The Old Gift Card Playbook Is Being Rewritten by Technology
APIs Change the Equation
The Other Problem Is Psychological
How Gift Cards Can Fight Back
Gift Cards Are Not Going Away
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For roughly two decades, gift cards benefited from what was partly a technological accident. They were not necessarily a better reward than merchandise or travel. They were often a much easier way to avoid the limitations of reward catalogs that had moved online without the technology required to keep up with retail.In the early 2000s, many online catalogs were essentially digital versions of analog operations. Product information might be updated quarterly, pricing could be static, inventory was not necessarily verified in real time, selection was limited, and people sometimes discovered only after redemption that the product they wanted was unavailable. Gift cards elegantly solved much of that problem. They were easy to deliver, their value was obvious, and especially at lower denominations, they avoided the shipping costs that could consume a disproportionate share of a merchandise award. For that reason alone, participants in surveys have regularly voiced a preference for gift cards.
That was a powerful value proposition. The problem for the gift card industry is that the underlying technology that created much of that advantage has changed.
APIs Change the Equation
Modern catalog APIs can now connect incentive, recognition, and loyalty platforms directly with brand and fulfillment-company product feeds, providing current inventory, pricing, descriptions, photography, video, promotions, and new products with little or none of the manual work that once slowed merchandise catalogs. Most significantly, most of the products are available at wholesale prices well below the retail price companies pay for gift cards.
Industry participants in a recent EEA YouTube show reported that API-enabled catalogs can expand assortments that once consisted of roughly 400 products to 2,600 or even 4,000 items, while reflecting current inventory, new product launches, and promotional pricing. They also reported significant increases in merchandise redemption when recipients know that the products they see are immediateliy available.
In other words, the technology problem that helped gift cards win is rapidly disappearing.
The economics are changing as well. Merchandise purchased through corporate special-markets and fulfillment channels can often be acquired below retail pricing, creating room for the program provider and client to add value while still offering the recipient attractive purchasing power. Gift-card economics are different because their value is usually anchored much more closely to face value and the retail marketplace. In some cases, companies actually have to pay a markup fee on gift cards, since there is otherwise no other way for the suppliers to make money on them.
This comparison should not be oversimplified. Gift cards sometimes can be purchased below face value, merchandise providers add markups, and MSRP is a poor benchmark for determining actual value. The more meaningful comparison is what the program actually pays for the reward versus the value delivered to the participant. Even with that qualification, the ability to procure merchandise through wholesale channels gives companies an economic option that a $100 gift card generally cannot match simply by being a $100 gift card.
The Other Problem Is Psychological
There is also a basic question that gift card proponents increasingly may have to answer: If the reward functions primarily as a cash equivalent, why not just give people cash in an attractive envelope with a personal note. There is a substantial body of incentive research around the psychological distinction between cash and non-cash rewards. Tangible merchandise and experiences can remain separate from compensation, permit people to acquire something they might not ordinarily buy for themselves, and create social reinforcement through the stories people tell about a trip, experience, or product they earned.
A watch worn for years, luggage taken on vacations, a barbecue enjoyed with family, or a memorable travel experience can repeatedly remind someone where it came from. The $250 used for groceries or absorbed into an online shopping account generally has a much harder time producing that kind of trophy value. That does not make gift cards bad rewards. It means the bloom may be coming off the rose for the old strategy of putting hundreds of largely interchangeable digital cards into a catalog and assuming that convenience and choice alone will continue to carry the day.
How Gift Cards Can Fight Back
The answer for the gift card industry is not to compete with merchandise by becoming even more transactional. It is to make gift cards feel more like gifts.
Bring back some physicality. Digital delivery is efficient, yet efficiency is not always the objective of recognition. A beautifully produced physical card, particularly using sustainable materials and thoughtful packaging, can turn an electronic transfer of value into an occasion. Digital capability can remain behind it while the recipient gets something tangible to open, hold, and remember.
Merchandise the choices. One lesson the merchandise business itself has had to relearn is that simply dumping thousands of products into a catalog is not merchandising. The same applies to gift cards. Instead of presenting every available retailer alphabetically, select cards around the audience, occasion, location, interests, demographics, program objectives, or achievement. Demonstrating that someone thought about the recipient can be more valuable than unlimited choice.
Find brands people cannot get everywhere. The industry should seek distinctive restaurants, experiences, specialty retailers, local businesses, attractions, services, and regional brands rather than relying almost entirely on the same ubiquitous national names. Technology already demonstrates what is possible. One solution in the industry known as the Gift Card Market uses dynamic local content to surface restaurants, entertainment venues, home and personal services, and other businesses based on geography, opening categories that historically were difficult to offer at scale.
Personalize the reward. The card, presentation, message, imagery, selection, and redemption experience can all be customized to the individual, accomplishment, destination, or organization. The objective should be to make the recipient think, “They picked this for people like me,” rather than, “They sent me another code.”
Consider reloadable cards people actually keep. Instead of creating a disposable transaction, a brand-customized reloadable physical or digital card can become an ongoing connection between the organization and recipient. Subsequent achievements can add value to something already sitting in the person’s wallet, potentially giving the reward a continuity that one-time codes lack.
Create value beyond face value. Gift card providers should increasingly look for merchant-funded bonuses, special access, localized offers, unique experiences, promotional pricing, and other ways to make the reward worth more psychologically or economically than simply converting 10,000 points into $100.
Gift Cards Are Not Going Away
Gift cards retain enormous advantages. They provide flexibility, instant delivery, straightforward value, broad geographic reach, and a particularly strong solution for smaller awards where merchandise shipping can undermine the economics. They also work well as cash-equivalent incentives for filling out surveys or participating in other mass-market studies. Most programs will almost certainly continue to offer gift cards alongside merchandise, travel, experiences, and other rewards rather than treating any one category as universally superior. What has changed is that gift cards can no longer count on merchandise catalogs being clumsy, stale, limited, or overpriced. As reported in the EEA RRN YouTube show, companies that have moved to API-powered catalogs are seeing a significant increase in merchandise redemptions.
Real-time APIs have rewritten that part of the playbook. Merchandise and experiential reward providers can increasingly deliver current products, greater choice, strong corporate pricing, rich imagery, personalization, and a consumer-quality shopping experience while retaining the psychological advantages of a reward that does not simply disappear into everyday spending.
That should be a wake-up call rather than a threat to the gift card industry. Technology helped gift cards displace much of the merchandise business 20 years ago. Technology is now giving merchandise another chance.
The gift card companies that respond by becoming more distinctive, personal, curated, memorable, and economically compelling have every opportunity to prosper alongside it. Those that continue to rely primarily on convenience and face value may discover that what once looked like an unassailable advantage was partly the product of a technology gap that no longer exists.
Enterprise Engagement Alliance Services
Celebrating our 17th year, the Enterprise Engagement Alliance helps organizations enhance performance through:1. Information and marketing opportunities on stakeholder management and total rewards:
- ESM Weekly on stakeholder management since 2009. Click here to subscribe; click here for media kit.
- RRN Weekly on total rewards since 1996. Click here to subscribe; click here for media kit.
- EEA YouTube channel on enterprise engagement, human capital, and total rewards since 2020
Management Academy to enhance future equity value for your organization.3. Books on implementation: Enterprise Engagement for CEOs and Enterprise Engagement: The Roadmap.
4. Advisory services and research: Strategic guidance, learning and certification on stakeholder management, measurement, metrics, and corporate sustainability reporting.
5. Permission-based targeted business development to identify and build relationships with the people most likely to buy.
Contact: Bruce Bolger at TheICEE.org; 914-591-7600, ext. 230.
