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Store Operations

The Future of Gift Cards

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When Apple introduced the Passbook feature on its iPhone iOS 6, it gave consumers and retailers alike a lot of opportunities. Consumers could store a host of coupons and gift certificates on the app and easily redeem them while shopping in stores; stores could increase traffic and redemption rates by making it easier for customers to use their cards.

Early adoption was limited, but CashStar, a provider of digital gift card programs, is starting to see interest from a number of large retailers.

Gene Cornfield, CashStar vice president of marketing, says that 55 of the more than 300 retail brands that CashStar works with have enabled their gift cards for Passbook. The overall growth in sales via mobile phones is a key factor in retailers’ interest, he says, noting that sales of phone-generated gift cards increased 800 percent from 2011 to 2012.

So many people buying the cards from phones is an indicator that a good number of recipients will want to store that value on the phone rather than on a PC or in their e-mail inbox, Cornfield says. Already about one-third of customers who purchase e-gift cards from a smartphone are opening that card on the phone. And two-thirds of those are using Apple’s iOS 6 devices that contain Passbook. Furthermore, about 30 percent of iOS 6 users are adding mobile gift cards to their wallets.

The volume of digital gift cards stored in Passbook has doubled from 4 percent to 8 percent in recent months, Cornfield says. “This is an indication of the strong interest in adoption.”

Revenue realization
With consumer interest in using smartphones to order gift cards growing, retailers are starting to promote the concept of storing digital gift cards on Passbook and redeeming them at the store. Cosmetics and skin care company Sephora puts codes on their plastic gift cards to allow customers to convert them to digital cards that can be added to mobile phone applications.

For retailers, there are a number of benefits to having gift cards stored in Passbook. “The customers already have their phone in their hand when they enter the store,” Cornfield says. “That means the gift card is right there to be used, not sitting in a drawer at home as it is with plastic cards. And it is not stored in a computer e-mail file, way down in the in-box list so that consumers are likely to forget that they even have it.”

Getting customers to redeem cards sooner helps retailers recognize gift card revenue quicker; they also find they may get a lift from purchases made beyond the card value when customers are redeeming the cards.

Digital cards themselves are benefits: With plastic cards, retailers typically do not know who has the cards since they are purchased by someone other than the redeemer. With digital cards, the value is e-mailed or texted to the recipient, so the retailer then has that person’s e-mail address or phone number. Retailers can remind customers who have unredeemed value of their balances or make special offers if they redeem the cards. Location-based technologies also allow retailers to notify gift card holders when they are near a store.

CashStar has been working with Sephora on promotional strategies since December; a number of other retailers are set to come out with promotions related to digital gift cards and Passbook, Cornfield says.

Potential yet to be recognized
While CashStar is starting to see interest in storing digital coupons from its retailers, at least one analyst says the real potential is nowhere near met.

“This is very early yet and retailers have a lot on their agendas in terms of technologies they are looking at,” says Sucharita Mulpuru, vice president and principal analyst at Forrester Research. “This is not top of list for many of them.”

The biggest limitation is that there are still too many customers who do not have iPhones, particularly the iOS 6 model, Mulpuru says.

“There is a risk for retailers if they were to announce a program that promoted the use of Passbook to store digital coupons and then found half their customers didn’t even have the necessary phone to allow them to participate,” she says. And the Passport feature is based on a proprietary standard that would make it difficult to duplicate on Android and other phones in the near future.

Still, Mulpuru says the advantages Passbook offers make it an interesting concept. She hopes that in time, the obstacles can be overcome and more retailers can move forward. “There still is a lot of potential here, it’s just too early yet,” she says.