Gift Cards that Give Back

By Tammy Mastroberte | April 08, 2008

The skyrocketing popularity of gift cards in the past few years is hard to miss, and the restaurant and coffee shop industry is seeing the benefits of this trend in a big way. During the past two holiday seasons alone, many consumers turned to gift cards as the perfect present, with 28.5 percent of holiday gift card buyers purchasing restaurant cards in 2007, second only to department store cards, according to BIGresearch, a marketing intelligence and research firm based in Worthington, Ohio. The sixth most popular gift card was coffee shops at 12.4 percent.

"In January, for the past two years, we have done a post-holiday gift card survey, and we have noticed growth in restaurant cards as a gift choice," says Phil Rist, executive vice president of strategy at BIGresearch. "Most of the restaurants in our market were providing a gift with purchase, where if you buy a $100 gift card, you get a $20 gift card for yourself."

This approach also works well with stored value or rechargeable gift cards. At Tully's Coffee, based in Seattle, Wash., with 92 company-owned and 57 licensed or franchised locations, customers would load an average of $20 onto a Tully's card, so marketing put a program in place offering a 10 percent bonus for customers who purchase $30 or more. The chain also rewarded customers for registering their cards online during the launch of its loyalty program, which allows for the collection of data for targeted marketing.

"If someone registered their card we loaded an additional three dollars onto their card," says Martin Walker, vice president of marketing and merchandising at Tully's. Registration is one of the company's biggest focuses this year since only 2 percent of cardholders are registered.

Outsourced Marketing
One way to increase the sale of gift or stored value cards is to think outside the box, or in this case, outside the restaurant. Consumers no longer have to go to the source to obtain a gift card, and savvy operators are taking advantage of it. At Bugatti's Restaurants Inc., based in West Linn, Ore., an opportunity presented itself where the four-location chain could tap into a whole new market using Blackhawk Network's Gift Card Mall program, a subsidiary of grocer Safeway, Inc.

"Our credit card processor Mercury Payment Systems (www.mercury pay.com) recommended us to Blackhawk Network (www.black hawk.com), and now we are in 52 Safeway locations and getting our name into parts of the city without having to think about it," explains Lydia Bugatti, owner of the chain.

Bugatti's started with Blackhawk in the fall of 2007, and receives reports from the company showing sales figures broken down by Safeway location. This allows Bugatti to evaluate which areas she should concentrate on, she says.
When a customer redeems a gift card purchased at a Safeway location, Blackhawk deposits the money directly into Bugatti's account, and takes 25 percent of the total amount purchased as a fee. "I have a deposit log of what Blackhawk deposits so I can see which cards came from them," Bugatti explains.

Another example is partnering with area businesses that reward employees with gift cards. Tully's has a sales manager and account executive dedicated to putting together these types of partnerships, such as the one it has with Boeing Stores, where employees can choose from a variety of rewards, including a Tully's gift card, which is one of the most popular, Walker says.
 
"We have a Tully's in eight Boeing Stores and 30 percent of their revenue comes from gift cards," he says. "The nice thing about technology is this is something we can measure."

Loyalty Pays
While boosting gift card sales can increase the bottom line, stored value cards increase the likelihood of customers returning for more. Customers who buy a card themselves or receive one as a gift can continue to load money onto the card for future use.
 
Many operators are now taking this approach one step further and creating sophisticated loyalty programs with technology behind them.

In May of 2006, Tully's Coffee decided to convert its stored value cards into a loyalty program, and chose Chockstone (www.chockstone.com) technology, which also allows them to track promotions and analyze sales. The company created four new gift card designs, along with a new card display, and decided to run a sales contest with employees in the field.

"Within three weeks of the sales contest we saw a 66 percent increase in dollars loaded onto cards and a 72 percent increase of dollars redeemed, and that was just the initial hit," Walker says.

Since its initial launch, the program has showed sustained results, according to Walker. "Our 2006 fiscal year-end showed our cards accounted for 5 percent of our revenue, and by the following year [2007], it went up to 10 percent of our total revenue. This year, we're on pace to hit 12 percent," he notes.

However, one of the biggest benefits of sophisticated loyalty programs is the ability to track customer purchases and target marketing and promotions to increase sales.  Brinker International, which owns Chili's Grill & Bar, Romano's Macaroni Grill, On The Border Mexican Grill & Cantina and Maggiano's Little Italy, launched a loyalty program last year called Eat & Enjoy Rewards, offering 10 points for every dollar spent. These points can be redeemed for free desserts and more.

Like Tully's, Brinker's customers also get rewarded for registering their card online, which allows the company to capture data and track each customer's purchases. If a card is registered within 30 days, the customer gets a free appetizer on their next visit within six weeks of registration. When customers arrive at one of Brinker's locations, the loyalty card is swiped to reveal rewards as well as customer data for a personalized experience.

Operators can also personalize promotions based on previous purchases, and even time of day. At Tully's, the first coffee rush is from 6:30 a.m. to 9:30 a.m., followed by a drop off until the afternoon between 2:00 p.m. and 4:30 p.m., Walker explains. With the goal of increasing sales between 11:00 a.m. and 1:00 p.m., the company is utilizing Chockstone's promotion manager tool to target customers who frequent the morning hours, but have no transactions mid-day.

"Through a web-based interface, we can go into the promotion tool and set dates for the promotion and the criteria of who to include, such as people with a certain balance, or those who spend a certain amount of money," says Walker. "We type in the text we want to appear on the customer receipt and hit submit."

For the lunch time promotion, the company will target customers during the morning hours, and offer them a dollar back on their card if they return within two weeks during the hours of 11 a.m. and 1:00 p.m. and spend at least five dollars.

"On these types of promotions, we can run reports to see how many people responded and which accounts," Walker explains. "We can see if a promotion did well in the San Francisco area but not in Los Angeles. And if we get 5 percent of customers who take advantage of the 11 to 1 promotion, it would make sense to target them again, and the other 95 percent we can target in another timeframe."

Utilizing technology allows operators to measure results of marketing, promotions and more, as well as track sales and popularity of products and services. Without it, results can be ambiguous at best, Walker says. "It's easy to drum up support for our Tully's card from corporate because it is easy to show results," he notes.


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