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Using gift cards to help customers during the cost-of-living crisis

- 8 minute read

In times of economic strain, retailers play a crucial part in supporting consumers, offering help through multiple initiatives. Among these, gift cards stand out as versatile tools that can further aid customers facing financial challenges.

This blog explores the pivotal role of retailers in bolstering consumer resilience during harsh economic climates, and provides insights into leveraging gift card programs to extend meaningful support to customers.

 

 

Gift cards: from gifting to budgeting

 

In a landscape marked by the pressure of the cost-of-living crisis, inflation spikes, and the shadow of rising interest rates, there's a beacon of consumer resilience: the resurgence of gift cards.

Research by the GCVA and KPMG, conducted in the first half of 2023, revealed an interesting trend - gift cards are not just surviving but thriving. The leisure sector emerged as a front-runner in this resurgence, with the retail industry not far behind. While fashion retailers experienced minor growth, the spotlight shines on grocery retailers, where gift cards sales have surged by 26%.

Delving deeper, it's evident that beyond traditional gifting, gift cards are assuming a new role - serving as lifelines and budgeting tool for households facing financial strain. Companies, too, are leveraging gift cards as a strategic employee benefit, offering avenues for savings amidst tightened budgets.

In March 2024, 7.7% of UK consumers who purchased a gift card did so for self-use, and 39% of them cited that it was “to help with saving money”.  

As consumers grow more discerning, rewards and incentives further fuel the recovery of gift card, enticing spending in an increasingly selective market. While being careful with budgets, consumers are still looking for ways to treat themselves and are taking full advantage of digital gift cards, which - due to their nature - offer instant gratification.

Digital gift cards sales now constitute a significant 48% of the market and are predicted to overtake physical gift card sales. In January 2024 alone, digital gift cards were the preferred option for over 32% of UK shoppers – the highest rate since 2021.

As consumers embrace the immediacy of digital options and the overall convenience of gift cards, the evolution of stored-value cards into indispensable budgeting tools is set to continue influencing consumer behaviour and the retail industry alike.

 

How retailers can enhance gift card initiatives to better support customers

Amidst the challenges of the current economic climate, retailers, and particularly grocery stores, have been proactive in implementing initiatives to support their customers. From offering free meals for children to stocking more essential and non-branded products, these efforts reflect a commitment to easing the burden on consumers.

However, launching new initiatives requires a significant investment of time, capital, and resources. Thus, retailers should not overlook the potential of enhancing their existing programs, including gift card initiatives, to bolster customer happiness, foster loyalty, and drive sales.

Here are some actionable steps retailers can take to enhance their gift card programs:

  1. Enhance convenience: The growth of digital gift cards signals a demand for increased convenience. By offering digital gift cards, alongside the traditional physical format, retailers can ensure a seamless shopping experience, as consumers can access their gift cards, through digital wallets, with a tap on their mobile phone.
  2. Expand options: From hybrid to closed- and open-loop programs, retailers have plenty of choice when designing their gift cards initiatives. However, open-loop programs are a great option to further support consumers. These make gift cards usable at a wider range of store outlets, utilising popular scheme networks, catering to diverse needs and offering customers greater flexibility and choice. In addition, multi-choice cards offer retailers a low-cost entry point to distribution, with a potential share of sales, but without the up-front requirement for investment.

  3. Simplify redemption: While consumers are growing accustomed to acquiring and spending gift cards digitally, streamlining the redemption process, like providing already activated gift cards, remains crucial. This ensures that all customers, regardless of how tech-savvy they may be, are able to utilise gift cards in a simple and efficient way.

  4. Extend reach: Many retailers sell gift cards primarily via their own physical and digital channels, such as in store or on their website. Exploring third-party distribution models, like partnering with online resellers and placing gift cards in malls within supermarkets, enables retailers to maximise the efforts of their program, reaching more customers while driving sales.

  5. Personalise offers: Gift cards spending behaviour offers a wealth of insights that retailers can take advantage of to provide offers that are tailored to customers' preferences and habits, providing a truly personalised shopping experience.
  6. Reward loyalty: Embedded finance has taken the retail world by storm and gift card initiatives aren’t immune to this transformation. Utilising gift cards as a mechanic that enables customers to earn points for specific shopping behaviours, or allowing them to exchange loyalty points for gift cards, designs a customer experience that rewards loyalty, and is beneficial for consumers and retailers alike.

By implementing these strategies, retailers can navigate the economic challenges with resilience, while fortifying their position as pillars of support within their communities.

 

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How retailers can benefit from enhanced gift card programs

Enhancing gift card programs offers retailers a multitude of benefits that significantly contribute to their bottom line and customer satisfaction. In the face of fluctuating consumer spending, the global market for gift cards presents a promising opportunity for retailers, with projections indicating exponential growth to $2.3 trillion by 2030. This growth trajectory underscores the enduring appeal and resilience of gift cards as a preferred choice for consumers, providing retailers with a reliable revenue stream amidst economic uncertainties.

Data from the GCVA further highlights the advantages of gift card programs, revealing that, in 2023, 43% of UK consumers exceeded the value of their gift cards by an average of £10 when making purchases. This tendency not only boosts revenue and profit margins for retailers but also fosters increased customer loyalty. By incentivising customers to return for additional purchases, beyond the initial gift card amount, retailers can cultivate lasting relationships with their clientele, driving repeat business.

Moreover, issuing gift cards offers retailers immediate access to cash flow for products that have yet to be tendered. While recorded as a liability on their financial books, gift card sales provide retailers with instant liquidity, allowing them to address operational needs, invest in growth opportunities, or navigate financial challenges more effectively.

Despite the strain on household budgets, consumers continue to view gift cards as a convenient and versatile option for gifting and personal use, ensuring a steady revenue stream for retailers even in challenging times. This stability not only bolsters retailers' financial outlook, but also instils confidence in investors and stakeholders, reinforcing the strategic value of gift card programs as a key component of their business strategy.

 

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In conclusion

Recent data indicates a significant uptick in gift card sales and expenditure, reflecting a shifting trend from traditional gifting to utilising gift cards as versatile budgeting tools. This evolution offers consumers enhanced flexibility, control, and convenience when managing their finances. By recognising this transition and strategically investing in their gift card initiatives, retailers stand to reap numerous benefits, including increased revenue, customer loyalty, immediate liquidity, and resilience in the face of economic uncertainty.

By capitalising on the growing market demand for gift cards, and leveraging data-driven insights to optimise their programs, retailers can position themselves for sustained success in a volatile market, while serving as a fundamental player in supporting consumers facing challenging economic conditions.

 

 

Design, build, and launch your ideal gift card solution

 

With Edenred Payment Solutions as a trusted partner, retailers can unlock the full potential of their gift card initiatives, by leveraging our expertise and resources, to drive customer engagement and foster lasting brand loyalty.

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