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Gift cards: No strings attached?

Stores have smartened, selling ones that don’t require reading fine print

POSTED: February 2, 2008 5:02 a.m.
Robin Michener Nathan/

Gift cards have become a popular present during recent years.

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They are little cards with a big economic impact.

Gift cards, the gift that some call impersonal and others call perfect, will account for $90 billion in giving this year.

Dan Horne, an associate professor of marketing at Providence College in Rhode Island, has been dubbed the "gift card guru." He has studied the growing phenomenon of gift cards both in the United States and in other countries.

Among the improvements to gift cards is the elimination of a time element in which the card must be used or lose value.

"Most of the major retailers have eliminated restrictions, because of the negative press they’ve gotten over the years," Horne said in an interview with The Times. "Retailers have really come around in their thinking and realized these are your customers and they’ve got money to spend. You want them to come in and you don’t want the cards to sit in the back of someone’s drawer and then, at some point, make them mad at you."

InComm, an Atlanta-based company, markets a variety of prepaid cards, including cards for specific retailers, prepaid Visa and MasterCard branded gift cards, and long-distance phone cards.

During the holiday season, the company’s major selling venue is a Gift Card Mall, a free-standing kiosk in a supermarket, pharmacy or other retail outlets.

It offers a wide range of gift cards from retailers like The Home Depot, Sears, Best Buy and major restaurant chains.

"If Applebee’s sells an Applebee’s card or Target sells a Target card, we’re not involved in that," Watson Nichols of InComm said. "We work with stores like Wal-Mart to create a place within their stores that houses gift cards from other retailers."

The retailer whose name is on the gift card gives a portion of the value of the card to compensate a distributor, such as InComm, and the retailer selling the card.

"We’re really no different from potato chips and soft drinks. The person who provides the product provides discounts shared by the selling retailer and the distributor," Nichols said.

While store branded cards may no longer have expiration dates, the credit card branded ones still do.

"They have a different revenue model," Horne said. "If you have a Visa card, Visa is going to make the 1 or 2 percent interchange (transaction fee) and that’s it. To have those cards, there has to be a front-end fee and some of them have back-end fees and expiration dates."

The front-end fee is a purchase price, typically $3 to $7. The back-end fee is a monthly deduction in value once the card reaches a certain date, usually a year.

Horne said expiration dates are required on credit card branded gift cards because of the data system used to process the cards.

He said consumers are willing to pay the up-front fee to give the recipient more choices. The branded gift cards are accepted at any merchant who takes that type of credit card.

Horne’s studies, both in the United States and Great Britain, have focused on both use trends and consumer attitudes toward gift cards.

Once thought to be a most impersonal gift, the acceptance of the cards as a gift is growing.

"My research is pretty clear about what has happened," he said. "The most surprising thing has been that people are very accepting of gift cards within the family.

"Guys still think they’re impersonal and feel a little guilty about buying them. Women don’t have an issue with it. Women rightly see that it is a two-way gift. They get to buy the gift they want and secondly, they get to go shopping, which has recreational value."

He said gift card customers are not necessarily bargain-hunters and tend to buy more expensive gifts on the feeling that they’re not spending their own money.

Horne said retailers are also using gift cards as a marketing tool to get customers back into the store.

"If you go into Bath & Body Works and buy a certain amount of stuff, they’re going to give you a gift card for $10 and it’s only good for a certain amount of time, because they want to drive you back into that store before Christmas," Horne said.

He predicts a robust future for the little cards.

"When you’ve seen the kind of growth in the gift card market, at 20 percent annually, at a time when retail sales are going up 3 to 5 percent, it’s clearly a category that is working," Horne said.



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