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BizReport : Loyalty Marketing : November 11, 2016

Expert: Why gift cards don't make good rewards

Gift cards may be in-demand as gifting options this holiday season, merchants shouldn't make gift cards the key to their rewards program. That, according to one expert who believes there is a better tactic to building loyalty.

by Kristina Knight

Kristina: This holiday season, shoppers will be racking up rewards. You believe those rewards should not include gift cards. Why?

Mike Polner, Director of Product Marketing, FiveStars: From a merchant perspective, gift cards are a good way to drive cash flow, increase spend and to bring in new customers. They can be an effective tool, especially around the holidays, but should not be used completely by themselves. The better approach is to use gift cards in coordination with sales and marketing tactics built specifically for the purpose of driving customer loyalty. It's more cost-efficient for small retailers to try and retain their existing customers than to try and acquire new ones, so implementing loyalty techniques to keep retention high is essential for small business success.

Kristina: Is there a good time to use a gift card as a reward?

Mike: Gift cards can be a great reward around the holidays if they are priced effectively and efficiently. The main benefit to using gift cards is that it drives cash flow for the merchant without requiring them to pay a hefty sum of money, increasing customer traffic -- both new and old. The holidays are the perfect time for this because current customers want to share their favorite stores as a gift to their like-minded friends who are likely to be a good referral.

Kristina: What alternatives should retailers consider?

Mike: Other methods can and should be used in coordination with gift cards -- specifically methods that serve the purpose of building customer loyalty and increasing spend so small retailers can remain competitive. Simple marketing tactics such as offering the right promotions to the right shoppers based on previous spending history can be effective for increasing retention. Special limited time offers for customers in the store such as free samples or buy one get one free deals to go along with gift-card sales can also increase spend and drive the acquisition of new shoppers.

Tags: FiveStars, loyalty marketing, loyalty trends, rewards marketing, rewards trends

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