Consumers spent $18.48 billion on gift cards during the 2005 holiday season, an increase of 6.6% over the 2004 season according to the National Retail Federation, which expects the growth to continue. For years, retailers have recognized the marketing potential of gift certificates and gift cards as a way to bring in new customers, grow merchant loyalty and generate sales.
Some merchants are taking it even further by exploring ways to maximize the data-gathering capabilities of the black magnetic strip and minimize the cost of conducting business.
A group of business owners in California is beginning to create a citywide gift card program that would, if all goes according to plan, increase their marketing channels and offset charges for credit card processing. Believed to be the first of its kind, the effort is led by a group of Carmel Chamber of Commerce members who are working with U.S. Merchant Systems of Fremont, Calif., a provider of retail services and electronic payment solutions.
Thompson Lange is a member of the board of Carmel's Chamber of Commerce and Home Accents Today's Retail Advisory Board. Lange and his brother Beau own Homescapes, a lifestyle store that sells home furnishings. When he first heard U.S. Merchant's presentation, Lange was completely skeptical. "These things cost money and I was sure that it was me, the merchant, who would get hit up and hit hard ... I thought they were just trying to use the flash of the Carmel brand as a foot in the door to other municipalities," said Lange. Chamber board chair Janet Reilly asked Lange to head up the committee. "I guess she figured I'd either shut it down or help develop something good."
After reviewing the program and fees paid by some of the member businesses for credit card payment processing, Lange decided it was worth a closer look. He became impressed with the potential to unite the Carmel business owners toward a common goal, one that would preserve and enhance Carmel's brand and reputation while offering economic advantages to the participating businesses. "Plus," he added, "As an association of business owners, we negotiated great terms that translate into savings for our members."
Now Lange is deep in development, and the project is gaining momentum. Merchants who want to participate will pay a monthly administration fee of $14.95 and 20 cents per transaction, plus contribute to the shoppers' rewards accounts at 1 cent per dollar spent. It works out to about a 25% savings per "plastic" transaction, more or less depending on each merchant's rates.
Participating merchants may issue the Carmel Card to customers, accept it for purchases, access the online customer database and receive individual account reporting. Cardholders will be able to add money to their cards online and redeem rewards for local events and attractions. The Chamber of Commerce will receive and track the rewards program fees and redemptions through its Web site.
No one expects the Carmel Card to replace Visa, MasterCard and American Express, but if successful, it could make a dent in the number of credit card transactions and eliminate the monthly subscriptions some businesses pay for individual gift card programs.
At the same time, the promotion, rewards and data collection will play up the "Carmel experience," provide marketable data on tourists and consumers, and provide participating businesses with new channels for exposure. Lange said the concept is basically finalized, but he expects a lot of fine tuning. "We'll have to keep an eye on it to see where we need to expand or pull back, but as independents we have to take a chance on things like this now and then so we can compete with the big guys."
