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The marketing and engagement secrets behind gift cards (Part 1)

A gift card is much more than a gift. Retailers are taking gift cards as the entry point of social scenarios to guide potential customers into the closed loop of retailer’s payment, membership and ordering system, and gradually cultivate customers to generate new consumption habits.

Let’s take the Starbucks Gift Card as an example. It is designed not only to support gifting, but also provide customers with a convenient payment method and increase the frequency of store visits by cardholders. Starbucks has succeeded in getting many of its customers to use gift cards to buy coffee, instead of using cash or debit/credit cards. According to statistics, the cash retained in the Starbucks Gift Card has exceeded the deposits of many financial institutions in the United States.

When you think Starbucks is selling coffee, they have actually become a "card selling company."

So, what exactly is a gift card?

We didn't see the secrets behind the gift card, perhaps because the word "gift" grabs all the attention. There is actually another name for gift cards, that is “prepaid cards”.

Therefore, we need to see gift cards through a double lens in order to understand its nature: one lens is “gift” which stands for the social aspect, the other is “prepaid” which stands for the payment aspect.

1. Social attributes of gift cards

First, a gift card is a gift. As the ownership of the card can be transferred, consumers can send it as a fashionable gift to their friends.

Starbucks has carefully designed its gift cards’ social attributes. For example, each gift card has a beautiful design, so when it is given away, it also reflects the taste of the giver. Another example, Starbucks and WeChat have teamed up to create a social gift platform called "Say it with Starbucks". Through this platform, WeChat users can send out Starbucks eGift Cards as social gifts just like sending Chinese Hong Bao to friends.

When the card is regarded as a gift, its value is reflected in following ways:

For consumers, it can meet their emotional needs of expressing goodwill in a social way, and provide an interesting and convenient gifting experience.

For companies, gift cards can increase brand exposure and enhance customer loyalty. Imagine that every time a user sends a Starbucks Gift Card to a friend, it is actually a free advertisement for Starbucks, and this kind of advertisement that relies on the social relationship tends to be more effective. In addition, users who are willing to send out gift cards are often loyal members of Starbucks. By better embedding services into these members’ everyday scenarios, Starbucks is actually further building up member loyalty.

Well designed Starbucks eGift Cards in「Say it with Starbucks」

2. Payment attributes of gift cards

A gift card is also a prepaid card, more precisely, a Single-Purpose Reloadable Prepaid Card.

It means that it allows users to preload monetary value onto their Starbucks Card and those funds are available for future use. Prepaid cards get rid of the restrictions that payment and ordering occur at the same time, and separate them in terms of time.

Don't underestimate this separation, which actually can be very helpful.

For consumers, prepayment eliminates the trouble of giving change at cash payments (while, this is no longer a problem in China where mobile payments are relatively developed). On the other hand,  users’ payment experience can be further optimized by Starbucks when using the Starbucks Card.

For companies, the benefits are greater. The company’s prepaid cards can lock in the scope of consumption to its own brand. Secondly, the preloaded value on the card can stimulate users to spend more frequently. Thirdly, companies can earn some residual value income, such as unused prepaid card balances.

The digital evolution of Starbucks Gift Card

Starbucks has been imitated by other retailers frequently as a benchmark among retailers that use prepaid cards.

However if we look at the digital evolution of the Starbucks Gift Card, we will find that their payment system with gift cards as the core has been accumulated and developed over a long period of time, and it will not happen overnight.

The evolution of Starbucks Card
In 2001, Starbucks began to issue physical gift cards in North America, and was one of the pioneering companies that began to implement this new way of paying. According to the survey, people actually regard gift cards as a convenient payment rather than a gift, because the target users of the gift card are loyal Starbucks members with high-frequency consumption of coffee and high-frequency payment scenarios. Thus, they urgently need a more convenient payment method.

In 2009, with the launching of mobile payment, users can reload value online on the cards and use the e-cards to pay, the Starbucks Card evolved from a prepaid card to eWallet.

After Starbucks entered China, the gift card business has been tepid, partially due to the popularity of mobile payments in China. Chinese consumers have become accustomed to the convenience brought by third-party payment, and the value of gift card payment experience is not obvious.

In 2016, in order to change the situation, Starbucks reached a strategic cooperation with Tencent to fully adopt WeChat Pay, and two months later, they jointly launched the social gifting platform “Say it with Starbucks”. By leveraging WeChat traffic, Starbucks is trying to bring new users to gift cards.

Besides the social gifting innovation in Chinese market, Starbucks China has been working on more digital innovation in user payment experiences. 

In 2018, Starbucks China launched the Starbucks Gift Pack to combine the Gift Card and Reward Card into one. Previously, users had to scan the QR code twice to earn reward points and complete payment separately. Now, as the Starbucks Gift Card will be automatically bundled with a membership account when users buy the Starbucks Gift Pack, it allows users to earn reward points and pay simultaneously by scanning one time.

Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.

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