Over a couple of weeks, we have been making content about loyalty programs and how small businesses can leverage this reward strategy to retain customers and attract new buyers. This one concerns gift card programs, benefits, and how it works.

You must have heard about gift cards. You might have purchased one as a birthday gift for a friend or family. Well, the truth is that you can also run a gift card program for your business. You can make gift cards and sell them to your customers, which will generate lots of revenue for your business.

It’s not hard to get on a program. All you need is the information you’re about to get in this article. In a few minutes, you will be blown away by the opportunities in this program and how you can include them in your marketing strategy. Now, let’s get into it bit by bit.

What are gift cards?

Gift cards are prepaid cards with stored value or funds issued by a company. It’s usually created and sold by a brand and could come at different prices. In a few cases, these cards can only be redeemed as payment for a product or service offered by the same company or with their subsidiaries.

These cards are called gift cards because they are to be given out as gifts by customers of a brand to their families and loved ones. It can also be a gift from a company to its customers. Gift cards are both physical and online, also known as egift. This payment mode is becoming popular because they are safe and carry no buyer’s personal information.

How do gift cards work for small businesses?

The process starts with a company launching a gift card program, which includes creating a special card that all their point of sales machines will recognize. Each card will have a unique ID number that can be identified only by their POS terminals and, in some cases, all other terminals that belong to the gift card network. Another code is assigned to each card when selling them out to a customer. This code indicates the purchasing power of the card.

Customers buy gift cards because they are more comfortable shopping with these prepaid cards that do not hold their personal information or because they want to gift them to a friend or relative. This friend or relative can only redeem this card at retail points that belong to the brand. They do not need to spend all the amount because the cards can hold a balance. It’s possible to combine the balance in two or more cards to make a purchase.

The money gained from gift card sales is called a liability. It won’t become revenue until it’s redeemed. The real profits in selling gift cards happen when the holder loses the card or fails to redeem it before expiration. The money eventually becomes a bonus to the business because the holder cannot redeem the balance for a product or service.

Why do small businesses use gift card programs?

1. It expands your business reach

Gift cards are perfect birthday gifts. People usually give out gift cards when they have no gift ideas for a friend or relative. The recipient, who might not have heard of or tried your brand, will be forced to purchase some products with the card or use your service.

These wallet-sized cards could go miles beyond your advertisement reach. The best thing about gift cards is that they get cashed out 8 out of 10 times. This implies that offering gift cards will increase your sales and helps your brand accumulate more first-time buyers. You only need a good loyalty program to keep them coming for more.

2. It enhances strong brand & customers relationship.

You can improve the relationship between your brand and customers with a gift card program. Gifting prepaid cards to your customers as a reward for loyalty will further boost your relationship with them. They will proudly be your brand ambassadors and advertise your brand to their family members and colleagues.

Also, you can try a buy-one-get-one-free program. For example, giving out a $50 gift card to a customer that purchases a $500 gift card. This way, two new people will get to know your business. Your community will keep growing stronger, and likewise, your relationship with customers.

3. It reduces fraudulent card transactions.

As a small business striving to be recognized in the niche or market, the last thing you want is for your customers to get duped after patronizing you. Gift cards are safe for transactions at the point of sale, and shoppers are more comfortable with this mode of payment. These cards don’t carry the user’s personal information, only the card ID and card codes that cannot be traced to the buyer or recipient. Meanwhile, more people will choose your brand when they discover you sell and accept gift cards.

4. It increases the traffic to your store.

Gift card recipients are not as price sensitive as those shopping with credit cards. Besides, a more significant percentage of gift card holders got it as a gift. Therefore, there’s no need to budget; they are always eager to enter the store and spend every dime on the card. The same reason the little balance usually gets forgotten.

You can increase the traffic entering your online store by offering gift cards. Even more accessible because they don’t need to travel down to your store to redeem the cards. They can make their orders on your ecommerce website.

5. Point of sale matching

Gift cards don’t need many tools to be implemented. You can easily integrate it into your point of sales systems and have it working very fine. Plus, you can track your customer’s behaviors on your point of sales machines.

How to choose the gift card program that best suits your business?

There are about five types of gift cards, each with advantages and limitations. All classes work fantastically, but not all will suit your business needs and the purpose of running a gift card program. Therefore, you must know all the types before choosing one for your business.

However, before we reveal all five types of gift cards, you should know that there are two basic types: Closed-loop and Opened-loop gift card programs. The closed-loop are those types that work only on your brand’s payment-receiving machines. The recipients can use it at any store that belongs to your brand.

As for the other type, recipients can redeem it at any store or brand that accepts gift cards. Only a few brands reject open-looped cards. Every other subdivision falls under these two categories. Let’s see all five available options.

Closed-Loop Program from Merchant Bank

Your merchant bank or existing card processor should be your first option when looking for a gift card program provider. Although their primary business is credit cards, most also offer gift card solutions. They should be your first consideration because there will be no need for extra infrastructure to run the program since you use their card terminals at your point of sale.

However, you should research to know if they offer the gift card program features you want before making commitments. Bank merchant programs provide little or no customization features, which means you may be unable to maximize the program’s potential to your desirable stage.

Pros:

  1. Merchant banks’ gift card solutions are usually free or inexpensive. They make most of their revenue through credit cards and offer a gift card program as a free or complementary service.
  2. As mentioned before, this type requires no integration or reprogramming of the existing terminals at your point of sales. It’s challenging to reprogram merchant bank card terminals, and it does not always work when done. You don’t need that because the software or tools required are already pre-installed on your machines.
  3. Choosing this method is equivalent to selecting a method that works across all locations where you have your stores. Using a third party will require setting up a new account for each store to run the gift card across all your business locations.

Cons:

  1. Gift cards from these programs lack beautiful designs. They often come out as plain white cards with the brand name printed in black ink. They usually have no logo, no beautiful fonts, and no stunning graphics. This is not good for wallet-size advertisement cards. Advertisement cards should be colorful and attractive to the eyes.
  2. Merchant gift cards are bland and lack great features. These programs usually lack comprehensive reporting, signage, customer support, advertisement, and other elements that help to maximize their potential.
  3. Merchant banks don’t provide electronic gift card programs. Therefore, it is hard for businesses to make passive income through this channel. And nowadays, people buy fewer physical cards and more egift because they can be redeemed online.

Closed-loop Program from Gift Card Vendor

There are lots of third-party card vendors that provide closed-loop gift card programs to businesses. This solution solves the customization issue in the previous and provides businesses with excellent gift card features, including advertisement and signage.

The little problem with this method is integration, which can be avoided by choosing a gift card vendor that’s in partnership with your card processor. The vendor will use the same tools available on your card processor terminals. Therefore, there won’t be any need for reprogramming and setting up accounts for your multiple business locations.

Pros:

  1. Third-party gift card vendor offers egift and social programs. They allow businesses to generate electronic gift cards that can be sold online and redeemed for products on their ecommerce platforms. Gift card vendor makes it possible to earn a lot from this program. They will assist with all the tools needed to sell many gift cards.
  2. Gift card vendors will provide comprehensive reports of your program. Gift card program is their specialization, so they will always go the extra mile to satisfy you and provide better services than their credit card processing counterparts. You will have a full report on the performance of your program, from which you can know customers that buy the most gift cards and reward them for their loyalty.
  3. Unlike the previous method, which offers no flexibility, this type allows you to switch card processors. Since you will be reprogramming the terminals or installing some software on them, you can decide to change your card processors and still enjoy all the beautiful features provided by the Gift card vendor.

Cons:

  1. The cost of getting a program is much more expensive than the cost of a closed-loop program from merchant banks. It might not be exorbitant, but it’s enough to make a business run at a loss if it’s unable to sell many gift cards. The fees may include a one-time setup fee, transaction charges, monthly fees, and gift card inventory fees. You must be prepared to promote this program and sell gift cards via all possible channels to gather sales that will cover the program’s cost.
  2. Reprogramming merchant’s card processors might be too difficult or even impossible. Moreover, some big banks and POS suppliers don’t allow it. In that case, you have no choice but to change your merchant’s bank to another that supports reprogramming their POS machines before you can use a gift card vendor program.
  3. Once you start selling cards to customers, there’s no going back. You have to keep using the gift card provider, even if you’re not satisfied with their services, because the cards are out, and you will want to fulfill them, not to spoil your image. Besides, there are card recipients that may not redeem until some months after purchase. The only way out is to keep a record of all the cards sold out; feasible only when a few cards are sold out. Therefore, you must research well before you pick a third-party vendor. Once you have chosen, it’s for the long haul.

Open-Loop Restricted Card Program

Open-loop gift programs remain those that are not tied to any particular brand. They can be redeemed at any store, restaurant, or business that belongs to a network, like the Discover network. However, it’s possible to have an open-loop program in which cards can only be redeemed at your preferred business centers. This type is called the Open-loop restricted card program.

Pros:

  1. There’s no need for integration with this type of program. Since it’s open and can work on all networks, your POS machines can read and receive payment from the cards.
  2. The cost of getting on this program is cheap. You can get an open-loop restricted program for as low as $200.
  3. You can easily combine this program with a closed gift card program without additional tools or software. This combination can help you maximize the potential of this campaign, and you may be able to get passive revenue from gift cards.
  4. Open loop restricted cards get more purchases because they are easier to get online. You can just put a link on your website that will take buyers to the third-party website. The gift card vendor will print the card and ship it to the buyer’s location.

Cons:

These cards are printed on-demand and cannot be made available on the counter for customers. You may need to include another gift card program to perform offline card purchases. 

Open-Loop Unrestricted Card Program

It’s a branded open-loop card program in which the gift cards are designed to have the logo and brand name of the business. Although the cards can only be redeemed at any business center that belongs to the same network, they will most likely be used at your store because they are branded. It shares the same benefits and limitations as the last one, just that;

Pros:

You don’t have to go through the stress of branding the cards; your gift card provider got you covered. They will do the designs for you and as well do the shipping.

Cons:

You may not get many card sales because people will assume it can only be redeemed at your stores or restaurants because of the designs on it.

Open-Loop Branded Prepaid Card

This is the program choice for small businesses interested in gifting give cards as part of their loyalty programs but don’t want to sell gift cards. Such business only needs to partner with a gift card vendor that will allow them to prepay for their customers in advance. You can use Visa gift cards. You can get branded gift cards for your business by ordering more than 50 quantities.

Pros:

This serves as a good reward for loyalty. You can give it out to returning customers who have stayed with your business for a long time and can spend it at any store of their choice.

Cons:

The only problem is that the customer can redeem this gift card at a store that doesn’t belong to your business. It’s an open-looped program. However, they will never forget that the gift is from you.

Ways to improve your gift card programs

You’re learning about gift cards because you want to gain more sales and make more money. However, you can’t get a lot just by printing these cards and putting them on your counter. It would help if you made some moves to achieve the best through your gift card programs. The following are five ways to boost sales through your gift card program.

1. Let your customers know about it.

You will actually get some sales by displaying it on the counter. Some customers who enjoyed your services may pick some up for their friends and loved ones. But then, that’s not enough. You need to deploy every channel at your disposal. Advertise these cards on your website, put signage on the door that says gift cards are available, mention it in your newsletters, and don’t forget to add it to your social media post. It has been found that companies whose gift cards get the most advertisement always get a lot of sales and orders.

2. Make it presentable and Gift-worthy

These cards are meant to be a gift, and great gifts are wrapped and packaged. It’s pretty nice if you can give a wallet out as extra packaging for your gift cards. Adding these glasses and wares will make them look more presentable, and recipients will always have it in mind to redeem them at your store.

3. Sell egift cards

You can’t get many gift card sales if you’re not selling them electronically. Nowadays, people prefer online shopping. Likewise, they want to send gifts electronically. Therefore, it’s crucial that you sell egift cards and also allow the ordering of plastic cards via your ecommerce store or website.

4. Include gift cards in your loyalty programs

Give out gift cards instead of cash. Cash won’t attract new customers, but gift cards are usually passed to recipients that are yet to know your brand. This is how your community will keep growing. However, ensure you’re using a closed-loop program to earn money back.

5. Reward your employees with gift cards

Gift cards are the only reward that will turn your employees into customers. Instead of free meals, merch, or cut checks, use gift cards. It allows them also to be your customers and try out your products. Great feedback may come out of this. These reviews will encourage some changes and improvement. Also, the money is coming back to your purse. And if the idea of closed-loop gift cards doesn’t go well with you, give them the branded prepaid gift cards.

Laws guiding gift card programs

Before I proceed, I want to let you know that I’m not a legal expert in the field. Contact your lawyer or gift card vendor for your questions and doubts. They will be in the correct position to answer your questions and provide you with more accurate information on this subject. However, these are a few laws you must have in mind as you consider a gift card program for your business.

According to the Credit Card Accountability Responsibility and Disclosure Act (a.k.a CARD Act) formulated in 2009, concerning gift cards, it says;

  • There is no charging of dormancy fees or any inactivity fees for the first 12 years. Also, there can’t be more than one fee charged in a month, with the reason for the charge disclosed to the customers before they purchase the card. Put the reason at the back of the card to be on the safe side.
  • Gift cards cannot expire within five years. Also, if there’s an expiring date, it must be written on the card.
  • Brands can collect activation fees. However, they must inform their customer before the card is purchased.

It’s important to note that the CARD Act mainly applies to gift cards issued by retailers and restaurants. Gift cards linked to reward programs or promotional offers might not be covered under these specific regulations.

Summary

A gift card program is another way of marketing your business to the world. It creates a channel through which you earn, advertise, and reward your customers. It’s the only marketing strategy that enables businesses to keep customers and meet new people.

If you intend to start this program, make sure you study the types of gift cards carefully. Pick the one that best suits your business and will help you achieve your goals. Weigh their pros and cons before you finally settle for one. And make sure you clarify your doubts with the vendor before you commence the program. You know, once it begins, there is no going back.

I wish you nothing but success as you begin this journey. And please, feel free to share your experience in the comment section as you run this program. Let’s know if we can help you. Don’t forget to share this content with your friend and loved ones on social networks.