Retail Gifts: Paper Vs. Plastic

Our society's shift from paper to plastic is evident in the grocery bags we carry, in the purchasing preference of credit over cash, and even in the gifts we give. For more than 15 years, Dick's Sporting Goods (Pittsburgh) offered its customers paper gift certificates in $5, $10, $25, or $50 increments, but last year the retailer switched to plastic, electronic gift cards. This switch enabled Dick's to better market its gift program and develop a B2B (business-to-business) relationship with local companies, both of which resulted in increased gift card sales.

The Value Of Flexibility
Retailers consider gift certificates a service. They receive the money up front but never know when the gift will be redeemed. Then, weeks or months later, the merchandise is taken out of the store, seemingly without a physical payment attached to it. It is important for retailers to have some record of how many transactions of this nature take place. "The paper gift certificates were numbered, but we did not have an adequate database to track gift certificate activity," said Joseph Oliver, assistant controller at Dick's Sporting Goods.

To upgrade the system, the retailer chose to work with ValueLink (Coral Springs, FL), a service of First Data Corp. ValueLink supplies gift cards to Dick's, and also maintains a database of every gift card transaction. "The database is helpful in knowing what our gift card liability really is," Oliver said. "We now have Internet access to a list of what cards are outstanding, the balance on those cards, the date each was activated, and the store where it was purchased." If a customer buys a soccer ball for $25 using a $50 gift card, the system recognizes that the card still carries a balance of $25 until it is used again. This was not an option with the paper certificates and ensures that the gift money stays within the company. The electronic cards also offer customers the option to reload a particular card with more money, almost like a Dick's debit card. This is an option for parents to give their children a spending allowance at the store without having to give them cash. "The cards provide customers more flexibility because they can be purchased for any amount of money, and are more convenient to slide into wallets," Oliver said.

Expand Your Brand Awareness
Dick's found that electronic gift cards not only provided its customers with more flexibility, but also opened up new marketing opportunities to promote the gift card program and the Dick's brand name in general. Since a card is not activated until it is swiped through a magnetic stripe reader at the cash register, Dick's could advertise the gift cards throughout its stores. "Paper gift certificates could not be displayed for security reasons - they were just like cash," Oliver said. "This additional visibility in the store gives the card a 'no cost' marketing advantage over paper."

In the fall of 2000, Dick's also launched a B2B program with local companies and nonprofit organizations. This idea began on a smaller scale with the paper gift certificates, but the electronic gift cards offer delayed card activation, which provides more security to expand the service. "For example, a manufacturing company now presents Dick's gift cards as part of its employee safety awards program each quarter," Oliver said. The B2B relationship also extends to nonprofit organizations that buy the gift cards at a discounted price and sell them at face value, keeping the difference in price for the organization. In the future, Dick's will continue to see how it can turn plastic into cash.