As National Use Your Gift Card Day approaches, many retailers are developing strategies to encourage consumers to spend the unredeemed gift cards they received over the holidays.
The spending power significant: U.S. consumers are estimated to be holding roughly $23 billion in unused prepaid cards. This latest demand, combined with traditionally slower January sales, led to the creation of National Use Your Gift Card Day seven years ago.
“Gift cards fill a need that no other gift can give, and that means that a lot of U.S. consumers are sitting on gift cards they got in the past month from the holidays,” said Jordan Hirschfield, Director of Prepaid Javelin Strategy & Research. “Most of those are probably retailer-specific, but you have some open-loop gift cards too, and both need redemption.”
“It’s always the most popular gift both as a recipient and to give, but givers generally prefer those retail, single-vendor gift cards because it seems a little more personal, even though recipients marginally prefer the Visa, Mastercard, or American Express open-loop cards,” he said.
Preparing for Repeat Customers
Encouraging consumers to use their gift cards can deliver dramatic benefits for merchants. According to Javelin, over two-thirds of consumers received a gift card this holiday season, and roughly a quarter of those cards carry higher balances than the previous year.
“That means retailers that are preparing to accept those gift cards should be ready,” Hirschfield said. “The date of January 17 makes sense because the majority of recipients of gift cards will use them within a month. Not only will they spend it within a month, they will spend more than the value of that card. For retailers, if it’s a $50 gift card and they’re spending $75, you’re getting uplift of spend that maybe they weren’t intending to buy, and they’re buying more profitable items.”
Beyond the immediate revenue opportunity, gift card redemption gives merchants a chance to build long-term customer relationships.
“Roughly half will become a repeat customer of that brand when they get a gift card and they use it,” Hirschfield said. “Four out of 10 will join the loyalty program; another four out of 10 will download that app. Especially when you think about popular gifts that people getting as gift cards—quick-serve and fast food, coffee shops, mass retailers like your Walmarts and Amazons—all those have easy to utilize and frequently utilized apps.”
“You can incentivize people by offering a bonus or different things like that,” he said. “But they’re going to download that app, and about 20% are going to refer that retailer to another friend or family.”
The Redemption Pattern
All these benefits stem from the simple act of receiving a holiday gift card. Although many retailers focus heavily on driving gift card purchases, redemption is often even more critical, because it represents a self-use choice.
For merchants, National Use Your Gift Card Day can provide a valuable lift during an otherwise slow first quarter. However, effective prepaid strategies should stretch far further than a single day.
“We have Father’s Day, Mother’s Day, and graduation—all the May and June holidays,” Hirschfield said. “Birthdays are the number one reason people get gift cards, and birthdays happen 365 days a year—366 some years. You’ve got thank you gifts, house warmings, religious occasions, births, weddings, and all these things.”
“Valentine’s Day is coming up and people don’t think that it’s a great gift card occasion, but I might send my kids $10 to show them I care about them while they’re off at college,” he said. “These are all micro-events that will not top the fourth-quarter explosion of sales, but all are additive. How the redemption pattern went in January is critical to how the redemption pattern will go all year round.”