Are Gift Cards Worth the Hassle?

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Ah, gift cards. Besides cash, gift cards are one of the best gifts out there for almost any occasion, ranging from birthdays and holidays to graduations and wedding gifts. Invented by Blockbuster in 1994, gift cards allow us to give recipients the gift of freedom to choose what they want in-store or online (within the gift card amount), at places they enjoy. It’s become common practice for large corporations like Walmart and Target to offer and accept both online and in-store gift cards, but small businesses may just be getting into the gift card game. While there are certainly benefits to offering gift cards to customers, there are also plenty of cons. This may lead small business owners to wonder if they’re even worth it. Let’s take a look.

Different Kinds of Gift Cards

Different Kinds of Gift Cards

Before we dive into the pros and cons of offering gift cards for your small business, let’s take a look at the different kinds you may want to provide. That’s right, in the modern world, we can offer more than just the traditional plastic card that we’ve become accustomed to, although they are still quite popular. Also, to be clear, in this article we’re talking about retail-specific gift cards, not what is known as “open-loop” cards that have become popular in recent years and are used like debit cards at many different retailers. “Closed-loop” cards can only be spent at one retailer (think a Target or Chipotle gift card.) Retailers and small businesses may offer:

  • Electronic Gift Cards – An electronic gift card, sometimes referred to as an ecard or egift, is a digital form of a physical gift card. These are usually sent by email, text, app, or some other form of digital communication. Depending on the retailer, customers can shop either online or in-store when they present the gift card at the register or at check-out (sometimes ecards can only be redeemed online, make sure to check).

  • Magnetic Stripe – When we think of gift cards, it’s likely magnetic stripe gift cards come to mind. These are the physical plastic gift cards that are swiped at the register to be used. What isn’t seen is the code that is embedded into that magnetic stripe that is read by the POS system to tell the customer card balance. Gift card producer, Plastek Cards explains, “When magnetic stripes are encoded, a unique serial number is stored on the strip. This serial number is recognized by the POS system or access control lock device, providing access to funds stored on the POS system.”

  • Barcode – Physical gift cards with barcodes are also used by retailers. In this form, barcodes are used to identify a customer’s account and balance in the POS system. In fact, in this case, the POS system has all of the information about the card, the card itself just carries the barcode. While this form is mostly popular for membership or loyalty cards, it is also used in some egifts and as a physical gift card.

The Benefits of Gift Cards

The Benefits of Gift Cards

Now that we’ve covered the kinds of gift card options that are available, let’s take a look at why both big corporations and small businesses use them.

  • Brand Awareness – Gift cards are a great way to get your name and logo out there. By adding your branding material to your gift cards, you’re already getting your business into the public.

  • Customer Loyalty – Try a gift card program! Plenty of retailers are starting to offer these kinds of programs to incentivize more spending in-store and online and to start building relationships with their customers. By offering reloadable egift cards (that can also be linked to membership/loyalty accounts) customers are more likely to interact with your businesses’ website to not only load and reload the card, but to check balance, rewards, and offers.

  • Increase Sales – How many times have you been given a gift card and considered using it simply to cover a chunk of your total purchase amount? You’re not alone! According to First Data’s 18th Annual Prepaid Consumer Insights Study, US consumers paying with gift cards spend an average of $59 more than the value of their gift card. That means extra cash for your business beyond the original value of the card.

  • It’s Simple! – Setting up both physical and electronic gift cards is a fairly simple process. You can order them online or work through your payment processing company to get them set up.

The Hassle of Gift Cards

So far, gift cards sound great for both retailers and customers, but there are always cons to the pros. When looking at gift cards for your business you may also want to consider the following:

  • Small Balances – Some customers spend most of the amount on their gift card, but are left with a small, almost unusable balance. These kinds of cards with little remaining balances often get lost or thrown away, so the customer may not come back to make purchases.

  • You May Need an Upgrade – You may need to upgrade your POS system software to be able to handle gift card transactions, and this may carry extra fees and costs.

  • Additional Fees – In addition, depending on how you plan on processing gift cards (through a bank or payment processing company) there may be monthly fees attached.

Are They Worth It?

So, is setting up your business to accept gift cards worth the hassle? It depends. On one hand, customers enjoy (and to be honest, expect) gift cards from retailers and they offer plenty of benefits. They can boost brand awareness and customer loyalty while also helping to increase sales. But on the other hand, you need to make sure that your business is ready to handle gift cards. Could your company afford to pay an extra monthly fee for a gift card program? Is your POS system and software able to accept gift card payments? Is your web presence strong enough to offer an online gift card program? These are all questions you should take into consideration before ordering those handy plastic cards and offering them to your customers.

True Merchant Gift Card Processing Solutions for Small Businesses

At True Merchant, we are here to help businesses of all sizes with all of their payment processing and security needs. Our programs are fully integrated with Clover for easy implementation of card and other customizable programs. Lean on our decades of experience working with small businesses to identify and meet their unique merchant account needs. True Merchant is proud to offer a full suite of products and services including CardSecure, ERP, credit card processing, and much more!

To learn more, give us a call or email today so we can discuss how exactly True Merchant can help your business!