By Todd Tomlin, Managing Director at Consummo Consulting, US
I have been asking myself recently if branded gift cards are dying. I don’t mean from a consumers’ perspective. Gift cards remain one of the most sought-after gifts, and digital sales of gift cards soared in Q3 2020, as much as 114% according to data from Rise.ai.
I ask if branded gift cards are dying from the brand’s perspective? Or at the very least, the traditional way a gift card program manager or distributor of gift cards looks at branded gift card programs. A branded gift card is a closed-loop payment mechanism issued by the consumer brand (Starbucks, Target, Best Buy, Amazon, M&S, Zalando, etc.) distributed in the brands’ stores, website and through third-party distributors such as Blackhawk, InComm, ePay and sold in B2B channels.
Increasingly, branded gift cards are losing third-party placement space and visibility in-store and online in exchange for inclusion in multi-brand offerings. Payment innovations products incorporating brand offerings such as Blackhawk’s Happy Cards, InComm’s Go Card and a new entrant, Tillo’s YouChoose are evolving the way branded gift cards and branded currency are distributed and used.
Distributors are leveraging existing relationships with branded gift card programs, creating products redeemable in exchange for branded gift cards online, or using a restricted access network (RAN) Mastercard/Visa. The RAN option allows for the distributor-issued multi-brand card to be redeemed at brand locations based on the credit card processing merchant ID, bypassing the branded gift card program altogether. Similar products have been around for some time, such as the One4All card (now owned by Blackhawk) card and the WunschGutschein (Wish Voucher), but they are increasingly becoming visible to the everyday consumer.
The utility of these products from the gift buyer’s perspective allows them to gift multiple brands in one card, but it diminishes brand impressions and reach for brands participating in multi-choice programs.
In addition to the sale of multi-brand gift cards direct-to-consumer, business-to-business programs have created multi-choice cards such as Tango Card’s Reward Link, eGifter’s Rewards Choice Card and Virtual Incentive’s GiftCard PASS. These products take the consumer-facing multichoice card to an even broader choice, often allowing the recipient to redeem for any gift card offered in the partner catalog.
For companies looking to purchase gift cards for incentives, rewards, promotions, engagement and loyalty purposes, these products are a good investment from a usability perspective. The purchasing business does not have to guess what program participants would find motivating and useful, but can instead give a range of choice (often hundreds of brands).
Why have these products proliferated the consumer and business-to-business gift card industry recently? Utility and consumer choice aside, distribution companies issuing these cards are claiming breakage for themselves (turning unredeemed gift card value to revenue). The traditional gift card business model is indeed dying. Individual gift card brands are likely to see their share of breakage diminish as the distribution partners claim more of the revenue for themselves. This isn’t a matter of distributors becoming greedy, but instead a response to the brands who have squeezed the margins of the distributors lower over time, requiring the distributors to find alternative sources of revenue.
While the traditional gift card model may be dying, brands and distributors will continue to evolve their offerings to meet business and consumer needs while still providing visibility to participating brands, but it’s time for brands to become innovative in their programs, as distributors seem to have the upper hand.
About Todd Tomlin
As Managing Director of Consummo Consulting, Todd Tomlin is a global expert on gift cards, stored value, branded currency and pre-paid products. He assists individual gift card brands and the supporting companies of the industry to maximize opportunity of the brand, product or service through go-to-market strategy, business development, operations management, strategic partnerships and more. He previously managed Hyatt, Cinemark and Hotels.com gift card programs and currently leads distribution partnerships for the Global Hotel Card Powered by Expedia, the Global Experiences Card Powered by Viator. Additionally, he is Managing Director of a gift card payout platform launching soon.