6 Secrets to Gift Card Success
There are many important factors that determine the success of a gift card program, but perhaps the most critical of all is management structure. Over the course of working with thousands of companies to set up and operate prepaid card programs over the past 17 years, First Data has observed how merchants organize the essential role of program management, including which individual or group "owns" the program; to whom this person or group reports; and the owner's relationships to the company's business units and functional areas.
From a processor's perspective, I've seen that structural nuances can mean the difference between a successful gift card program and a very successful program. Accordingly, I've identified six gift card management approaches that work well as long as they correspond to what retailers seek to achieve from their respective gift card programs:
Approach No. 1: Single Ownership Program Structure
A single person is designated as the gift card program owner (GCPO) in this management structure. In the overall corporate management structure, the GCPO is at the same level as the executives who oversee the product, IT, marketing and finance departments. This equality in stature is important to ensure that the GCPO is impartial to another department's interests.
With regard to the gift card program, the GCPO makes the final decisions. However, they should partner with and understand the interests of the internal groups that are impacted by the decisions made at the program level. This creates transparency and garners buy-in and support from the critical internal groups. This approach is predominantly apparent in the small and midmarket space, commonly seen in grocery, specialty retailer and petroleum establishments
Approach No. 2: Committee-Centric Program Structure
Very common in the national and international market space, this approach is defined by advisory board ownership of the gift card program. There's typically a person designated as the GCPO, but he or she is much more responsible for executing the board's decisions rather than individually making them. Each manager from the different business areas has direct input to the decision process.
There's a high level of transparency about the program due to the lower level of management participation. Each business unit is able to evaluate decisions from the perspective of operational impact. Commonly used by specialty retailers, restaurants, quick-service restaurants (QSRs), and entertainment and hospitality establishments, this approach is much less likely to result in battles over funding and control. It effectively reduces internal politics squabbles.
Approach No. 3: Customer-Centric Program Structure
Also commonly used in the national and international market space, this management structure is run by the marketing department and focuses on customers. The GCPO is typically a director or vice president who reports directly to the lead marketing executive, but who also has a "dotted line" relationship to the finance, IT and product business units. Marketing must consider the interests of these other groups because the gift card program's costs and operations will impact them.
Organizations employing a customer-centric approach have also positioned their gift card programs as powerful marketing and advertising tools by incorporating other solutions. This type of program often costs more to operate but it can be worthwhile because of the positive impact it has on the rest of the business. This approach is popular among specialty retailers, restaurants, QSRs, and entertainment and hospitality establishments.
Approach No. 4: Cost-Centric Program Structure
When a company is very sensitive to the cost of a gift card program, the finance or accounting department is usually given ownership. In this case, the program is managed as a commodity rather than as a strategic asset. This type of program can be successful but often doesn't reach its full potential. For example, a brand's gift cards may have less success positioned as impulse purchases with less appealing design and placement at gift card malls.
A cost-centric approach is commonly seen across all market sizes and verticals, predominantly in the small and midmarket space for grocery and petroleum establishments.
Approach No. 5: Innovation-Centric Program Structure
This management structure, seen in any industry vertical for small and midmarket merchants, is used by companies that seek to be market leaders by offering innovative products. Joint program ownership is established between the marketing and product teams. The GCPO typically reports to the director or vice president of each of these departments, and he or she consults with managers from the IT and finance units.
This type of organization has a "first to market" philosophy. From an industry perspective, this merchant drives change and carves new paths where gift cards can be applied. It capitalizes on the "cool factor," especially in youth-oriented markets. In many instances, offerings are driven through the latest social media avenues.
Approach 6: Franchise-Centric Program Structure
This program management structure is highly recommended for companies with franchise owners. It's commonly seen with midmarket QSR's, restaurants, grocery stores and petroleum/convenience store establishments. There's joint ownership of the gift card program decision-making process between the corporate GCPO and the franchise GCPO in this approach.
With partial ownership of the program, franchisees see how they benefit from a program that the corporate entity wants to implement. The benefits can include increased sales since the franchise owner is typically more engaged and can provide key input into program design. It's also common to see increased engagement when the revenue from float and breakage (i.e., when cards are never redeemed) is shared with the franchise owner, which creates an additional financial incentive to sell more gift cards.
Program Structure Helps Achieve Maximum Potential
It's up to each individual company to determine what its main objectives are for its prepaid gift card program and, subsequently, how it align its management structure. Whether a company's gift card program is new or has been operating for years, I encourage retailers to review their approach to program management and ownership. Doing so may help to illuminate opportunities to derive greater economic value from the program while maintaining the same goal for success: to maintain consistency and alignment with the company's strategic vision.
Michael Hursta serves as the Closed Loop Prepaid category manager at First Data Corporation. Hursta is responsible for the product strategy and financial performance of the company's gift card processing business. Michael can be reached at michael.hursta@firstdata.com.
