By Antony Lodge, Director of Supplier Partnerships at Ncentiva
Last week my neighbour bought two Jack Russell Terriers for his daughter. If there is a more mischievous small dog breed, slightly too large for Paris Hilton’s handbag, but with the heart and attitude of a lion and the negotiating skills of a terrorist, I am yet to meet one.
My point – my neighbour knows I work in the Gift Card and Voucher industry and I would happily have advised him on suitable, non-barking gift card options for his daughter. I failed to influence him and will now pay for the consequences with two dogs next door.
How does that relate to the South African Gift Card and Voucher market? Well were the dogs a gift or for self-use/consumption by the family. South Africa is more of a self-consumption market rather than a gifting market. Locally we have tended to categorise purchases for the customer and immediate family as self-consumption with gifting then recognised as something given outside of the family unit. To my knowledge, there hasn’t been a survey conducted on the ratio of gifting to self-consumption, but a far larger share of sales in South Africa would appear to be for own use. This does then have a substantial impact on the products and services which will sell in the local market.
There are a number of factors that contribute to this behaviour. Historically the gift cards which did well were shopping mall gift cards which ran on either a Visa or Mastercard platform. South Africa has many large shopping malls and this type of gift card gives the recipient a large number of stores at which to shop. These cards were usually gifted.
The first Gift Card Malls were introduced in retail in 2011. They offered local brands via closed-loop, point of sale activation (POSA) cards. Quite often the location of the gift card mall was in a shopping mall that housed many stores belonging to the gift card brands. The customer passed the brand stores on the way to the gift card mall retailer and tended to buy directly from the brand rather than the retailer. There was no significant convenience factor and no price advantage to buying in the gift card mall and sales were slow.
In October 2013 this changed dramatically with the introduction of Apple iTunes and App cards by Blackhawk Network in conjunction with Opengate Technologies. With a massive launch and awareness campaign, the Apple cards put the gift card malls on the South African retail map. This was followed by Google Play in September 2014 with a similar boost in sales.
The brands that work in this environment are those which can’t be redeemed in a shopping mall or physical store. Besides Apple and Google, software like Microsoft, streaming like Netflix, gaming like Sony PlayStation and ride and food delivery like Uber, have all done well.
The reluctance of South Africans to use their credit or debit bank cards to pay for products or services online helped to grow the gift card market. Many citizens held the view that cards are unsafe or less safe than cash. In addition, for financially stressed customers, gift cards are attractive because they can be managed without commitment, allow for more effective budgeting, and prevent costs from running away from the customer. Having a bank card lodged with a supplier exposes the customer to a debit even if they can’t afford it.
So, until recently, many South Africans would trust their bank card in a physical store and would use it to purchase a gift card, but they would not use the bank card to make the same purchase online.
Identifying this gap, trusted suppliers such as Banks, Insurers and Telcos have been building value-added service platforms which offer online marketplaces to their customers. Besides allowing for bill payments and similar services, these are competing with more traditional online stores and offer many of the same gift cards. In addition to keeping customer spend in-house, this service offers added retail opportunities and attracts new customers, particularly if there is a loyalty benefit earned on the spend.
Covid arrived and in March 2020 we were locked down in South Africa. Customers were forced to change their shopping habits and there has been noticeable growth in online gift card purchases as customers became accustomed to ordering from home and paying with their bank cards.
This increase in business has been offset by a change in the behaviour of some suppliers and brands. Most will compete and pay commission or rebates for Incentive, Loyalty and Reward spend as this is incremental business. However, the growth in consumer spending online through third-party distributors is not as attractive as it comes with the additional cost of discounts or rebates.
We have started seeing a reduction in discounts and rebates from suppliers. They are also offering customers competitive pricing which is only available on the supplier’s platform and paid for with a bank card. The deals are usually so good that they overcome customer reluctance to use their bank card online and many do not return to buying gift cards thereafter. This is expected to become a serious challenge to aggregators and distributors which make their money from commissions or rebates.
So that is a very quick, helicopter view of the South African market.
Despite the number of multiple, really good gift card options open to my neighbour, he chose to purchase puppies. At least the puppies will benefit from a good home.
As for me, I will be paying for my iTunes membership with Apple codes purchased at my local store so I can play loud music to drown out the barking…
About the author: Antony started his Voucher Career with Accor Services, now Edenred, in South Africa in 2005 with Ticket Restaurant and Ticket Compliments Paper Vouchers. He was recruited by Opengate, South Africa’s first Gift Card Mall company which partnered with Blackhawk to launch iTunes, Google Play and later, Microsoft. Now consulting and working with Ncentiva, Antony keenly watches developments in the South African Gift Card and Voucher Market. He doesn’t dislike Jack Russell Terriers.