Small Investment, Big Impact: Giving Away $5 Gift Cards

Cynthia Compton of 4 Kids Books & Toys in Indianapolis and Fishers, Indiana, uses the lion’s share of her advertising budget to give away $5 gift cards. And she can rattle off half a dozen reasons why it’s a good idea.

“I am an evangelist for giving away gift cards, although I certainly didn’t invent the idea,” said Compton. ”It’s something we played with for several years, and finally have made the switch to using gift cards as our primary marketing tool, when we have the chance to meet a potential customer face to face.”

With a $5 gift card giveaway, Compton figures that 4 Kids Books & Toys is spending about $2.45 in merchandise if the card is redeemed. If not, the cost is negligible. “Interestingly, people often carry gift cards in their wallets with their credit cards and membership cards,” she added. “So every time they get gas, pull out their VISA, or just look for change for the toll, they see my store name. I can’t buy that kind of ‘back pocket’ advertising from anyone.”

After comparing ad rates to the cost of gift cards, Compton easily opted for distributing the cards. “It costs hundreds of dollars to take out an ad in the newspaper for one day, and even if you put in an aggressive coupon, you are never sure if anyone really sees and remembers the ad. Usually, it is your regular customers who see the coupon and clip it, knowing that they will use it the next time they are in your store.”

It’s also harder to catch anyone’s attention with traditional advertising, she said. “In today’s world, a coupon has to almost offer free beer to get anyone to respond to it! But a gift card? That’s a present! That’s saying, ‘We have great stuff, and I want to give it to you as a gift, to introduce you to our store.’”

4 Kids activates the gift cards in batches of 100. “I give them out personally, or let my staff do so,” Compton explained. “When I visit a school, for example, I will give out a gift card to one child in each class that I visit. I give gift cards to new residents of the area, to audience members if I’m speaking to a local parenting group, or to teachers with abandon.” With each card, she writes the person’s name on the gift card envelope, and she signs and dates it.

Since the redemption of the gift card is a POS transaction, the bookstore can gather valuable information from the customers who redeem them: an e-mail address, other contact information, demographic information. “Those folks go on our weekly e-mail list, get newsletters from us, announcements about authors and events, and a note on their birthday,” Compton said. “Most importantly, that redeemed gift card includes a visit to our store, hopefully some ‘knock your socks off’ customer service, and the start of a friendship. That’s a whole lot more than I’ve gotten from an expensive coupon mailer, or an ad in the paper that somehow gets placed right under the ad for the hemorrhoid clinic.”
 
Compton provided further financial reasoning for her evangelism. “Just to give an example, in January (which is our low spending month for marketing), I gave away 100 gift cards. As of today, we have received 41 back. That’s basically a cost of a little over $100 for 41 new customers. My average sale is $21. I’m sure I could calculate the total sales and average for just those gift card sales, but that would require another cup of coffee. I can’t buy anything for $100, advertising-wise. And with an average return of two – three percent on coupons... well, this is just a better deal. Plus, I got to give away 100 gifts. How fun is that?”