Out of the Box

The Gift Market: A Gift for Business

By Menachem Lubinsky on December 01 2008

A large New York department store sells cosmetics and women’s accessories twice, once the conventional way in a display case and the other wrapped in a fancy box and topped with a ribbon. The store also heavily promotes its “friendship” cards which is another word for gift cards. It represents a significant portion of the store’s business year-round.

It is ironic that many successful businesses overlook the gift market, a lucrative sales vehicle. When asked why they do not have a gift program, many businesses simply say that their goods are not suited for gifts, but in truth almost every category of goods can in someway participate in what is a lucrative market. If the goods themselves are not ideally suited for gift packs, the retailer could promote a gift card, which many retailers use as a major profit center. A good gift card program requires good marketing, which means ads, direct mail, point-of-purchase materials, and well designed materials.
Retailers are becoming more and more creative with the gift card program. Best Buy, which has seen huge growth in gift cards over the last three years, has introduced a gift card that is also a speaker and compatible with iPods and MP3 players. Other gift card programs are highly personalized, which marketers say can mean significant profits.

The gift program has turned many businesses around, ranging from the local vegetable stands to the traditional candy and chocolate gift baskets. In addition to selling gift cards, a major book retailer wraps some of its leading selling books into a well designed package that includes the three books, a book marker and a coupon for the purchase of a future book.

A marketing publication recently noted that gift-card sales have grown steadily, from $108 per shopper in 2004 to $156 per shopper last year. The psychology behind the gift card is very much consistent with the idea behind the gift concept. Gift giving is an important social phenomenon. Most people find the task of locating the proper gift a major headache. They are concerned whether the gift fits the taste of the recipient and even if the recipient might possibly already have the gift.

By offering the customer the opportunity to buy a pre-packaged gift that immediately grabs them, the possibility of a sale increases. That is why the department store offers the gift package and why the book store wraps its bestsellers. It even works for the vegetable stand.

Gift cards are often used to inject life into a slow season. Historically they have encouraged shopping during the slow January and February time period. They also bring customers into the store that might otherwise not chosen to do so. In most cases, the customer does more than redeem the card. They actually spend more money in the store.

Gift cards have become big business for Best Buy, which has seen total dollars spent on the cards increase 60% over the last three years. Innovative gift-card designs are key to driving those purchases. Many department stores have different themed cards for

almost every occasion, this has helped them drive the gift card business even more.

Marketing experts say that traditionally gift card sales experience somewhat of a decline in a recession. Customers would rather shop for bargains that take their chances with the cards. Some even fear that the store might go out of business leaving them with the cards without any possible redemption. The ready gift packs, especially when discounted tend to do much better.
A successful gift program has to be properly managed and not be an after thought. The evidence is clear that the more effort that is put into such programs, the greater the chances of success. Many businesses designate a sales person to manage the gift program. Amongst the responsibilities of such a person is marketing and promotion on the floor of the store. It is interesting to note that about 20% of gift cards are never redeemed, which ends up as cash in the pocket of the business.

Some retailers use the gift card as a promotion, offering discounts to either the purchase or the card to encourage purchase of the gift card. One store’s gift card program includes “the redemption surprise,” which can be anything from a further 10% discount to a small gift.

Marketers say that the gift program is a very effective way of increasing sales. Many customers buy the gift cards and end up using them themselves. Even the ready gift packs are often used by the customers rather buying it as a gift. Candy and nuts retailers say that many customers simply like the “neat” look of the gift pack and enjoy serving it in their homes.
A common mistake by some businesses is to focus on their gift programs only around holiday time. They simply come in and out of the program failing to take advantage of the potential success of the program year-round. People have special occasions all year-round, marketers point out. If you are not sure whether the gift program is for you, give yourself a gift and do some serious soul-searching, and that’s my gift to you!

Out of the Box is a collection of strategic marketing articles that Lubicom has published on various topics, trends and ideas in the marketing world. The articles have been published in the Hamodia weekly newspaper circulated on three continents to a readership of well over 100,000.

The name, "Out of the Box" is a term used frequently in business nowadays to describe creative thinking that is not the norm. It is meant to help a business pull away from the pack or separate oneself from the competition. It is to some extent fraught with risk, simply because it is not the run of the mill thinking, but it is at the same time the key to reaching the next opportunity.