The following is part four of a four part series examining the different types of behavior patterns associated with purchasing gift cards, one of the more popular gift giving choices in this country. Read the first part herethe second part here, and the third part here

Implications for Marketers, Retailers and Card Networks

On the surface, it would appear there is little or nothing those of us in the gift card industry can do to convince more gift givers to select a gift card over another gift. Or, for that matter, little Visa or MasterCard can do to convince gift givers to deliver the much preferred open loop cards vs. merchant closed loop ones. Yet, there are things that can be addressed not only to increase gift card sales, but also to inject efficiencies into the system.

Some critics and consumer advocates often criticize the gift card industry for its “inefficiency.” Consumer Reports estimates that some 7 percent of gift cards never get used at all, or $8 billion that supposedly ends up inside retailers’ or issuers’ pockets. While this number is high, the National Retail Federation reports overall merchandise returns at 8.6 percent, or $267 billion in lost sales – larger than the GDP of Finland. And this does not even account for the unknown billions in unwanted and unreturned merchandise. How many Father’s Day ties have gone unused and unreturned? How many books have gone unread and unreturned? How many fruitcakes ended up in the garbage unopened? I was unable to find reliable data, but my hunch is that it amounts to more than $8 billion, which would translate into 3 out of every 1,000 transactions.

In any event, every marketer’s and retailer’s desire is to maximize customer satisfaction. An unspent gift card does not maximize customer satisfaction. It may deliver a little more to the short-term bottom line, but it does little to promote loyalty, repeat purchases, or word of mouth, all of which amount to a lot more than the 7 percent in unspent money. Visa wants to sell more “wanted” open loop gift cards just as Walmart wants to sell more “wanted” Walmart gift cards. Both want satisfied consumers that will come back and buy more of their gift cards because both givers and recipients are satisfied with the experience. A Bain & Company study shows that repeat customers spend from 23 percent to 67 percent more on repeat purchases than in their original purchase, depending on the retail category. And this doesn’t even account for referrals, which can climb up to 7.1 per loyal customer, according to the same study. Without a doubt, these numbers will add up to much more than a 7 percent “gain” on unspent gift cards.

So what can Visa, MasterCard, Walmart or Home Depot do to ensure their gift cards are maximizing customer satisfaction, loyalty, repeat purchases, and referrals? Address consumers’ psychological drivers.

Back to Psychology

When I described the psychological types above, I pointed out these are profiles most of us fit into, and do not illustrate an actual disorder. Psychologists and psychiatrists deal with patients and their profiles in order to help them reach a balance. None of these profiles are necessarily good or bad, except at their extremes. When in excess, it is the psychologist’s job to lean their patients over into opposing territories, to keep their patients balanced. An extreme obsessive will need to move into histrionic territory and vice-versa. And the same applies to other profiles.

Marketers and retailers are faced with similar challenges. To be sure, they are not treating patients at an intimate level, but dealing with consumers at mass scale. What they can do, however, is communicate to the gift card giver the recipient’s inner needs and try to lead the givers into getting the right gift card for their recipients. This will maximize customer satisfaction at both ends (gift card giver and recipient), plus the overall lifetime value of a customer, and referrals from both giver and recipient.

So what’s a gift card marketer to do?

Positioning. Positioning the brand, the product, the service and the unique selling proposition. But most importantly, a proper positioning, one that delivers on the promise. 

As an example, Walmart has what appears to be a valid positioning statement: “Save money. Live better.” There is no question that at Walmart, consumers can save money. It is also conceivable to think that saving money can help you live better, providing financial security. That said, “living better” means one thing to obsessives and something completely different to narcissists. Walmart will appeal mostly to obsessive types, but it should position its gift cards not to the givers’ needs, but to their recipients’ needs. As an example: “Know others looking to save? Send them a Walmart gift card. Let them save and live better.” This is not meant to be an actual advertising message – I’ll leave that to the copywriters – but merely the idea of what they should communicate. If Walmart sells a gift card that won’t satisfy the giver or the recipient, it will accomplish nothing but consumer dissatisfaction at both ends.

Visa, as another example, may want to communicate something like, “For those who want choice in life, give a Visa gift card.” Again, not the actual message, but the idea of what should be communicated, appealing to the recipient’s need.

Thus, a narcissist can be encouraged to give the right gift to an obsessive, and a paranoid can be persuaded into giving the right gift to a psychopath, thus maximizing customer satisfaction at both ends. There is a difference between a gift card giver getting a “thank you” e-mail saying, “Thanks for the Walmart gift card for little Alex” and one saying “Thank you sooo much, I’m off to Walmart tomorrow morning to pile up on diapers for baby Alex!” Or one saying “Thank you for the Visa gift card” as opposed to “Thanks for the Visa gift card! Now I can get the new iPhone 6. You’re sooo the first person I’m calling!”

To be sure, consumers don’t know the clinical definition of their friends and loved ones. But they are mostly smart enough to know if they are spenders, savers, sybarites or frugal types. The key is to market not to their target’s needs, but to guide their target customers into selecting the product based on their friends’ psychological traits.

Conclusions

In merely 20 years, the gift card industry has matured into a $118 billion business, more than the cosmetics and pet industries put together. It is today about as mainstream as it can get, with gift cards omnipresent at all sorts of retail establishments, large and small, offline and online. New technological payment platforms, like Google Wallet and Apple Pay, are opening the field for next generation gift card products. It has reached mass scale and has promising growth prospects. But like virtually all businesses, it has inefficiencies.

Uncovering consumer-driven insights and better understanding and addressing industry inefficiencies is likely to raise customer satisfaction and drive further growth into the business, especially as it evolves into next generation formats and platforms, whether plastic and/or digital.


Carlos Tribino is the CMO of GiftCards.com  the leading portal for gift cards online. During his current tenure, GiftCards.com has doubled in traffic and sales over the past two years through a comprehensive digital strategy plan including SEO, PPC, display, social, e-Mail, blogging and PR activities. Previous to GiftCards.com, Carlos served as V.P. Marketing & Recreation for Viacom, where he ran marketing and large scale events for the media giant’s top global brands in the south of Europe: MTV, Nickelodeon, and Comedy Central. He was an integral part of the team that launched the 24- hour movie channel Paramount Channel and of the 2010 MTV European Music Awards.

About Shelly Palmer

Named one of LinkedIn’s Top Voices in Technology, Shelly Palmer is CEO of The Palmer Group, a strategy, design and engineering firm focused at the nexus of technology, media and marketing. He is Fox 5 New York's on-air tech and digital media expert, writes a weekly column for AdAge, and is a regular commentator on CNBC and CNN. Follow @shellypalmer or visit shellypalmer.com or subscribe to our daily email http://ow.ly/WsHcb

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"The Psychology Behind Gift Card Giving, Part Four" by @ShellyPalmer

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