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What to know before selling gift cards in your business

As gift giving season ramps up, retailers and others who haven’t sold gift cards in the past start asking questions. I always see a bump in visitors searching for that info during this time of year so I thought I’d include a primer for business owners looking into selling gift cards (though it is a little late to be considering it for this year’s Christmas shopping season).

Before you start selling gift cards ( sometimes called stored value cards ) in your business, it’s important that you understand the difference between the types of cards that are available. Knowing these things will allow you to decide which type of card is best for your business.

First, let’s look at the 3 different types of gift cards.

Private label / store-only gift cards

Usage: A private label (or store-only) gift card is a card that works only in your store(s). An example of this would be a Best Buy gift card or a Barnes and Noble gift card. You can’t use a Best Buy gift card at Wal-Mart, nor can you use a Barnes and Noble gift card at Borders.

Point of sale: Typically, your point of sale (POS) system has to be setup specifically to handle these cards, both when selling the gift card (and storing value on your POS system), as well as when using it for payment. Ask your point of sale vendor if they have this sort of functionality before you order thousands of cards. If they don’t, you’ll either need to use a network card (see below) or get a different POS system. The big advantage to these cards is that your only cost is the card itself (assuming your point of sale system handles private label cards).

Authorization: No credit card network is used to authorize these purchases. That means that your point of sale system must provide all the functionality to let you register and activate the cards, store value on them, properly account for the sale and the unspent stored value, pay for purchases, and deal with lost and stolen cards.

The benefits of all that extra work are not having to pay for the network fees for purchases made with gift cards and knowing that your customer will have to spend their gift card at your business rather than anywhere and everywhere.

The nice thing about store-only cards is that you can typically have complete control how the program works. Like all the other types of gift cards, you can sell gift cards online via your website and in your retail location.

TIP: If you order this type of card and your point of sale is capable of processing them like any other credit card, I strongly suggest ordering cards whose number starts with 1, 2, 7, 8 or 9. Reason: American Express card numbers start with 3, Visa cards start with 4, Mastercards start with 5 and Discover cards start with 6. Don’t start the card numbers with zero, you’ll just find it annoys your point of sale and probably your staff as well.

Private network gift cards

Usage: A private network gift card is one that (sometimes) works using the regular credit card network, but there are some that don’t. I suggest you avoid those so that you don’t have to deal with additional point of sale hardware, possible manual transcription errors (moving info from the terminal to the POS system), and related issues. Normally these cards work similarly to private label / store-only gift cards, specifically that they can only be used within the specific store(s)  that put the card system together.

Point of sale: Most private network cards use the regular merchant account authorization systems, so your point of sale system shouldn’t have to be changed assuming that you already use it to accept credit cards or debit cards.

Authorization: The big difference between these cards and the private network store-only cards we spoke of a few minutes ago is that these cards are authorized over the regular credit card network (such as Nova’s). It’s not unusual to find resort areas, small towns and shopping malls that offer these types of cards and set them up so they are only authorized for use in those areas. These cards aren’t as popular as they used to be, because of the growth of credit card network gift cards, which I’ll cover next.

Credit card network gift cards

Usage: These cards act just like a regular credit card except that the spending limit is the amount of value stored “in” the card. The value really isn’t stored in the card of course, it’s stored on a computer system at the card issuer (eg: Mastercard, Visa, Discover or American Express). These are the same gift cards you can purchase at any bank.

Authorization: The same credit card authorization network that you use with regular credit and debit cards is used to authorize purchases using this type of gift card.

Point of sale: One substantial upside to these cards is that they can be used in any existing point of sale system or credit card sales terminal. Many of these act as debit cards, though I have found that these cards do not always work at gas stations, particularly 24×7 unattended gas pumps.

Designing your cards

Typically you can get these custom printed with the image of your choice. Don’t scrimp on the effort you put into making your cards look great. A couple of hundred bucks spent on a skilled designer will go a LONG way toward making your cards sell, as attractive gift cards sell much better. Maybe it doesn’t make all that much sense, but a card that fits the image of your business will simply sell better. If the products you sell are visual, you definitely want to make sure your cards show off your product.

Optional features of gift cards
Some options to consider (again, talk to your point of sale vendor):  a printed barcode (which will scan via your point of sale terminal), with a magnetic stripe, or both a stripe and a barcode. You can also get a unique card serial number printed on the back, or embossed into the card like a regular credit card. Credit card network gift cards don’t typically offer these options – you get what you get, but it doesn’t really matter because they’re already integrated into your POS system.

RELATED TOPIC: Why should a small business sell gift cards?

Competition Marketing Retail

Why should a small business sell gift cards?

photo credit: JasperYue

In 2007, $60 billion in gift cards were purchased, amounting to 12% of gift sales during the holidays, according the retail industry sources that track this sort of thing.

$26.3 billion worth of gift cards were sold in November and December 2007 alone.

How many did you sell?

Some Wal-Mart stores have express checkout just for gift cards.

The big reason not to offer them, despite what everyone else says:

  • Breakage, which is a fancy word for “people wont use them”. This is the ridiculous reason that many analysts tout as the best reason to sell them. Obviously, they don’t own a business.

How would you like to sell something one time and never sell something to that customer again? Does that make ANY sense?

Breakage is the LAST thing you want from a gift card customer. You want them to come back and empty that card because… you want them to come back.

The gift card is really a gift for you from whoever buys it. They’re telling their friend or family member, “Hey, shop at this store, I trust them.” and then send them to you, pre-sold on your business’ ability to make them happy.

Once they visit with that gift card the first time, find a way to get their contact info into your store systems. Why?

Because you want to be the ONLY one who reminds them that they still have a few bucks on their card. In fact, that alone is a good reason to ask them for that info.

Who wouldn’t want to be reminded that they have a gift card with money on it? Even better, if they lose the card, wouldn’t you want to be able to deactivate the old card and move the remaining value to a new one?

Communities can put these things in place so that a card is good all over town, but you can just as easily get them that work only on your point of sale systems. Consumers love em. One size fits all:)

RELATED: What to know before selling gift cards in your business