A Gift for All Seasons

The prepaid market is booming as retailers begin to capitalize on seasonal opportunities and serving the underbanked.

By John Lofstock, Editor.

The gift card market is rosy and analysts are poised for another strong year in 2012.

In 2011, 80% of consumers planned on buying gift cards for the holiday season, up from 2010, and average card amounts increased, according to a report from the National Retail Federation. Total gift card spending also increased. Consumers tend buy gift cards in many locations such as direct from the retailer, and through gift card malls, in convenience stores, grocery and drug stores.

Blackhawk Network, a leading provider of gift cards through gift card malls, conducts an annual gift card tracking study. In this nationally representative survey, consumers are asked about their gift card purchasing habits, including where they have purchased gift cards.

Identifying Prepaid Buyers
In its most recent study of 869 gift card buyers, the c-store gift card buyer tends to purchase more and has received more gift cards than the average gift card buyer. Approximately 59% of c-store gift card buyers purchased six or more gift cards in the last year, as opposed to 33% of all gift card buyers.

Additionally, 97% of c-store gift card buyers reported that they are likely to buy gift cards in the next year. But, only about 10% of the buyers have purchased gift cards in convenience stores—demonstrating the significant potential for this emerging channel.

One important finding for convenience store owners is that while c-store gift card purchasers buy gift cards for similar recipients and occasions as general gift card buyers, c-store buyers tend to buy more cards for self-use than general
buyers. This is probably due to the age of the shopper—such as Generations X and Y who need a prepaid card to utilize digital music or gaming, or this may be due to the use of gift or prepaid cards for budgeting.

When asked why they purchased gift cards, the top reasons cited were allowing recipients to choose their own gift and the ease of purchase.

The c-store gift card buyer tended to be male, younger and have lower household income than the average gift card buyer, which mirrors the average c-store shopper.

Product Promotion is Key
One of the trends convenience store retailers have traditionally benefited from within the growing prepaid segment is occasion-based marketing. Holidays, graduations and birthdays are all special events that drive gift card sales.

Cenex, which operates a branded network of 1,400 stores in 19 states, is one of those c-store chains that capitalizes on seasonal opportunities. To help its branded retailers embrace the 2011 Christmas gift card season, Cenex, a division of CHS Refined Fuels, rolled out a Cenex-branded gift card that was aggressively supported by a comprehensive holiday campaign that included corporate media placement, merchandising kits for retailers and sales training for front-line employees.

“Our marketing strategy is always twofold—make it appealing to consumers and easy for our retail partners,” said Kayte Haaland, brand and marketing manager for CHS Refined Fuels. “Research shows occasion-based gift cards help drive purchase decisions; as a result, a new campaign is introduced seasonally. To make it easy for busy retailers to implement the latest campaign, they receive complete merchandising kits with campaign guides in advance of a corporate media campaign launch.”

The media plan for the holiday season included print ads, radio spots, direct mail, online advertising, email marketing and consumer sales promotions. Additionally, there were bonus advertising incentives for Cenex retailers who deployed local marketing.

“Our goal is to provide retail partners with everything they need to leverage and benefit from the campaign. For example, based on customer feedback, this year we developed online training to teach c-store employees how to maximize sales of Cenex gift cards through suggestive selling, merchandising techniques and more,” Haaland said. “Best of all, everything is completely free. The Cenex brand is all about energetic, personal attention—and the gift card program is just one example of that commitment.”

As a result of aggressive marketing and retailer engagement, gift card numbers have increased every year since Cenex gift cards were introduced nearly a decade ago, both in sales and transaction counts. “We’re on track for another record year. Our challenge now is to keep up the momentum,” Haaland said.

C-stores are paying attention to the trends and increasingly making gift cards part of their product mix.

“We have our own Fabulous Rewards store gift card that we carry and those are open loop,” said Laurie Bull, director of marketing for Fabulous Freddy’s Car Wash in Las Vegas. “You can refill them right in the convenience store.”

In addition to promoting the cards as gifts, Bull pushes the gift cards as a way to reduce credit card processing costs. “The rate at which these cards are processed is much more favorable than traditional credit cards,” she said.

Kwik Trip Inc. in La Crosse, Wis., also sees the potential for gift cards. The chain began installing open-loop prepaid card displays in its stores last November and has since been evaluating its role in the sales mix.

“Our understanding is that the top-selling periods are graduation time, Mother’s Day, Father’s Day and then in November and December for the Thanksgiving and Christmas holidays,” said Jeff Wrobel, controller for the 350-store chain. “In between, there is not a lot, so you have to learn to be creative and capitalize on special occasions.”

Other Types of Prepaid Products
Prepaid acceptance is growing due to increased usage by the government with the payment of benefits and with companies using payroll cards. Concurrently, prepaid debit is growing in awareness and usage.

The underserved (unbanked and underbanked) rely on alternative financial services such as prepaid cards. C-store gift card buyers, according to Blackhawk Network, have higher purchase rates of prepaid debit cards (53% vs. 25% in the total population), prepaid phones (31% have purchased vs. 24%) and prepaid phone cards (46% have purchased vs. 33 %.)

Other key category insights include:
• Gift cards are in high demand. Since nearly two-thirds of the U.S. will either purchase or receive a gift card annually, it is important to meet the needs of this population. If gift cards are not offered at a convenience store, the buyer will buy them somewhere else.
•Offer a variety of cards. C-store gift card buyers buy cards for similar occasions and recipients as other gift card mall shoppers. Since c-store gift card buyers purchase more gift cards than the average buyer and buy them at many locations, they will get them someplace else if they can’t find the cards they want at the c-store, according to Blackhawk research.
• Match the demographics to the cards. According to Mintel’s “Attitudes Toward Convenience Store Shopping” study, men under-25 and consumers with household income less than $75,000 are the most frequent convenience store shoppers. Hispanics also tend to buy more gift cards than other groups and according to Mintel, 53% of all Hispanics visit a c-store once a week or more.
• Market self-use gift and prepaid products. Convenience store gift card buyers tend to buy more gift cards for self-use than general gift card buyers.
• Offer prepaid debit cards. C-store gift card buyers were much more familiar with prepaid debit cards and a significant number had purchased them in the past (53%.)


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