Incentives and rewards are a common part of ecommerce. Whether we’re trying to encourage a customer to place their first order, or rewarding them for placing their 50th order. And they work, because people love to receive perks - 90% of customers will share their email address with a brand for a small incentive.
When incentives and rewards come up in discussion, many talk about discounting or shipping perks. These are popular with customers, and are long-standing in the world of ecommerce as tried-and-tested options. What doesn’t often come up in discussion, is the role of gift cards as an incentive or reward. However gift cards are popular both as a product, a gift, and a reward.
Perhaps many don’t think about gift cards in this context due to the fact that a gift card is seen as a product. Or maybe merchants are unsure of how they can actually benefit from using them in place of a discount.
Whatever the case, let’s break down why gift cards work as an incentive or reward, and a few different ways merchants can incorporate gift cards into their strategy.
Why gift cards work as an incentive or reward
Finding the right kind of incentives and rewards can be tricky. There needs to be a balance of it being valuable to the customer, without being too costly for the merchant.
In many cases, merchants will turn to some long-standing favorites such as discounting. These are simple to implement, and are widely understood and favored by customers, making them an easy win. While they’re seemingly valuable to customers and merchants alike, they can often be of detriment if overused over a long period of time. From their first purchase, customers will see the discounted price as the “true” price they’re willing to pay and so may continue to only shop with a brand if there’s a discount available. 64% of consumers say they’ve waited for an item to go on sale before buying, and 59% will search for a promotional code before buying anything. Depending on the value of the discount offered and the total order, this can start to impact profitability also. We’ve seen examples of where discounting has resulted in frustration for customers, such as Gap’s deep discounts making their confusing rewards programs pointless.
So, how are gift cards different? After all, the customer will still get money off their order and the merchant will still take a hit on profit margins.
Let’s start with the difference for customers. Discount codes are commonplace, but they also don’t have an inherent value attached to them. Gift cards are something tangible that feels like it has real value attached to them, and customers can often feel like they’ll miss out if they don’t find a way to use it. The customer will still get that same buzz from saving money as they would using a discount, they just get a dollar amount off their order rather than a percentage. Even if the discount is a dollar amount, it doesn’t have the same sense of value as a gift card.
When a customer is new, they may need something to push them to purchase. They may be new to your product category, and are uncertain about spending money on your products. This is usually where discounts are used, however they risk devaluing the product from the first order. Gift cards instead give them that same perceived lower risk, and that “welcome” perk they’ll often expect.
When a customer eventually becomes loyal, they want to be seen to be valued by a brand and the easiest way to do this is by offering rewards. Discount codes or loyalty points can feel intangible, or low value, whereas a gift card not only feels valuable but like a real gift. They’re getting a real product that your brand sells, as a gift or reward for their loyalty. In fact, 60% of consumers prefer receiving a gift card as a reward, and 65% say it makes them feel like the brand values its customers.
As for benefits on the merchant’s side, they reflect the benefits of the customer. By giving customers something more valuable than a discount or points, acquisition and retention rates have a better chance of increasing. Gift cards also seriously reduce the risk of devaluing products, as customers are aware that a gift card is more of a one-off offer, whereas discounts can be posted online and recycled multiple times. Finally, there’s the potential to increase cart spend and AOV across all customer demographics whether they’re offered a gift card as an incentive or reward. 90% of consumers are willing to spend more than the value of a gift card when using it to make a purchase, and will typically spend $59 more on average than the value. With a discount, there’s no incentive to spend a little more as you’re getting money off. With a gift card, it feels more like you’re being given more money to spend, so customers may be more likely to add additional items to their cart prior to checkout.
5 ways to use gift cards as part of your incentive and reward strategy
#1 - In-cart incentive
In-cart incentives make a visual impact on customers, as they add items to their cart and are prompted to add more to meet criteria for a perk. Sometimes this is to meet a free shipping threshold, but how about for a free gift card for their next purchase? They may only initially intend to spend $30, but if the threshold is $40 for a free gift card, they may consider adding a little extra to their cart. Not only will this increase AOV, but it will also all but guarantee retention as the customer will have to return to spend the gift card.
#2 - Email sign-up incentive
One classic strategy to earn more email subscribers is to have some kind of incentive for signing up. The most common incentive for this is usually 10% off, but why not make it even more enticing with a gift card?
This doesn’t have to apply to subscribers from any source, if you want to control how many gift cards you issue. You could use it for a high value subscriber source, such as from a landing page, for a specific campaign in the run up to Black Friday, or from a specific channel. You can also use it as a split test with other incentives such as free shipping or discounting to determine which incentive is the most effective for different sources and audiences.
If you’re using Govalo’s Premium or Enterprise tier for your gift cards alongside Klaviyo as your email platform, you can create and issue a gift card from within Klaviyo.
#3 - Loyalty program rewards
If your loyalty program allows customers to redeem points or receive perks at different tiers, then you should consider adding gift cards into the prize pool. For customers, it makes it feel like they’re able to redeem points for cash to use on a future order, which may be more valuable to them than a free item. You can scale the gift card value depending on different criteria, e.g. 500 points earns a $10 gift card, 700 points earns a $20 gift card and so on. This also gives customers incentive to place another order in the future, continuing their loyalty to your brand.
#4 - Offering a gift card during a promotion
Discounting is common during promotional periods, such as Black Friday/Cyber Monday or an end-of-season sale. It’s a common tactic to encourage more orders, clear out old inventory, and bring back customers who may be waiting for that one item to go on sale. However, this runs the same risk as using discounts as an incentive - you may end up acquiring a lot of new customers who will only ever pay the sale price for a product.
Instead, consider adding gift cards into your promotional strategy. This can be offered in a variety of different ways:
- Spend $x, get a gift card worth $y - This can scale depending on cart value, so a higher cart spend will yield a higher value gift card.
- Buy one gift card, get one free - This can be a great way to promote your gift cards, and acquire new customers.
- Save x%, and receive a free gift card - This option does involve some level of discounting or sale, however you can offer a lower discount with the promise of a free perk.
These promotions are not only better for your brand, but are also more interesting to customers. Especially during periods like Black Friday where every brand is vying for customers’ attention, more unique offers have a better chance to stand out.
#5 - Retention incentive
Incentives are often used in customer acquisition, however this can end up feeling discouraging to long-time customers. After all, why does your brand only reward new customers placing their first order, whereas existing customers get very little or have to earn a reward?
Adding gift cards into your retention strategy can help make customers feel like they’re valued as well as giving them a reason to place another order. These can be issued automatically when a customer meets certain criteria, such as placing a certain number of orders in a given time frame, or meeting a certain LTV (Lifetime Value).
Ecommerce is no longer the new kid on the block, and customers know what to expect from brands competing for their attention online. Discounting has become the norm, and customers know they can use browser extensions or coupon sites to find deals and never pay full price. Instead of trying to compete on coupons, perhaps it’s time for brands to start looking at new ways to excite and entice their customers. And perhaps one such way is by incorporating gift cards into their strategy.