Retain Business With Gift and Loyalty Cards Stay competitive by offering your customers an incentive to return to your company time and again.

Q: I'm losing a lot of my customers to chain stores, which can afford to heavily discount their prices. How can I keep shoppers from defecting to these larger competitors without starting a bidding war?

A: In addition to providing superior service, you may want to consider offering gift and loyalty cards to your customers, a strategy that has long been used by national retailers to attract and keep good clients. Many powerful yet affordable solutions have emerged recently to serve companies of all sizes, enabling smaller firms like yours to downplay pricing and compete against larger organizations.

Gift Cards
These new options come not a moment too soon. According to Bain & Co., a consulting firm in Boston, gift card sales in 2002 were expected to total between $36 billion and $38 billion, up 20 percent from the preceding year. This mounting popularity is not surprising, considering the many benefits gift and loyalty cards hold for merchants and their customers.

Gift-givers with little time to shop, for example, regard the plastic cards as a practical, modern alternative to cumbersome paper gift certificates. Industry experts also believe more consumers are choosing gift cards as a result of stricter return policies, which deter shoppers from taking chances with their purchases.

The cards are gaining popularity with gift recipients as well. In a survey by research firm Synergistics Research Corp. in Atlanta, of 1,000 consumers, 64 percent said they found gift cards to be "valuable," with 48 percent describing them as "very valuable." And it's easy to see why. Not only are gift cards versatile and stylish, they are easy to carry, which increases the likelihood gift recipients will actually use them.

Merchants are quickly catching on to the merits of gift cards, which can dramatically boost sales, since shoppers usually spend more than their cards' initial value. When customers do leave unspent balances, the money is kept on their cards. Storeowners no longer have to offer cash refunds. This means shoppers must either return to use up their cards or write off any unspent amounts. Significantly, almost 14 percent of gift card recipients never use their cards' full value, and of those customers, 40 percent leave balances of more than $5, according to Synergistics. Although unused balances don't count toward sales, they do represent increased income to merchants.

Other advantages gift cards offer include convenience and security. Compared to paper gift certificates, electronic cards are virtually impossible to counterfeit. The cards are worthless until activated at the point of sale. This reduces the risk of theft from customers and employees. And because gift cards are safer, sales clerks don't have to scrutinize them as closely as paper gift certificates, which lets them ring up customers more quickly. Best of all, gift card sales are easier to track, because transaction records and reports are generated and stored electronically.

Some applications for gift cards are less obvious, but equally important. Many retailers use them to handle returns from customers who don't have receipts, for example. Other business owners give low denomination cards to shoppers as incentives to visit again. Gift cards also offer great advertising opportunities. Most gift and loyalty card providers allow store owners to affordably customize their cards with at least a company logo and contact information.

Loyalty Cards
While gift cards are effective at getting shoppers into stores, loyalty cards ensure that those customers come back. In addition to the strengths of gift cards, loyalty programs allow merchants to:

• Reward customers with points that can be applied toward future purchases or redeemed for free merchandise and services. Points may be offered as a percentage of a total amount spent or as a reward for buying specific products. For example, a beauty salon might offer points to customers who purchase items from a particular line of hair-care products.
• Track customer behavior and history. Merchants can identify who their customers are, what they buy, where and when they shop, and how much they spend. Merchants can then use this information to reward top-tier clients. A golf shop, for instance, could award bonus points to thank its loyal customers.
• Overcome slow sales by offering extra points on purchases made during off-peak months. A florist, for example, could print a message on the bottom of her sales receipts informing Valentine's Day shoppers that they'll earn double points on all purchases made during March and April.
• Encourage customers to spend more by offering points for purchases that exceed certain amounts. For instance, a store that sells automotive parts could let customers earn bonus points when they make purchases that exceed $300.
• Create special promotions, such as members-only offers. A car wash owner, for example, could provide customers with a free upgrade on every tenth car wash they purchase.

The list of applications is endless. And with today's sophisticated payment technology, gift and loyalty card programs can be as flexible and creative as the entrepreneurs who use them.

Offering payment flexibility to shoppers has always been a great way for merchants to increase store traffic, boost sales and improve customer retention. Now, with the introduction of affordable gift and loyalty card solutions, more store owners can develop rewards programs to suit their businesses and their customers. Whether you run a small or midsized enterprise, gift and loyalty card acceptance is an investment worth considering.

Cardservice International Senior Vice President of Sales John Burtzloff is in charge of sales strategy and execution and thus is responsible for managing all aspects of the company's marketing, communications, telesales, check guarantee, new accounts and sales support activities.

The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.