Articles

Give the gift of convenience

5/10/2001 
As gift certificate sales increase, hotel operators grow innovative in handling the ups and downs of the trend
By Judy Colbert

Ten years ago, says Dr. Daniel Mount of the School of Hotel, Restaurant, and Recreation Management, the Pennsylvania State University, “gift certificate use by hotels and motels was an almost unknown thing." Although one problem, he says, was because of bookkeeping, the bigger issue was the inability of the recipient who lived in one city to use the certificate for a hotel in another. Perhaps, “in a larger metro area, such as Washington, DC, if you gave someone a certificate to the Ritz Carlton, they could use it in the restaurant. Certificates were used more on the non-room side, in the spa, gift shop, and other areas.”

Now, gift certificates, in general, are a $22 to $28 billion a year industry, depending on how inclusive the category is, that increases by about 15% to 20% a year, says Dr. Daniel Horne, professor and chairman of marketing at Providence College. He's been following the gift certificate industry for the last eight years.

Mike Ahern, CEO of Giftcertificates.com, says this growth has been enabled in large part by Web sites that created a means of distribution. This eliminates the need for someone going to a store or hotel, buying a certificate, taking it home, addressing the envelope, and then mailing it. Hotel gift certificates available from a hotel’s Web site provide the same convenience.

Ahern says the most popular denominations are $50 and $100, representing about 40% of sales, with $25 certificates accounting for another 25%, and $100-$300 another 20%. The customer buys the certificate for face value plus a shipping fee, while Ahern’s company buys the certificates at about a 15-25% discount. The rate varies with availability so a hotel in off-season might give a larger discount than a name hotel in a major market.

Travel has become an important segment of Giftcertificates.com, with 8-10 percent of their business in the hospitality industry. A particularly popular option for buyers is the company’s super travel certificate that allows the recipient the chance to book whatever travel arrangements he or she wants. Using such services is good for hotels choosing not to become involved with a major gift certificate campaign, or who desire a year-round impact without having a dedicated campaign.

In existence since 1997, Giftcertificates.com transacted about $65 million in business in the year 2000. More than 50% of their business is in the B2B market.

Gift certificates are good business for a number of reasons. They fuel the post-holiday sales -whether the holiday is Mother’s Day, Father’s day or December gift-giving time, as recipients use the certificate, and frequently purchase more than the value of the certificate.

One of the newer aspects of gift certificates is magnetic cards, similar to magnetic stripe room keys. They’re safer than paper certificates and easier to handle for staff and recipient, for the card can be kept in the wallet, just as a credit card is. The amount used is electronically debited and the unused portion is stored on the magnetic strip for your customer’s next visit. That eliminates the need to keep track of the value remaining on a certificate which otherwise requires making notes on the back of the certificate paper or issuing a new certificate and they prevent confusion by one staff member not being able to read another’s hand writing. Additionally, they eliminate the practice of giving the customer a cash refund for the unused portion of the certificate.

GiftCertificate.com’s Ahern says about half his sales are in magcards rather than in paper certificates. Those still dealing with paper should emboss them or have them printed on distinctive security paper to help avoid counterfeiting and fraud.

Gift certificates are useful in other aspects of hotel marketing, particularly when used as a thank you for a good customer. They're also good as incentive and motivational tools.

This is especially true says Jack Burke, author of “Relationship Aspect Marketing,” and president of Sound Marketing, Inc. Burke says a gift certificates given to customers via electronic purchase creates an immediate and lingering positive response from the customer, certainly more so than a gift certificate sent in the mail that arrives a week or two later.

“One of the things we've found in the changing role of the consumer is that fast is good, immediate is better. Speed is definitely king in any transaction today. We think in terms that the hotel down the street is the competitor. That's no longer the case. We have to deal with the expectations of the consumer and those are being set by the world at large. It used to be you had to be better than the ‘hardware store’ or Disney, but now the bar is set higher and the world is your competition, not just your industry,” says Burke.

The Renaissance Orlando Resort at SeaWorld, offers gift certificates that are item specific, including accommodations or Sunday brunch or dinner for two. The food services gifts are good any time the restaurant is open, unless there’s a private party, says Bernard Sun, food and beverage director; the accommodations are good at any time, high or low season, subject to availability. Should the meal or accommodations be more expensive when the certificate is redeemed than when it was purchased, the certificate is still honored. There is usually a one-year expiration date attached to the certificate.

At the Hilton Short Hills, New Jersey, gift certificates, in the form of magnetic cards, are sold at the property and on their Web site Paper gift certificates were abolished in November 1999. The card is presented in an attractive box with ribbon and they can be mailed or shipped worldwide. Each box contains the giver’s and recipient’s name and the value of the card – information that is not on the card face itself. They can be used for any purchase or service, including meals, spa services, and accommodations, and in some cases indicate a restricted time when they can be used, such as weekends or midweek for accommodations, or midday, weekdays for spa services.

Spa employees at the Short Hills Hilton had to be taught how to use the system in general. More specifically, they had to make sure the employee swiped the card prior to the service to make sure there was a sufficient amount on the card, or that the customer was aware that there would be a charge over the amount on the card. This is not as much an issue if the card is being used for accommodations or F&B, because the employee scans the card first, but it can be an issue in the spa or salon. Because of the training and learning curve, it’s best to transfer from paper to the card system during a slow period rather than trying to train employees during a busy season.

Standard Register developed and installed the system at Short Hills, working with the in-house IT person to connect the system in the spa, the front office, lobby, and all the hotel’s dining outlets. The system can generate reports on each card’s transactions, track where in the hotel it's been used and what value remains on the card.

There are a couple of areas of concern with gift certificates. One is if you issue a certificate for a specific service, such as a spa massage, which at the time of issuance is worth $75, but the price of the massage has been raised to $85 by the time the certificate is used. The question then is whether you ask the customer to pay for the additional $10 or you eat the difference. This could also be the case if the certificate is good for dinner or brunch for two, without a specific dollar amount listed. Sound business sense, the one that says you want this customer to return frequently, says you eat the increase.

The other problem is a requirement in most states that all unused gift certificates be turned over the Unclaimed Property Office. Dr. Horne notes there's no clear understanding of who claims the unredeemed value. Is it in the state where the certificate was issued, the purchaser resides, the recipient resides, the corporate headquarters or the state in which the company is incorporated? One way around this may be by establishing an expiration date. However, Horne cites as examples New Jersey where gift certificates are specifically excluded from the unclaimed property rules, Indiana where gift certificate values must be turned to the state after five years, and California where expiration dates are prohibited.

The upside of this is you have had the use of the money for that four or five year period. Donna Hartl, attorney and CPA for Field, Golan of Chicago, says it’s best to contact your accountant or your attorney, or both, for specific information regarding your jurisdiction.

Obviously, the unclaimed property statute is a good reason to keep accurate data on all gift certificate sales and redemptions. The purchaser’s and the recipient’s name, address and phone number should be included in that record so you can contact one or both prior to the expiration date of the certificate.