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Business Gift Gift Certificate Corporate Incentive Buy Gift

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									                                                       EXECUTIVE WHITE PA P E R

                                                                                                 They can be branded, personalized, and
The Role of Gift Certificates and Gift                                                           customized. And they offer administrative
                                                                                                 benefits such as usage tracking and a
Cards In Corporate Recognition and                                                               variety of redemption options.
                                                                                                     The gift certificate and card industry




INCENTIVE
                                                                                                 continues to grow, both in consumer
                                                                                                 and business-to-business markets.
                                                                                                 Between $42 billion and $45 billion in
                                                                                                 gift certificates and cards will be issued
                                                                                                 in 2003, according to the Boston con-



PROGRAMS
                                                                                                 sulting firm Bain & Co. Use of cards
                                                                                                 and certificates to help build incremen-
                                                                                                 tal sales in particular is expected to
                                                                                                 expand. According to the 2003 Incentive
                                                                                                 Federation Study of Merchandise and
                                                                                                 Travel Incentive Users, buyers of incen-
                                                                                                 tives say gift certificates and cards will
                                                                                                 be their number one choice for sales
                                                                                                 incentives in the future.

                                                                                                 DEFINITIONS
                                                                                                     Despite the simplicity of gift certificates
                                                                                                 and gift cards, the variety of options requires
                                                                                                 an understanding of a few basic terms.
                                                                                                       Gift certificates: These are vouch-
                                                                                                 ers with dollar or point values embossed
                                                                                                 on them. They can be personalized with
                                                                                                 the recipient’s name and giver’s logo and,
                                                                                                 depending on the vendor, can be replaced
                                                                                                 in case of loss or theft.
                                                                                                       Gift checks: Sometimes synony-
                                                                                                 mous with gift certificates, gift checks
                                                                                                 usually refer to money orders issued by
                                                                                                 banks or credit card firms.
                                                                                                       Gift cards: These plastic cards
                                                                                                 come with a magnetic strip and/or bar
                                                                                                 code preloaded with a dollar or point
                                                                                                 amount. Some are reloadable (in which
                                                                                                 case they are sometimes called debit
                                                                                                 cards); others are not. They are generally
                                                                                                 available in two types: 1) those that carry
                                                                                                 a major credit card brand and are
                                                                                                 redeemable at any merchant accepting
                                                                                                 the brand; and 2) merchant-specific
Executive Summary                                forge relationships with dealers and dis-       cards, such as those issued by well-
                                                 tributors; build trade show traffic; and        known retailers. These are redeemable




G
                 ift certificates are familiar   spur consumers to buy their products.           only at the issuing merchant.
                 to most American con-               Numerous studies point to the efficacy            Debit cards: These are redeemable
                 sumers as an easy, conve-       of gift certificates and cards in achieving     only at participating merchant outlets.
                 nient way to give the gift      business results. Gift certificates and               Virtual certificates: Many gift cer-
                 of choice. But their usage      cards have been shown to increase sales,        tificates can be delivered via e-mail direct-
                 reaches far beyond              improve employee performance and build          ly to the recipient’s mailbox, saving time
department store checks at holiday time.         loyalty, foster teamwork, and create new        and the expenses of printing and delivery.
Businesses use gift certificates and cards       markets, among others.                          The “virtual certificate” can contain a link
to recruit, recognize, and motivate                  Gift certificates and cards offer several   to a Web site where recipients can select
employees; reward workplace safety;              advantages over monetary incentives:            and claim their rewards.
                                                        EXECUTIVE WHITE PA P E R

APPLICATIONS                                      points or dollar value once they visit the
     Gift certificates and cards play a wide      sponsor’s booth.
variety of roles in many types of incentive             Consumer promotions: Because
programs:                                         consumer populations are so diverse, mak-
      Recognition: Gift certificates and          ers of goods from cereal to long-distance
cards have both “trophy” and “halo” value.        phone service have tapped the versatility of
They’re marks of accomplishment that can          gift certificates and cards. They’re used to
be given at an awards ceremony or includ-         entice a consumer to try a product, switch
ed in a congratulatory note or e-mail. And        from a competitor’s product, buy large
they produce a halo effect: Employees are         quantities of a single product, or try related
reminded of their accomplishments as              products sold by the same company or
they plan how to redeem the card or cer-          retailer. Certificates and cards are also pop-
tificates, or when they receive and use the       ular in cross-promotions: A brokerage
merchandise or travel. There is also oppor-       house can offer certificates or cards for a
tunity to share the experience with family        software store, or a popcorn manufacturer
by having them partake in rewards such            can tie in with a movie theater chain.
as restaurants and travel. Unlike cash,                 Loyalty programs: Gift certificates
employees are unlikely to consider gift cer-      and cards are popular rewards for repeat

                                                                                                   oped among your employees. The same
    Certificates and cards are seen as                                                             study showed an average lag of six months
                                                                                                   between customer satisfaction and future
    a one-time reward for a job well done.                                                         financial performance in the hotel industry.
                                                                                                          Results of motivation: Andersen
                                                                                                   Consulting’s survey of 500 executives
tificates and cards as compensation and           purchases. Retailers offer gift certificates     revealed that programs to retain and
thus do not begin to expect them.                 or cards to consumers who spend mini-            reward sales, marketing, and customer
      Safety: Gift certificates and cards are     mum amounts, such as a $10 certificate           service employees can give a $40 million
used to recognize individual or team mile-        for every $100 in purchases.                     lift to a $1 billion business’ bottom line.
stones: months without injury or accident,                                                         The biggest payback—$13 million—came
reduced days off for illness or injury, follow-   RESEARCH                                         from efforts to motivate and reward
ing and documenting safety procedures, or               Overall usage: The Incentive               employees. Programs to draw and retain
demonstrating knowledge of preventative           Federation Study of Merchandise and              talent added $10 million.
practices and emergency preparedness.             Travel Incentive Users found that gift cer-           “Incentives, Motivation, and Workplace
      Sales: Gift certificates and cards work     tificates/cards have become the number           Performance,” a 2002 study of incentive
especially well for sales incentives. They’re     one award for sales incentives.                  programs by the International Society of
scalable—that is, available in many denomi-             Target audiences: The Incentive            Performance Improvement, found that
nations—and thus flexible enough to               Federation Study also found that 78% of          properly structured programs aimed at
reward for any volume of incremental sales.       respondents offer incentives for salespeo-       individuals improved performance 25%;
And unlike cash, which is a common and            ple, 57% for resellers, 77% for consumers,       those aimed at teams showed 45%
expected form of variable compensation in         and 67% for employees.                           improvement. An overwhelming majority
this field, certificates and cards are seen as          Need for motivation: A Workforce           of workers—92%—said they achieved
a one-time reward for a job well done.            2000 study shows that in the 21st century,       their goals because of incentives.
       Dealer incentives: Monetary                as the workforce ages, organizations will               How they’re used: According to the
incentives such as discounts and rebates          need extra stimuli to encourage produc-          Incentive 2002 Gift Certificates FACTS
are common and expected in most distri-           tivity, flexibility, and the willingness to      Report, incentive planners use gift cards
bution channels, but gift certificates and        change and learn.                                and certificates to fulfill the following:
cards can make a motivation program                   Research by Bain & Co. found that            Increase or maintain sales                 19%
more targeted and memorable without               major companies lose, and have to                Recognize performance                      18%
raising sensitive pricing issues. They can        replace, half their customers in five years,     Build employee loyalty/trust               15%
be used to spur channel partners to par-          half their employees in four years, and          Start or maintain relationships 13%
ticipate in new product training, increase        half their investors in less than one year.      Build customer loyalty/trust               12%
overall sales/purchase volume, or to                  An article in the Fall 2000 issue of         Improve customer service                    9%
push a particular product or line.                Marketing Management indicated that the          Foster teamwork                             9%
      Trade show traffic-builder:                 degree of loyalty your customers have            Create new markets                          6%
Branded cards can be sent to trade show           toward you typically mirrors the level of               Consumer attitudes: A 2003 sur-
attendees with the promise to load in             commitment and loyalty you have devel-           vey of 1,200 adults by ValueLink, a
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                                                     EXECUTIVE WHITE PA P E R
                                              job of Jerry Duggan, sales and marketing            discount might become expected ever y
                                              manager, to make sure Flexcon holds its             time a dealer ordered, but the gift certifi-
                                              own against competitive products.                   cates were viewed as a one-time special
                                                 Typically, Flexcon mounts two big                thank you,” says Duggan.
                                              incentive pushes: one early in the year, to              In the two states in which the program
                                              encourage dealers to stock up for the               ran, sales increased by 23% over the pre-
                                              coming spring rush; and the other in June           vious year. Duggan attributes most of the
                                              or July to get them to replenish their              increase to new accounts, since the over-
                                              shelves. In the past, Duggan offered                all market is flat.
                                              branded apparel as incentives. But all                     Employee motivation: Merging
                                              those embroidered caps and jackets                  two companies, no matter how compati-
                                              required a sizable outlay of upfront cash,          ble, is never easy. Each organization has
                                              and Duggan could only guess at the                  its own personnel and distinctive
                                              assortment of sizes to order.                       approach to everything from marketing
                                                 In 2002, the company rolled out a                to accounting to data processing to cus-
                                              reward program for Minnesota and                    tomer service. During the recent merger
                                              Wisconsin dealers that featured gift certifi-       of pharmaceutical giants Pfizer and
                                              cates called “Lobster Grams.” Offered by a          Pharmacia, a task force of a dozen people
                                              Boston company of the same name, Lobster            across different departments at Pfizer
Denver-based gift card provider, showed       Grams come in various denominations and             was charged with making the transition a
that women are slightly more likely to        are redeemable for live lobsters (shipped           smooth one. Members met virtually non-
buy gift cards than men; however, it          overnight with frozen gel packs) or fresh           stop over six months, including nights
found that men spend more per card:           steaks. Dealers accrued points based on the         and weekends, to plan how to blend the
$58, versus $45 for women. Very young         number and size of the tanks they pur-              operations of the two companies.
adults and older adults were less             chased; points were redeemable for any of                 Liz Shropshall, director of global com-
informed and less likely to buy the cards     three steak and/or lobster packages.                pensation for Pfizer, wanted to reward the
than those in the 25-to-54 age group,            Dealers latched on to the program                team for its sacrifices. She chose a fitting
which accounted for 70% of purchases.         because it offered an unusual item they             thank you: gift certificates that were, literal-
Internet users are much more knowl-           weren’t likely to buy themselves, says              ly, the gift of time. Each member received a
edgeable about gift cards (87% were           Duggan. Flexcon also offered certificates           gift certificate from Service Master of
aware of them) than non-Web users (67%        to new dealers in lieu of a discount. “A            Downers Grove, IL, good for any of a
were aware). Awareness and use of gift
cards were relatively low among Hispanic      ATTRIBUTES
consumers. However, they are more             The following chart helps put gift certificates and gift cards in the context of other award options.
interested in reloadable cards than non-      Perceived value           Merchandise and/or        Gift certificates and     Cash
Hispanics, according to the study.                                      travel                    cards
      Ubiquity: A 2002 study by Taylor                                  Variable. Can be higher   Not variable if           Not variable.
Nelson Sofres Intersearch shows that                                    or lower than actual      denomination is in
37% of U.S. consumers have purchased or                                 cost. If item is avail-   dollars. Slightly vari-
received a gift card in the past 12                                     able at retail, the       able if points-based,
months. The average value of purchased                                  recipient can deter-      because recipients
                                                                        mine approximate cost.    may be able to
cards was $50, up from $44 the previous
                                                                                                  approximate the dol-
year. And 12% of respondents said they                                                            lar equivalent.
had purchased electronic cards for their
                                              Branding                  Available but can be      Available and rela-       Not available.
own use in the past year. Of those who                                  costly. Often not         tively inexpensive.
have purchased or received prepaid                                      available on single
cards, 61% said they usually spent more                                 items.
than the initial value of the card.           Time frame of recall      Long to medium.           Long. Recipients          Short. Once spent,
                                                                        Recipients will           recall accomplish-        recipient is unlikely
CASE HISTORIES                                                          remember accom-           ment as they consid-      to remember giver or
      Dealer incentive: For Flexcon                                     plishment and reward      er and choose             occasion for award.
                                                                        each time they look       reward. Once
Industries, a Randolph, MA, manufacturer                                at or use merchan-        received, memory is
of water pressure tanks, dealer relation-                               dise or recall a trip.    reinforced.
ships are critical. The plumbers and new-
                                              Versatility               Low. Generally can-       Medium. Can be con-       High. Redeemable
home builders who constitute the compa-                                 not be converted or       verted to services or     for any service or
ny’s target market rely on the recommen-                                exchanged for other       merchandise within        merchandise.
dations of a dealer’s salespeople. It’s the                             goods and services.       issuer’s selection.

                                                                                                                                                  3
                                                       EXECUTIVE WHITE PA P E R

                                                                                                 there a setup fee for issuing certificates
                                                                                                 or cards and tracking redemption?
    Gift cards offer the power                                                                         Individual fulfillment vs. bulk:
    of choice: Recipients can                                                                    Can the certificate or card be sent to
                                                                                                 each individual recipient, or are they sent
    select the reward that’s most                                                                in bulk to the person placing the order so
                                                                                                 he or she can disburse them?
    meaningful.                                                                                        Administration: Are cards or cer-
                                                                                                 tificates shipped “live,” or must they be
                                                                                                 validated on receipt? If cards or lost or
dozen services including housecleaning,          companies, sales                                stolen, can they be replaced?
lawn care, carpet cleaning, and pest control.    promotion and advertising agencies, and               Escheat considerations: Certain
Says Shropshall: “We have other recogni-         promotional products distributors.              states require gift card issuers to return
tion programs in place within the organiza-          The Incentive Gift Certificate Council      unredeemed funds to the recipient or the
tion, but this one seemed most appropriate.      is an industry group whose goal is to edu-      state. Ask your gift card issuer if there is
It was an opportunity to give people back        cate the motivation industry and end            a monthly fee for card holders with unre-
the time they had dedicated to the project.”     users on the benefits of gift certificates.     deemed balances and what happens to
    The fact that recipients could choose        The group’s Web site, www.usecertifi-           balances that aren’t used.
the type of service they wanted was a big        cates.com, offers a member directory.
plus, as was the trophy value of a person-                                                       SUMMARY
alized certificate. “The certificates were       CHOOSING A VENDOR                                   Gift certificates and cards are increas-
hand-delivered with a letter from the pro-           Here are the questions to ask when          ingly becoming a preferred motivator in
ject leader, which meant a lot to them,”         seeking a gift certificate or card provider.    both the consumer and business-to-busi-
says Shropshall. The merger was suc-                    Redemption options: How can              ness arena. They build on the strengths
cessfully completed in April 2003.               cards or certificates be redeemed: online,      of non-cash incentives by offering
      Employee recruitment: To combat            by phone, by mail, in person? If                rewards that are more memorable and
a severe shortage of nurses, the                 redeemable only at a specific merchant,         can be redeemed for merchandise and
University of Maryland Medical Systems           how close are retail locations to where         travel that recipients wouldn’t otherwise
(UMMS) began recruiting in the                   recipients live? When do the certificates       buy for themselves. And they offer the
Philippines and other English-speaking           or value loaded in the card expire? Is the      power of choice: Recipients can select the
countries. Part of the recruitment pack-         amount that recipients don’t spend              reward that’s most meaningful.
age was a relocation allowance to cover          refundable? Is there an administrative               Buoyed by these strengths, the indus-
the first month’s rent and the cost of basic     charge levied even if the recipient doesn’t     try is expected to grow. Particular areas of
items needed to set up an apartment.             redeem the certificate or card?                 development to watch for include use of gift
    “We really needed these nurses, so we              Branding and customization:               certificates as a sales incentive for dealers
worked hard to make their transition to the      Does the vendor offer branding with the         and direct sales people. In addition, expect
United States easier,” says Ampy Camba,          company name and/or logo? Can the               more gift certificate programs to take place
finance manager for UMMS. “Finances              recipient’s name be imprinted?                  online. In the Incentive Federation study,
and getting started shouldn’t be a worry.”             Communications: Can the vendor            only 15% of incentive buyers said they’ve
    UMMS decided to provide the                  provide a personalized letter on my compa-      run programs online, but usage of e-com-
allowance in the form of Visa Gift cards, for    ny’s stationery? Is there a Web site or cata-   merce, particularly for buying incentive
several reasons: They can be used at any of      log where recipients can view and/or buy        rewards, is higher among buyers who run
the 28 million worldwide locations where         available merchandise? Does the vendor          eight or more incentive programs per year.
Visa is accepted, can be replaced if lost or     provide reports or a Web site on which               In sum, gift certificates are a versa-
stolen, and can be used to get cash at ATMs.     participants can see how many dollars or        tile, proven way to spur employees, cus-
    The recruitment program has been             points they’ve accrued and redeemed?            tomers, resellers, and revenues. The
successful: Fifty nurses were recruited                Reporting on redemption: How              power of choice is potent indeed.
between April and December of 2001, and          often can the program sponsor view data
nearly 100 in the first quarter of 2002 alone.   on activation and redemption? How often           This Executive White Paper was commissioned by
                                                 is data updated? Remember, gift certifi-          the Incentive Gift Certificate Council (IGCC) of the
FINDING A PROVIDER                               cates and gift cards can offer the unusual        Incentive Marketing Association. For further
   Gift certificates and cards are available     ability to track how people redeemed              information, go to www.usegiftcertificates.org.
through numerous channels, including                                                               For additional copies you can download a pdf of
                                                 their awards, giving useful insight into
                                                                                                   this Executive White Paper by going to the Incentive
directly from the special markets depart-        the preferences of your target audience.
                                                                                                   Performance Center at www.incentivecentral.org
ment of the issuer, which can also pro-                Discounts and fees: Is there a dis-         and clicking on Practice Areas. For bulk reprints,
vide promotional copy and logos. Other           count for buying in bulk, or for limited          please send an e-mail to info@incentivecentral.org.
procurement channels include incentive           redemption options such as Web-only? Is
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