This blog is from our four part series on the state of gifting. Read our previous one here.
The ubiquitous nature of technology has made it almost impossible to detach, distance or unplug. Just take sending a piece of mail as an example. When was the last time you wrote an actual letter to a friend? Sending a physical greeting has been replaced by text messaging, emails and Facebook likes.
In our previous post, we discussed that while gift cards remain a popular gift choice due to the convenience of giving, they still lack certain qualities that gift buyers are looking for. The physical gift card industry is being disrupted by customers’ desire for instant gratification; we are less patient than before and we now expect immediate returns. It is no longer about how convenient it is to purchase a gift, but rather how quickly the gift can be given to the recipient. This gradual shift has lead to 69 percent of customers who are now more interested in purchasing digital gift cards than they were two or three years ago.
So how does this change in customer behavior affects the demand for online gifting?
Figure 1: Breakdown of Gift Card Purchases via Different Channels (by First Data Consumer GIft Card Study 2013)
With the change in customers’ needs and the innovation in technology, it is not surprising to see that the behavior of giving gift cards is gradually shifting from physical brick and mortar stores to online platforms. The digital gift card industry was worth $2.9 billion in 2012, which constitutes 3 percent of the total gift card industry. While this transition is just beginning, the nascent electronic gifting industry has already proven it has massive potential – both in forging new markets and creating unique customer experiences. In the above table from the First Data, we see that the percentage of people who bought gift cards online increased from 11 percent to 26 percent between 2012 and 2013. Comparatively, there was a 10 percent decrease in the number of people who bought their gift cards at a physical location during the same period. These statistics suggest that there is something more that is attracting gift card buyers to purchase electronically as opposed to purchasing from physical stores. The potential of online gifting can thus be leveraged to increase sales if retailers take action to capitalize on this customer behavioral shift.
This observation is further emphasised by a recent study conducted by Blackhawk Network that shows that gift card buyers today value “immediate delivery” and the ability of a digital gift card to reach “out-of-town” recipients. In the study conducted across 440 gift buyers, 53 percent of them ranked the immediate delivery of a digital gift card as the main reason for purchase, and the ability to reach out-of-town recipients as the next most cited reason. These two highly-valued attributes, which physical gift cards lack, can now be easily satisfied through the giving of digital gift cards. Additionally, digital gift cards also open up new vertical channels for gift card purchases, expand opportunities and create more growth for retailers. Blackhawk Network explains in the same article that, “digital gift cards are helping retailers … by appealing to a new group of buyers, more often males with higher incomes, who value convenience and last-minute shopping opportunities.”
Having all that said, there is still a time and place for physical gift cards as adequate gifts. In the same Blackhawk Network article, they admit that currently “Digital gift cards are perceived as even more impersonal than physical gift cards.” For example, a customer may purchase a gift card for a friend but not for a close loved one or for recipients whom they are going to meet in person. The ability of digital gift cards to serve as last minute gifts may also be seen as a double-edged sword as it might appear to some as a less than exciting way to indicate that “they forgot” your birthday.
Which brings us to the question – how can we leverage the capabilities and freedom that electronic gifts affords customers (immediacy, long distance gifting, etc.) while addressing the attitude that they are impersonal? What if retailers could adopt technologies and services that leverage the ease of the digital gift card, but with the thoughtfulness of a real gift? In our concluding article in this series, we will provide retailers a few suggestions to enhance the online gifting experience for their customers.