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November 26, 2008

Study: Smart Gift Cards?

By David Sims, TMCnet Contributing Editor

According to a recent study conducted by Smart Transaction Systems, a vendor of gift card systems for small businesses, “less than one-tenth of a percent of small businesses charge inactive or dormancy fees on their gift cards, and 97 percent of gift cards issued by small businesses are good for a period of 5 years or more.”

The Smart Transaction Systems 2008 Small Business Gift Card Study covered just over 4,500 merchant locations nationwide with a total of 1.1 million gift cards issued. The average merchant in the study is a small business with 3.3 stores or restaurants.
Smart Transaction Systems has consistently found that gift cards are most popular as a last minute purchase. The 23rd and 24th of December are the busiest days of the year for gift card sales. Merchants in the study were 37 percent restaurant/hospitality, 34 percent retail, 8 percent Salon/Spa or fitness industry with the remaining 21 percent in “other industries.”

In the wake of failures of several large retailers, the Smart study concludes, “consumers are more concerned than ever about purchasing a gift card from a merchant that may go out of business. However, only one of the 4,500 small merchants in the study has gone out of business.”

“Of all the small merchants in this study, only two charge dormancy fees on gift cards that have not been used for an extended period of time, and one of those two will immediately refund the fees upon request,” said Ray Clopton, President of Smart Transaction Systems. “We see a strong focus on customer satisfaction among small business owners.”
The numbers, Clopton went on to say, show that purchasing a gift card from a small, independently owned restaurant or retail store tends to be a more consumer-friendly experience, from both a financial and customer service perspective, than consumers might expect from a large chain, mall or credit card company.

The study also found that the average person purchasing a gift card from a small business places close to fifty dollars ($48.99) on the card. The average small business in the study has sold 1,531 cards. This ranges from “Mom-and-Pop” businesses with very few cards in circulation to a 6-location Salon & Spa with over 65,000 cards issued.

“If you have consumer-friendly gift card policies, such as no expiration dates and no inactivity fees, that’s an important advantage that your customers should know about,” said Stephanie Kroner, Director of Merchant Relations at Smart Transaction Systems. “According to our study, 91 percent of small merchants do not have an expiration date on their cards.”
Smart Transaction Systems has operations in an oddly interesting handful of places – Boulder, Colorado, Lodi, Wisconsin, St. Louis and Oslo, Norway.

David Sims is a contributing editor for TMCnet. To read more of David's articles, please visit his columnist page. He also blogs for TMCnet here.

Edited by Jessica Kostek

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