The gift card revolution

Gift cards are the gift certificates of the 21st century. This gift market is just starting to take off in the restaurant and retail industry.

Mike Hallahan, president of PSI Plastics, says that in the past few years he’s noticed the large retailers move to this technology not only to increase business revenue but also as a way to attract new customers through cross-marketing.

New customers are reached through existing customers purchasing gift cards for special occasions, such as birthdays and Christmas. These are potentially customers that may have never walked through your door.

Gift card programs do involve a little initial investment to get started, but once it’s done you make a profit as soon as a card is sold. Eighteen percent of gift cards go unredeemed, Mike says. “We refer to this as the breakage or money in your pocket.”

To avoid the cost of transaction fees, Scott Hack, owner of Fast Break Pizza in Crestwood, Kentucky, has been looking for a way to integrate gift card transactions with his POS system. He says he hasn’t been able to find a reliable software solution as of yet. He’s been looking into having someone develop a custom software program or he says he might go with an outsourced solution. Whatever option he chooses, he’s got some great ideas for marketing the card. “I’ve got some promotional ideas that I want to try to use them for—specifically to allow real estate agents to purchase them as well as for parents to buy them for kids during the summer,” he says.

I asked Scott to explain his plans for marketing gift cards a little further. He suggested selling the cards to realtors as a “house warming” gift to “make the new home owner’s life less hectic.” He says he plans to sell them to agents at face value and as part of the deal the homeowner will receive the pizza, paper plates, napkins and utensils. Scott plans to implement a summer program using gift cards. For this he says, “I have an above average number of dual-income families in my delivery area that leave the kids home during the day alone. Someone has got to cook. Why not me? Who wants the kids playing with the stove? That’s how I plan to market it as well.”

When Scott told me that he’d talked to several people about his options of beginning a gift card program, I started doing a little research with some other pizzerias and companies. What I found out is that there are a multitude of options available.

Think-Tanker Perry Anastasakis, owner of Famous Pizza in Fairfield County, Connecticut, has found a way to integrate the cards into his business by using his POS system. He says that he bought a gift card module with his system that allows him to process the transactions and had a graphics company print cards for him. “The gift card module is excellent,” he says. “Everything is the same except instead of pressing the cash or credit card button, you press redeem gift card and swipe. It also gives the customer their balance on the receipt. The best part is the cards are replenishable. If the customer does not choose to add more to their card, we keep the old card to reuse.”

As for marketing his cards, Perry says that he’s only been using them for about three months, and he’s just begun to use the cards in his marketing plan. One of the things he’s done with them is send out a mailer to all new movers in town that includes a letter of introduction and a gift card for a free pizza. He recently sold 100 of the $20 cards as a fundraiser to a Relay for Life Cancer walkathon that they sold at their spaghetti dinner. He provides the marinara sauce each year for this event.

Another way Perry uses his cards for is selling them to contractors who “like to give them as thank you’s to their supply houses and customers.” He wants to set up a chip rack in front of his counter to display the gift cards very similarly to the prepaid calling cards you see in convenience stores. He plans to market these to his regulars as “the perfect gift for that pizza lover.”

There are tons of companies out there that will process gift cards for you as well as track their usage and report the information to you. Brian Lambert, loyalty program and gift card manager for Rock Bottom restaurants, shared some insight on how to get the most out of outsourcing your gift card tracking. Rock Bottom, which is the parent company for restaurants such as Old Chicago and Rock Bottom started using gift cards in 1997. Brian says that they decided to let a company with the proper security measures maintain their database while they conducted the actual transaction.

“We have a separate terminal for the running of gift cards,” Brian says. “We run all the transactions through this terminal and the database company captures the transaction and reports back to us whether the card is valid and how much is remaining on the card. We do pay a per-transaction fee to the database company, much like that of a credit card, but it is worth it to have the added security. When you’re working with real money, you need to make sure you have the proper security measures in place.”

“The pros of using this company to maintain the database outweigh the cons,” Brian says. “They can freeze a card if it hasn’t been activated. If someone were to lose a card, the old card can be frozen and a new one can be issued. It’s nice to have someone focused on this.”

The card that Rock Bottom Restaurants uses can be used in all five of their concepts. The card contains all of the restaurants’ logos and they are rechargeable. In this day and age, customers are expecting to see a gift card, Brian says. “The card is a great way to brand yourself. It’s like carrying a billboard in your pocket creating awareness and reaching customers you may never have had.”

Rock Bottom uses the cards in a variety of ways in their marketing plan. They place table toppers advertising them around holidays and events such as Father’s Day and graduation. The holiday season is the biggest time of year for the card sales. “We activate in the neighborhood of 2,500 cards a month most of the year, but the real jump is in October through December,” says Brian. In October, the number activated jumps to about 3,750 and peaks in December at 22,740. These numbers are reflective of the past two years.

Servers are asked to talk about the cards during the promotions and especially during the holiday season. Brian says they offer incentives such as airline tickets to people who sell the most cards. The cards make an easy gift. During the holiday season they do direct mail based on the cards. The cards bring in over a million dollars a year for Rock Bottom.

By using the database company, Rock Bottom is able to sell gift cards online. “If you’re going to do online ordering, you have to confirm the identity of the customer,” Brian told me. “People can take advantage of you. We didn’t have that ability until we went with this company. All online credit card processors may not have the security people need, and it’s worth investigating. We confirm all of our big orders by calling the individuals.” They also use secure mailing when sending out cards.

Rock Bottom uses the gift cards in cross-promotions in a number of ways. They sell them to real estate agents to give to clients. The local auto glass company buys the cards and gives them away to customers that buy a new windshield. A local resort gives the cards out as a recommendation for a great place to eat. They also have gift cards sold on GiftCertificates.com.

Tracy Plugge, owner of Graziella’s in Pocasset, Massachusetts, has found a way to use gift cards in her resort town restaurant. She offers 50 percent off or buy one, get one free coupons on Restaurant.com. They sell these certificates to people searching for restaurants in her area for a discounted price. She is just required to honor the discounts, and they provide her with a free gift card service, which includes her own terminal. The terminal doesn’t connect to a phone line so the transactions are processed right there in her store.

Tracy has added a button to her cash register for credit and gift card sales. She notes the sale of a gift card as a credit in her records until the amount is redeemed for food. “I got to pick the colors for the gift cards and my logo’s on it,” Tracy says. “The cards are so much more appealing than paper certificates to my customers.”

Since Tracy is in a tourist town, most of her business comes in during the summer. She says that she has a group of kids whose parents buy them a gift card to use during their vacation or for food during the summer. The parents like this because the kids are not running tabs or carrying around cash. They can put $10 on the card and eat pizza or Italian ice for a week, and then recharge the card for the next week.

Whenever Tracy is approached for a donation to a social or charitable cause she gives a $50 gift card. “It gives me advertising and it’s a great way to help people out.” Since she moved from the tab system she used before to gift cards, Tracy has seen a 30 to 40 percent gift purchase increase since she started her gift card program nine months ago. “I expect it to increase about 25 percent since my season is just getting started.

How to Get Gift Cards and Processing

You have several options when it comes to getting gift cards and processing them. The first option is to purchase your cards from a design company. This is the option you want if you are able to add a module or program to your POS system to process the cards.

You may be able to save some money by getting your cards printed by a design company and having another company take care of the processing and database reporting like Rock Bottom does. Another option is participate in a program like Tracy does, where the company provides you with free cards and processing equipment for participating in their program.

A final option is to get one company to print and process your gift cards using your credit card terminal. I spoke with Becky Sirovy, an electronic banking consultant with e-CAP, about how to choose the right processing program. She says there are several types of programs out there, but the best seems to be a custom program. The way this works is you pay a one-time sign-up fee and a graphic set-up fee. They will get you outfitted with customized gift cards.

The processing company then comes in to check out your credit card processing equipment. They find out three things from it: whether it will process gift cards, whether it is compatible with their software and whether your current credit card processor will allow you to process gift cards with another company. If the terminal is compatible and your current servicer allows it, they will download the program needed to process the gift cards. This type of service is typically associated with a per-transaction charge. The gift cards are usually sold per card when using customized cards. This type of service usually includes free web reporting for you and your customers and the cards are rechargeable.

Whatever route you decide to go, whether it be with an third-party database company, a certificate selling service or integration with your POS system, make sure you do your homework on keeping transactions secure. Identity theft is a huge problem in this day and age and you’ll want to ensure the proper safety for you and your customer’s money.