A gift card is a good option when you dry up on ideas of what to offer to your friends on their birthday.
But in fact, 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.
What do you value most when giving gifts? I believe the giver's goodwill is more important than the actual value of the gift. Therefore, 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.
2. Payment attributes of gift cards
A gift card is also a prepaid card, more precisely, a Single-Purpose Reloadable Prepaid Card.
In China, government authorization is required if companies want to issue prepaid cards. "Single-Purpose Card", which is relative to "Multi-Purpose", is limited to be used in the card issuing company. In other words, the Starbucks Gift Card can only be used within the Starbucks ecosystem.
"Reloadable Prepaid Card" 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.
In 2001, Starbucks began to issue physical gift cards in North America, and was one of the pioneering companies that began to implement gift cards. Originally Starbucks intended that consumers would give coffee as a gift. But the interesting thing is that according to the survey, only 25% of people actually regard gift cards as gifts, and more people use gift cards mainly for the convenience of payment. The result makes sense because it’s actually in line with the target user persona of the gift card. They are loyal Starbucks members with high-frequency consumption of coffee, and leading to 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 QR code twice to earn reward points and complete payment separately. Now, as the Starbucks Gift Card will be automatically bunded with a membership account when users buy the Starbucks Gift Pack, it allows users to earn reward points and do payment simultaneously by scanning one time.
Looking at the evolution of gift cards over the past ten years, two directions can be seen: one is to build innovative social scenarios and attract new customers, the other is to build a seamless digital payment experience and create customer loyalty. And these two directions can be brought together for one purpose, that is to allow more people to pay more frequently with gift cards.
What do gift cards mean to Starbucks?
So how does Starbucks get more people to pay more frequently with gift cards, by top-down design?
Stores, mobile apps and gift cards are the key touch points between Starbucks and consumers. Accordingly, coffee ordering, membership services and payment are the core customer service scenarios.
The mobile APP serves more than 13 million active members in China. Starbucks China has more than 4700 stores, which carry 70% of coffee orders in the Chinese market. Gift cards are the core of Starbucks’ self-built payment system.
In the "Digital Flywheel" strategy released by Starbucks in 2018, these three aspects have been elevated to a new level of digital strategy, with loyal members, convenient payment, and fast ordering as strategic goals.
The three systems are not actually isolated from each other. If we look at it from the perspective of the user journey, Starbucks is guiding users to seamlessly move between them by careful design.
A new user, no matter from which scenario, enters the Starbucks service loop, he will always be guided to the other two scenarios. For example, when he goes to the store to buy a cup of favorite latte, he will show the QR code of the Starbucks Gift Card to do the payment, and then count the newly earned reward points (Stars) in the mobile app. Users will ultimately develop a new habit that is well-designed by Starbucks. Three systems are just like a closed loop of traffic, which firmly locks consumers into the system.
In the past, the starting point of this closed traffic loop was mostly the mobile app or stores, but now gift cards may also become a new traffic entry point. With the support of the WeChat social platform, potentially new users can enter the system through the gifting scenario. You have to go to the store if you want to use the gift card from your friend and you have to register a Starbucks membership if you want to redeem coffee with your gift card.
So, the gift card means the last piece to Starbucks for making the service loop complete.
Why do retailers want to make gift cards?
Starbucks is outstanding in the field of gift cards, and there are many imitations and followers. Their primary purpose is for marketing and building payment capabilities, rather than the revenue from selling cards.
Why do these companies build their own payment systems instead of using mature third-party payment? And, how is marketing done during payment?
1. Consideration from the perspective of cash flow.
The importance of cash flow to companies has become even more self-evident after the impact of the COVID-19 epidemic. Sufficient and stable cash flow is the guarantee of business sustainability. In fact, third-party payment has a certain impact on the cash flow of a company and the problem lies in the settlement period.
Taking WeChat Pay as an example, funds for each consumption will firstly be credited to the merchant's WeChat Pay account, and it takes a certain time to withdraw funds from the WeChat Pay account. The money given by consumers for buying coffee today can only be settled and withdrawn after one day, and finally credited to the company's bank account after another 1-2 days. Even though the delay is only two or three days in total, a large number of transactions can amount to a significant impact on cash flow.
The prepaid card can somehow solve this problem. The prepaid money of the cards will be credited to a special reserved account in the bank designated by the company. When consumers use the card to pay for coffee, the corresponding amount in the reserved fund will be transferred to the company bank account immediately.
Governments are tightening the supervision of reserved funds, so enterprises can no longer use the reserved fund at will. However, prepaid cards are still good for cash flow because the settlement period is shortened compared to before.
2. Consideration from the perspective of user touch points.
Payment is an important touch point in the entire consumer experience. It is the end of the sales journey, while it is also the starting point of the after-sale journey.
People usually judge an experience largely based on how they felt at its end, the payment experience will affect the user’s feeling of the entire service, resulting in an impact on repurchase rate. However there is still payment friction in most countries, compared to the convenient payment in China.
So building a low-friction payment experience and grasping the opportunity to interact with users in payment scenarios is a must consideration for retail experience design.
In 2020, WeChat launched "Payment as a Service". It pushes business cards of the merchant’s staff to consumers, right after payment is completed. Watsons adopted the "Payment as a Service" in all their stores across the country in March, bringing 5 million customers to their Beauty Advisors every month.
In order to create a premium service for customers even if they have left the store, customers can always come back from the online entrance of the payment voucher, and contact the BA who provides services previously. By integrating the OA system with the CRM system, BAs can also promote products and issue coupons for customers to achieve accurate and effective conversion.
There is still a lot of room for innovations of gameplay in payment scenarios, but the premise of all these innovations is that companies can take complete control over the design of payment scenarios. This should be one of the reasons why companies want to launch gift cards on their own, in order to cover and control all user scenarios.
3. Consideration from the perspective of user data.
There are different opinions on the concept of new retail, but they all mention "data-driven". Retailers have been launching various services, some of them are even unprofitable. If you can not see clearly the reason behind them, data is probably the answer.
Starbucks' early reluctance to adopt WeChat Pay and Alipay was due to concerns about third-party payments running on its own payment system, and on the other hand, there may also be concerns about data leakage.
How much do companies value their data assets? For example, New Oriental CEO Yu Minhong once publicly disclosed, "Tencent and Alibaba have contacted me. Many companies have contacted me and hope to share New Oriental’s data with them, including the learning path of New Oriental students. They will use their AI system to analyze students’ learning habits、attitudes and methods, and the final results will be shared with New Oriental."
Do you think this is good for New Oriental? Yu Minhong’s answer is “No”, “I dare not share the data of New Oriental, because for big Internet companies such as Ali and Tencent, if they get user data and find some talented people to form a team internally, it is very likely to incubate a new education company.”
Therefore, it would not be a surprise if Tencent or Alibaba got the data of coffee consumers and quickly incubated the "second Starbucks".
Summary
We are in an uncertain and complex world, it is more important than ever for retailers to build a valuable digital engagement with customers in the post-pandemic era. Engaging users in a pre-designed way will allow companies to collect user data and manage user experience more smoothly, and ultimately in turn, better serve users.
Starbucks told us a good story of customer engagement, but it can only be a reference for other retailers.
Retail companies should figure out their own gift cards solution and take it as the entry point for their digital payment and customer engagement strategy.
Regarding the implementation of gift cards, we can talk about more in the next article.