Mercator Perspectives

A Prescription for Merchants To Avoid Escheatment (Tough Luck NJ! )

New Jersey estimates it will collect $79.58 million in the fiscal year ending June 30th (based on its new escheatment law), but not if merchants wise up. After all, this isn't New Jersey's money, it belongs to the consumer. Merchants indicate that they are concerned about the cost associated with collecting Zip Code information, but Mercator Advisory Group suggests that they should instead implement an all out effort to collect as much detailed information about the cardholder as possible – here’s why.

Mercator Advisory Group has been advising merchants to focus on sales, not breakage, for two years now and New Jersey simply makes this recommendation more relevant. Gift cards are most valuable to a merchant when redeemed for high margin products. Typical uplift can be between 40% to 50% and more – although this does vary depending on the average ticket, gift card value, and type of merchandise. Still, uplift is significant even without merchandising. However that lift can be made even more valuable by steering your cardholders to high margin items – which happen to be the same items they desire since lift is generated by the cardholder’s desire to splurge with the “found money.”

So, a poorly operated gift card program has high breakage and is likely facing the issue of escheatment with trepidation. A properly managed gift card program will look at escheatment as a lost opportunity. In fact, management should measure gift card programs not just for gift card sales volume, but also for the percent of gift card units redeemed in full, the lift generated by gift card purchases, and the success of drive cardholders to purchase targeted merchandise or store categories.

So don’t just get a Zip Code, get the email address or better yet the full snail mail address. Send reminders to cardholders that they have a balance. Invite cardholders to participate in special events. Send special offers to cardholders that provide unique opportunities to spend the balance that they have. Offer the cardholder a discount coupon for twice the value of the gift card for a high ticket item. Just make sure that the cardholder receives the full value of the gift card so that when the states ask for escheatment all they get is a great big goose egg because the gold has already been used as tender.

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