Gift Cards: More Than Another Way To Pay With Plastic

Years ago, analysts were predicting that paper currency would be completely replaced by new forms of payment such as electronic, plastic and wireless. And while cash has not completely disappeared just yet, the burgeoning gift card market is definitely giving it a run for its money.

According to an August 2001 study by ValueLink, a division of First Data Corp., 76 percent of 1,024 U.S. consumers surveyed between the ages of 24 and 27 indicated that they were aware of gift cards as a retail product. What's more, 44 percent said that they were "very" or "somewhat likely" to buy as many as four gift cards over the next 12 months.

This new form of payment is commonly viewed as an alternative to paper gift certificates. But astute merchants and service providers are beginning to find ways to increase the value of gift cards through new marketing technologies, promotional campaigns and the bundling of gift cards with other products.

RadioShack Canada launched an electronic gift card program with my firm, Ernex Marketing Technologies of Vancouver, Canada, in December of 2000. As far as we know, this is the largest electronic gift card program in Canada today — giving consumers the ability to purchase and redeem their RadioShack gift cards at over 700 locations throughout the country.

Consumers can purchase gift cards in denominations of $25, $50 and $100 online at or at RadioShack stores. When a card is purchased, the clerk swipes it through RadioShack's point-of-sale device, which prompts for a CVC (card validation code) to be entered. A three-digit code is randomly assigned to each gift card's serial number — virtually eliminating the possibility of card forgery. Once the CVC is entered, RadioShack's point-of-sale device dials into Ernex's real-time host, which then approves the activation of the gift card for use.

Upon activation, consumers can then present the gift card to others or begin using the card for purchases. The Ernex host receives and approves each transaction by informing the consumer of his current balance immediately on his receipt.

With Ernex's real-time functionality, RadioShack has the ability to launch promotional campaigns at the point-of-sale in a matter of a few days, at a fraction of the cost of traditional methods. A host configuration at Ernex allows RadioShack to implement special messages to target gift card users by printing them directly on their receipts in real-time.

Another benefit of gift cards over traditional paper gift certificate programs is automated accounting and reconciliation. What would usually require a full-time administrative person to manage is now replaced by Ernex's automated reporting system, which provides RadioShack with reconciliation reports for each store.

RadioShack was quick to realize the novelty that gift cards brought to their product mix. By leveraging the premise of a "Christmas bonus," RadioShack launched a successful cell phone and gift card bundled promotion. The offer to consumers was "buy a Nokia cell phone, and receive a $50 RadioShack gift card." This was communicated through print advertising and in-store TV commercials and signage.

With increasing numbers of merchants switching to electronic gift cards, many will start to learn from leaders like RadioShack — who have managed to utilize state-of-the-art technologies with relatively simple integrated marketing tactics — to make the business case for gift cards worthwhile.