Use of gift cards as incentives and rewards continues to boom, but many users remain oblivious to volume discounts.
Gift card use by businesses continues to experience tremendous growth. The Incentive Research Foundation (IRF) reports gift cards are the most prevalent award type across all incentive and recognition audiences — employees, sales, consumers and channel partners. Businesses spent a total of $26 billion on gift cards in 2016, nearly 20 percent of the gift card industry’s total sales of $136 billion.
Megg Withinton, managing partner at Intellective Group, a market research and strategic consulting firm, says the continued growth of gift cards as B2B marketing and recognition tools is the main driver of growth for the non-cash incentive industry.
“We’ve seen a huge expansion in the incidence of non-cash rewards — from 26 percent in the 1990s to 84 percent today. I attribute much of the increase in the incentives marketplace to the gift card segment. The accessibility and availability of closed-loop cards (cards that have a defined value) has opened the door for every company, regardless of size, to use gift cards as non-cash rewards,” Withinton says. “Gift cards are the foot in the door for most companies, especially the small ones. We didn’t have to convince people that non-cash was better than cash to capture attention and create energy in the audience. We just needed to make it easy for them to use non-cash rewards.”
Learning more about gift card use
To understand their prevalence deeper, the IRF researched how gift cards are sourced for incentive and recognition programs, how much money is budgeted toward them, what types are being purchased, and where opportunities lie for stakeholders. A survey was administered to 300 industry professionals who run incentive or recognition programs for their companies.
Results were broken down between medium enterprises (businesses with annual revenue between $100 million and $1 billion) and large enterprises (companies with more than $1 billion in revenue annually). In 2016, 69 percent of medium-sized businesses purchased gift cards for rewards and recognition, while 61 percent of large firms purchased them. This is up from 2014, when 56 percent of business with revenue over $100 million purchased gift cards for incentive programs.
Companies — both medium and large — purchase B2B gift cards for an average of 2.5 to three different audiences, with employees, followed by sales, being the most frequent audience types. Budget allocation is a different story, though. For large enterprises, customer and sales audiences have the largest budgets for gift cards. Channel budgets are the largest for medium-sized businesses, followed by the budget for gift cards for customers.
“It’s really interesting that spend on channel incentives is disproportionately high for mid-sized companies,” says Withinton. “When we look at the data, we see a segment of companies with really aggressive channel spend, and that’s pulling the average up a bit. We see some of these mid-sized companies spending millions of dollars on gift cards for channel incentives, trying to keep pace with the big firms. They’re competing for both mindshare and market share, and they’re investing in making sure their channels are working for them.”
Rewards versus discounting
Success with gift card offers in both consumer and B2B promotions is driving the growth in their use. A separate study from Aberdeen that took a close look into the current and year-over-year performance of companies using both gift cards and discounts in their promotion strategy shows that reward-based promotions achieve superior performance results compared to those using discount-based promotions.
“We’ve seen a lot of marketers move to prepaid cards and gift cards because it is more of a reward than just a price discount, which can start to erode your brand,” explains Theresa McEndree, vice president of marketing at Hawk Incentives, a leading gift card provider. She adds that the Aberdeen research shows marketers using reward-based promotions have better brand perception, better price protection and longer customer lifetime value.
Do those benefits hold true in B2B promotions? Does gift card use fit the more complex B2B sales cycle? “Obviously, if you’re purchasing a multimillion dollar software enterprise implementation, a gift card is probably not going to make sense. Where we see it is an organization selling. When you’re selling things like office supplies or cable service, we see gift cards being a mover and a motivator.”
“People are becoming more comfortable with gift cards,” adds Tom Boucher, vice president of Velocity, the B2B unit of CashStar, a provider of digital gift card solutions. “If we had a conversation 15 years ago, a lot of people looked at gift cards as not a good gifting or reward opportunity. Now, consumers are telling the industry they love gift cards for incentives, whether that is for consumer incentive or an employee reward.”
Still buying at retail
Although the growth of gift card sales for B2B use outpaces growth of consumer sales, companies continue to purchase gift cards at retail or online. In doing so, many miss out on volume discounts that are offered by buying directly from a brand, gift card suppliers or third-party agencies. Agencies and gift card suppliers are the least commonly used channels for the purchase of gift cards as awards, while retail locations remain the most popular source.
According to the IRF, one-third of reward and recognition buyers had limited to no awareness that there is an entire industry of gift card suppliers and agencies designed to supply a variety of gift cards to incentive programs.
“I look at this as an opportunity more than a concern,” says Withinton. “When program owners learn that these suppliers are out there — I see it either during a research interview or when they’re taking one of our surveys — they are immediately interested in learning more. They want the convenience, and they want the discounts. It’s not fun to go to the store and buy 100 gift cards. They ask me to send them more information afterward. It sells itself. It’s absolutely an awareness problem, and at the end of the day, it’s better to have an awareness problem than a demand problem.”
Boucher says a company that spends $5,000 or more in gift cards annually can expect to receive a discount volume of as much as 5 percent if they go through the right channel.
Start at the source: awareness of purchasing options
The IRF survey identified five distinct sources for buying gift cards for incentive or rewards.
- Retail – Selecting cards from an array of local retail locations, such as a grocery store or pharmacy.
- Online General Retailer – Purchasing from an online marketplace such as Amazon or Zappos.
- Brand – Getting cards directly from a brand’s corporate office, e.g., working with Bed, Bath, & Beyond’s or Gap’s corporate office, not the local store.
- Gift Card Supplier – Getting gift cards from a company whose primary business is selling gift cards (e.g., Blackhawk Network, Giftcards.com).
- Agency – Getting cards from an incentive/promotional/marketing agency that also helps design and run the program.
Most U.S. businesses do not source gift cards for awards from a single source. Both medium enterprise and large enterprise firms use an average of two sourcing channels for their gift cards.
SOURCE: Incentive Research Foundation
