Measuring The Impact Of Gift Cards

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We encourage our clients to use Mx3 Metrics for all their channels, not just digital or social. An important channel that some of our clients rely on is gift card sales. Gift cards are explicitly measurable and proven to generate a high Return on Marketing Investment (ROMI). Gift cards can help with new customer acquisition, as they act as a defacto recommendation from the gift giver to the recipient, while also being popular among returning customers as well.

Gift cards are a multi-billion dollar business in Canada and the U.S., and their popularity is still on the rise. Gift cards are not only popular with consumers — businesses are adding them to their marketing mix, and for good reasons:

For consumers:

  • Gift cards make gift giving a lot easier. Just about every retailer — from clothing to coffee to high-end restaurants to books and electronics — offers gift cards. That means the person you’re buying the gift card for can purchase something you know they’ll like.
  • Gift cards are convenient. You can purchase gift cards pretty much anywhere — directly from your store or restaurant of choice or at gift card “malls” or “kiosks” at convenience stores and major retailers.
  • Gift cards make it easier to stick to a budget, especially during the holidays.
  • Most provinces have legislation in place to prohibit expiry dates on gift cards, which means your money won’t go to waste.

For retailers:

  • Gift cards provide an additional revenue stream for retailers, generating revenue in advance of sales.
  • Shoppers using gift cards are 2.5 times more likely to pay full price for the products they buy.
  • Many gift cards are not redeemed for their full value so that encourages repeat visits.
  • About 6% of gift cards end up unused.
  • Many people spend more than the value of the gift card. (72% of consumers will spend about 20% more than the value of the gift card)

From these statistics, it’s clear that for some businesses, gift cards can make a great addition to your marketing efforts.

Case In Point:
One of our restaurant clients, Japanese Village Edmonton, offers a discounted gift card through Costco stores in Edmonton. We were tasked with figuring out how to track the performance of these gift cards with our Mx3 system. Our client, Tenkai, sells these gift cards for his restaurant through Costco Edmonton's gift card “kiosks.”

The gift cards sell for $40 each: Tenkai keeps $35 and Costco gets $5.

Tenkai’s customers get $50 worth of food at his restaurant for $40.

We decided to treat these gift cards purchased through Costco as a separate funnel so we could get a good read on the revenue generated from them and Tenkai’s return on investment.

Costs:
Real costs include how much it costs Tenkai to produce the gift cards to sell in Costco. The average cost of design and printing plastic gift cards is $1 each.

It costs Tenkai $5 for every gift card purchased through Costco. The total cost is $6 per gift card.

Impressions:
An impression is created every time a customer walks by the gift card “kiosk” in Costco.

We did a rough calculation based on the fact that there are 3 million visitors to Costco every day. Divide that by 727 stores in North America and that means about 4000 customers visit each story every day.

Multiply that by 30 days and you have about 120,000 visitors a month. Not every one will walk by the gift card “kiosk” so let’s say that 10% do. That means about 12,000 impressions a month.

These impressions may lead to an explicit benefit: the immediate or future sale. This is the outcome Tenkai is striving for, but impressions also carry implicit benefits such as branding. Exposure to the brand will increase consumers’ brand awareness while the prestige of being sold in a Fortune 500 company like Costco will build brand equity.

Revenue:
Through Costco, Tenkai Sells around 300 cards a month, around 2.5% of our monthly impressions. This number fluctuates greatly, especially around the holidays, so we smoothed it out to a round monthly average.

At $35 a card, Tenkai’s revenue stream from Costco sales is approximately $10,500 any given month.

Return On Marketing Investment:
To figure out our ROMI for each individual unit, we divide our profit per unit by our unit cost. $29 A Card / $6 Cost Per Unit equates to an ROMI of $4.83. This figure demonstrates a very healthy return on Tenkai’s investment.

At $8,700, Tenkai’s monthly profit from the gift card program provides him with consistent clientele and an opportunity to generate business from first time customers. This figure is also lower than the actual impact, since customers generally spend about 20% more than the value of the card. Congratulations Tenkai!

As the example above proves, gift cards are a tool that can tell us a lot about our clientele. We can track and measure their impact on our bottom line, but they can also generate information about our audience. For instance, we can spread them across various stores around town, telling us a lot about who our customers are and where they are coming from. This information can inform marketing strategy going forward. This data, in tandem with Mx3 Metrics, may encourage us to invest in under-developed markets and grow essential elements of our business.