Tricks With Gift Certificates…
There are two kinds of businesses in the world… those that rely on the holiday season to make or break their year, and those that don’t.
If your business’s success for the last 12 months depends on how you do in the next 30 days, it might be a good idea to milk all the revenue you can out of the holiday season. If this time of year is normally a down or flat time for you, what are you going to do… take a vacation? Or would it be better to get more out of this time of year than you may have thought possible?
Whatever your situation, if you want to get more out of the season than you have in the past, or even if you just want to hold steady, given the current state of the economy and the projected spending – or lack thereof – predicted for these holidays, you can’t simply do the same old things and expect to get any better results. In fact, doing the same old thing in today’s economic climate is the surest way to guarantee lower holiday-time sales for 2009.
The good news is, there are a couple of old tricks that you’re probably not taking full advantage of; tricks that, with a slight new spin, could help you generate massive amounts of new sales.
WARNING: The following ideas are, at first, going to be seen as techniques for retailers. And I confess they may be most easily adopted in a retail setting. But they do not belong exclusively to the retail world. These techniques can be adapted for use by manufacturers, wholesalers, service companies and professionals. A little imagination, if you please.
Discounted or Value-added Gift Certificates
If you’re a retailer, odds are you have some kind of gift certificate program in place. Odds are just as good that you are not aggressively marketing your gift certificates. This is a mistake, especially at the most gift-driven sales period of the year.
Gift certificates are usually sold at full price. In other words, if you want to give a $20 gift certificate to Kohl’s, Kohl’s will charge you $20 for that certificate. You probably do the same thing when selling your gift certificates.
Here’s the problem with that. I have no incentive to opt for the gift certificate priced at full price. Especially at a time of year when merchandise itself is often on sale.
Why pay for a $20 gift certificate when I can buy a $20 blouse for $10 or $15? Or if I’m set on spending $20 for my recipient, I can buy up to $40 worth of merchandise for the same $20?
The motivation for buying gift certificates is to satisfy a gift-giving need, where the recipient is hard to buy for, or the giver simply hasn’t time to shop. But this motivation is most often offset by the better value available by actually buying merchandise.
So why not discount or add value to your gift certificates and make them more appealing?
In the gift certificate world, there is a concept called “breakage.” It simply means that some percentage of all gift certificates sold will NEVER be redeemed. In some businesses, the breakage rates could be as low as five or 10 percent. In others, breakage exceeds 90 or 95 percent. Most businesses fall somewhere in between, of course.
But the higher the breakage rate, the greater discount you can afford to offer on your gift certificates and still come out ahead.
Let’s say the breakage rate for your industry is 30%. That means that only 70% of all gift certificates you sell will ever be redeemed. If you sell all your gift certificates at full price, this is a nice, 30% windfall for you. But you’re not likely to sell many gift certificates this way.
On the other hand, if you discount your gift certificates by 25%, you’ll still come out five percent better than the full value of the certificates and you’re likely to experience the following positive consequences…
- More existing customers will come to your enterprise to buy the certificates and will likely buy other things for themselves and others while they are there.
- Since more of your gift certificates will be given out as gifts, you are likely to acquire more new customers as a result of your gift certificate program.
- Most people using gift certificates bring others with them, further enhancing your sales.
- Most people using gift certificates wind up spending more than the value of the certificate itself, increasing your average transaction.
The same dynamics can play out if you add value to your gift certificate offers, instead of discounting. This with the advantage of reducing the out-of-pocket impact on your offer, while increasing the offer’s appeal.
Instead of offering a 25% discount on the certificate (selling a $100 certificate for $75, for example), how about adding a bonus item worth an additional 30%, when the recipient redeems the certificate. You sell that $100 certificate for the full $100. If it is never redeemed, you reap the 30% windfall I illustrated earlier. If it is redeemed, you are going to be on the hook for the $30 bonus item, but your wholesale cost of that item is likely to be only $15.
Want to make the offer even more compelling? Make the value-added offer an additional 50%. Far more people will take advantage of the offer, but it still only costs you the 25% you would have given away in a discount, and you’re still ahead five percent overall, when breakage is considered.
One More Gift Certificate Trick…
Try to eliminate breakage. When you sell a gift certificate, offer the buyer a reminder to the recipient to use the certificate. Ask the buyer to give you the name and contact information of the recipient and promise to contact the recipient if they do not redeem the certificate within 30, 60 or 90 days (your choice). Your gift certificate buyer will see this as a valuable added service and will increase in her loyalty to your enterprise. You, meanwhile, get to pro-actively market to the recipient, adding new customers to your database, or adding repeat purchases from existing customers who may be recipients. Both of which are more valuable to you than the incremental benefits of breakage.
Two final notes:
You can place whatever restrictions or conditions you wish on your gift certificate program. That includes making discounted or value-added gift certificates available only as gifts, so that existing customers cannot use them. This can only be done without raising the ire of your existing customers, however, if you are already taking exceptional care of them, making them privy to special purchases, private sales, extraordinary treatment, unanticipated discounts, bonuses and other perks.
If you’re not a retailer, figure out a way to use this technique anyway.
THE END
EDITOR’S NOTE: Jim Ackerman is a Salt Lake City-based Marketing Coach, Writer and Speaker. His new book, How To Market Your Crap When the Economy is in the Toilet, contains 12 vital strategies for unclogging the American economy, one business at a time. For details go to www.marketyourcrap.com.
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