Express stored-value cards as prizes. Barr Benedett Group, Westport, CT, handles the effort, which hypes Bic’s three lines of disposable shavers.

Gift cards are usually imprinted with corporate logos and/or messaging, allowing for extra brand reach. Los Angeles-based Home Box Office earlier this year dropped nine million direct-mailers to potential customers on the West Coast. Consumers were offered a $20 HBO-branded Arco gas card if they signed up for the cable channel. Developed by Schiller Park, IL-based Stored Value Marketing, the effort produced solid response rates and allowed HBO to offer a branded, value-added incentive instead of the “typical discount,” says Bob Shurtleff, HBO’s regional director.

State of the art

As the gift certificate’s physical form has evolved, so have the ways marketers – and consumers – use them. Here’s a rundown of a few recent trends:

More choices. While gift certificates have traditionally been good for purchases from one merchant, new models can be tied to hundreds of redeemable outlets, translating to exponentially increased choices for customers.

American Express, Rosemont, IL-based Marketing Innovators, and Stored Value Marketing all offer multiple-merchant-linked gift products. A rash of new Internet gift certificate companies have made similar programs available.

“These days, the more choices you give the consumer, the better,” says Tracie Schurr, online marketing manager with Cleveland-based American Greetings. The card maker last month wrapped an online sweeps campaign that distributed $1,000 and $100 gift certificates from giftpoint.com, a Web site that lets redeemers sift through inventories from 400 merchants. The promotion ran off Yahoo’s home page; users clicked on a banner ad and transferred to the card company’s home page for sweeps registration.

Boston Beer Co. late last year used New York City-based GiftCertificates.com to supply its Best of the Season promotion. Retail accounts were rewarded with gift certificates based on performance. The certificates were redeemable at 200 retailers from the dot-com company’s home page. The promotion “was easy to execute and a good fit for us,” says sales promotion coordinator Jennifer Chapman. The company will break a similar effort this summer.

Better customization. Other gift certificate/card suppliers are sticking to one redeemable outlet but expanding how many programs they offer. Gift cards from Dallas-based Blockbuster Video, for example, can be loaded three different ways: by specific dollar denomination, by a preset number of movie rentals, or by schedule – say, one flick per week for two months.

Harvey Seslowsky, Blockbuster’s senior vp-national sales, partnership marketing, and licensing, says the different offerings allow marketers to “literally dictate behavior.” More than 2,000 companies have used Blockbuster gift cards in incentive efforts since they were first issued five years ago, Seslowsky says.

Blockbuster can also issue inactive cards that can be activated at a later date for use in mass-marketing efforts. Through a program called Free Flix, Washing ton, DC-based telecom giant MCI this month is sending inactive $50 Blockbuster Video gift cards to millions of homes to lure consumers into signing up for local and long distance service. Once a customer signs up for MCI service, the telecom gives Blockbuster the go-ahead and the gift cards are activated.

Better tracking. Magnetic strips and barcodes now give marketers the option of following through and learning what happens post-promotion. Purchase data can be recorded and used for future gift card efforts or for targeted direct-mail or e-mail correspondence.

Databases tied to gift certificates are also changing the way brands pay for the gift certificates they use in promotions. In exchange for the national exposure, Minnetonka, MN-based Musicland Group is allowing Champs to bypass typical pre-promotion volume orders and instead will bill the company based on redemption. The company’s P-O-P systems will record barcodes when a consumer redeems the CD gift certificate, and Champs will be billed later, says Musicland’s Jesse.

Better security. Security surrounding gift certificates has improved. In the past, there were reported problems with counterfeiting and tampering. The potential for problems has decreased, for the most part due to the advent of the gift card, which is coded with magnetized strips much like credit cards and features similar anti-counterfeit components, says Susan Kraus, manager of print-on-demand marketing with Standard Register. The Dayton, OH-based document managing company prints gift cards for such retailers as The Home Depot.

Paper gift certificate security has also gotten better. New types of paper embedded with special threading are widely used. Many gift certificates are also printed with anti-counterfeiting ink.

A look ahead

Whether they’re used for activation, acquisition, loyalty, or win-back promotions, gift certificates/cards are looking pretty good to marketers these days.

“Companies are looking to build loyalty,” says Karen Doyle, a gift certificate sales representative with Best Buy. “Gift cards can be used in short-term and long-term promotions.”

Most marketers and suppliers agree that plastic cards won’t completely eclipse paper, which will still be used for smaller incentive efforts such as rewards for test drives, says American Express’s Hutson.

Blockbuster’s Seslowsky expects gift certificate usage to continue rising. First came the paper form, then plastic cards offering stored-value and electronic activation and customization. Reload-able cards will be next, he says, which will allow marketers to use gift cards in ongoing loyalty programs. MCI could, hypothetically, reload Blockbuster cards with $15 for every month a customer spends $50 chatting on the phone.

That would give new meaning to the phrase “getting carded.”