The Marketing Manager's Yearbook 2006
The Value of Vouchers as a Marketing Tool
Andrew Johnson, Chair of The Voucher
Association and
Sales & Marketing Director at The Virgin Voucher
The paper voucher is firmly entrenched at the heart of the promotions and incentive sector. Marketers have long appreciated the value of vouchers as an effective tool to boost staff motivation and sales promotions. Over the past three decades vouchers have offered companies the ideal gift with which to incentivise both staff and customers. According to the latest report from The Voucher Association (VA), the market currently stands at a record £1.45 billion, with sales to corporate users accounting for just over 40%. Furthermore, with overall voucher sales up 4.7% over the course of 2005, it is safe to say that vouchers will be around for quite some time yet.
The motivation and loyalty sectors have been growing in both size and scope. The robust state of the industry can be attributed to the fact that more and more UK businesses are using vouchers to enhance their corporate incentives schemes, customer loyalty programmes and marketing campaigns. On occasion vouchers have been accused of being ‘unimaginative’, yet the fact remains that they continue to grow in popularity. Looking at the alternatives can help us to understand why.
Mass appeal
Choosing a promotional gift or scheme that suits everyone is extremely difficult. Even when a campaign is focused on a specific type of person, it cannot be guaranteed that the promotion will appeal to all of its target audience. As any marketer will know, the key to gaining the interest of a wider range of people lies in offering choice. This can be achieved in a number of ways - perhaps by offering a number of different options within a promotion. However, this type of scheme can be costly to run and cumbersome to administer, and the range offered may still not appeal to a broad enough cross section. Alternatively, we can look to vouchers.
The figures demonstrate that paper undoubtedly works. The market has grown from £1.3bn in 2003 to £1.45bn in 2005. In the past vouchers may have been thought of as pieces of paper with specified amounts written on them. However, it is now becoming widely accepted that they offer much greater choice and flexibility. The profile of VA members shows the diversity of the market. These include traditional retailers, activity and travel/leisure providers. There is also the option of ‘multi-retail’ vouchers, which incorporate a number of brands on the same voucher. We estimate that there are currently more than 200 vouchers available on the market offering a one-size-fits-all solution. The industry currently seems to be experiencing growth in the number of vouchers available in the leisure sector, with vouchers offering holistic treatments and curry meals being the latest additions to the hundreds of vouchers out there. Vouchers and, more recently gift cards, are tickets to whatever the customer wants with opportunities ranging from driving their dream car to enjoying a nice bottle of wine.
Gift cards
It is definitely a tough market out there, with increasing levels of competition forcing businesses to work harder than ever to attract customers and build that elusive ‘customer loyalty’. Organisations of all sizes and in all areas are being forced to look at how they can continue to appeal to current customers, whilst finding a way to reach out to more. As such, marketers are under increasing pressure to prove the accountability of their methods to measure the success of a campaign. Vouchers are tried and tested as a tool for marketers and now gift cards have joined the mix.
In the US gift cards outsell paper by 200 - 400% in the consumer market, yet the business-to-business sector has been much slower on the uptake. There has been a similar reticence on this side of the pond. Gift cards have begun to creep into the British high street but have failed as yet to break into the corporate market. A number of providers now offer them and those that don’t as yet are certainly thinking about it. Research undertaken by Mintel on behalf of the VA found that, of those currently using gift cards, 87% have found their experience to be a very positive one. The research also shows that 73% of those purchasing electronic cards are doing so in conjunction with paper. The evidence therefore suggests that cards aren’t supplanting paper, but are used as a supplement to schemes thereby providing greater choice for marketers.
An important point to bear in mind is that gift cards are considered more secure as they are only activated at the point of purchase. Until then they are worthless which means that they can be more effectively merchandised throughout the store helping to raise their profile and maximise exposure. An additional bonus is the option to top-up cards that can also offer a communication opportunity as top-ups can be accompanied by an email or text to the recipient informing them of their new balance. The gift card is a mechanism by which you can get into a consumer’s wallet and the card itself can be personalised with an image or slogan that can really help to hammer your message home. They also offer a greater opportunity for redemption analysis as each card can be tracked helping to monitor the effectiveness and return on investment of a campaign.
The impact of technological advancement
Online redemption of vouchers and gift cards is also likely to be an important factor in the next couple of years with the latest figures from Interactive Media in Retail Group (IMRG) estimating that over the past 12 months, UK consumers spent £19.2bn on goods and services online - 32% more than in 2004. There can no longer be any doubt that the internet is a major component of the retail landscape due to dominate the retail agenda. A number of voucher providers already offer an online redemption facility and gift cards are likely to lead the way in this.
With so many benefits, one might ask why the take up rate in the UK has been slow. One reason is the significant impact that chip and pin has had in knocking gift cards off the priority list. Retailers have had to focus on ensuring they are able to accept the new chip and pin cards and, as a result, gift cards have had to take a back seat. Vouchers are also instantly recognisable and retailers already have the processes needed to sell and redeem them. So it’s little wonder that there is a reluctance to invest in new card technology until demand necessitates the change. Suppliers and retailers are also reluctant to turn their backs on paper. It works and people like the idea of immediately knowing its worth. There is certainly a feeling within the industry, especially when faced with the prospect of a slowdown in the retail market, that if it ‘ain’t broke don’t fix it’.
There is a real challenge for providers and incentive companies to increase awareness of the options and to continue to educate organisations of the benefits of both plastic and paper. We predict that it is very much a case of watch this space as more and more retailers will be looking to add gift cards to their incentive offering over the next couple of years. Whether choosing paper or plastic, the fact remains that in a climate of fickle consumers, vouchers and gift cards remain a vital tool in the marketing mix for building loyalty.
Andrew Johnson
Biography
Andrew Johnson began his career in hospitality and incentives 10 years ago at De Vere Hotels. Since then he has worked with Jersey Tourism and Legoland, Windsor, before joining Virgin Incentives in 2000 as the Sales & Marketing Director. Following The Voucher Association’s bi-annual election in June 2005, Andrew was elected as the new Chair of The VA, which represents the key players in the £1.45bn per annum voucher market.