How Do I...Choose a Gift Card?

Gift cards are one of the most popular choices for employee incentives this year, but small firms like all businesses should do their homework to determine which cards to purchase.

The cards have become nearly ubiquitous. A few years ago they were available generally only in the store or via the Web site of the retailer that honored them, but today many of the largest retailers offer gift cards in just about every local supermarket.

Andrew Dodge, president of the Incentive Gift Card Council, an industry group of the Incentive Marketing Association, said the cards also have risen in popularity because of their universal acceptance. "Gift cards are enjoying favorable ratings across demographic segments, and because of that program managers have wanted to include key brands for employee motivation, sales incentives and customer award programs," said Dodge, who is also senior manager of national accounts at national retailer L.L.Bean.

His advice to small businesses considering buying gift cards in bulk is to "know who you're doing business with and to seek business from established brands. Do a background check," he said.

Dodge recommends firms do an online search of the news to make sure they're aware of any negative financial news from retailers. "Retailers have been very forthcoming about their earnings," he said. For example, Circuit City recently announced - and it was widely reported - that it was going to reorganize its business. With that statement, it publicly said it would support existing and ongoing programs including gift cards.

Sharper Image recently gave gift cards a bad name when it declared bankruptcy and said it would not honor its gift cards. "We have seen some really challenging scenarios in the last year," said Dodge. "Sharper Image was the most high profile."

Overall, gift cards are still a big seller -- gift givers are expected to spend about $25 billion on the cards this holiday season, according to the National Retail Federation. However, that's a 6 percent drop from last year. NRF President and CEO Tracy Mullin explained the drop, saying "since gift cards never go on sale, some price-conscious shoppers will be passing up gift cards in favor of holiday bargains." This could also mean retailers need to prepare for fewer people visiting stores in January to redeem the cards, according to Mullin.

However, the NRF said that gift cards are expected to be the most requested gift this year, followed by books, CDs and DVDs.

Dodge said businesses should decide what kind of message they want to send to employees when choosing a gift card. "Businesses of all sizes have a tendency to marry a theme with their gifting choice," he said. For example, companies that buy gift cards from L.L.Bean may have a culture that values the outdoors, while a purchase of Apple gift cards may show an employer values music. Dodge said that "giving Starbucks cards can celebrate being warm in the winter time and it's convenient while a Williams Sonoma card may be for someone who wants to pamper employees."

"If a small business wants to buy six or 12 cards, we've found it's very common that they'll have thought about what type of gift experience to have," he said. "The benefit of the gift card for the recipient is that the recipient gets to choose the exact gift," he said. But there may be times when a gift card is not the best gift, Dodge acknowledged. "A company instead may want to choose a product with a company logo or to celebrate something specific that happened in the business that year."

It's standard practice for retailers to print terms and conditions on the backs of gift cards. Purchasers should be aware that "it's common but not universal" that bank cards and cards issued by most credit firms like American Express, MasterCard and Visa usually have expiration dates and additional fees, as do some mall or general retailer cards, said Dodge.

Common fees include activation fees and monthly inactivity or maintenance fees that kick in if the card isn't used within a certain time frame, draining its value.

Dodge advises would-be purchasers to read the fine print on the cards or contact the customer service departments of the retailers that sell cards to businesses. "Most have some sort of [business to business] division that are well versed at communicating the terms and conditions....Almost all retailers have a gift card page on their Web site that also details terms and conditions."

The Office of Thrift Supervision publishes a consumer fact sheet (PDF) on buying, giving and using gift cards, including information on what to do if you have a problem with a gift card.

E-mail cards -- which allow green-minded companies to skip the plastic -- are also available. The recipient receives a card number and PIN via email, and may instantly redeem the gift.

"A bonus of the e-mail card is that you can buy them year round but time the delivery on a specific day, "said Dodge. "This allows people to buy these virtual cards, send them to 15 different employees in different locations, but they all arrive at the same time on the same day."

Dodge said recent studies have shown that gift card recipients remember where they got the gift and what they purchased with it.

"I may be wearing a new jacket or I may enjoy a hammock," said Dodge. "In most cases we remember how we got that product."

By Sharon McLoone |  December 8, 2008; 2:09 PM ET How Do I...
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