Gift Certificates & RK47 Online Store's Dilemma Discussions

[rk47]

Hi, just wanna share this weird mess I've encountered at work. It concerns some store deals that I detected loopholes with. But instead of solving the problem we seem to be getting more issues in the end.

It's an online store BTW. SO here goes:

Rule of thumb
Every dollar spent = 10 Reward Point

These RP can be exchanged for Gift Certificates / Selected Products.

Gift Certificate starts become very messed up when ppl purchase them to pass to their buddies or to use it themselves.

PROBLEM – POINTS GAINED FROM PURCHASING AND USING GIFT CERTIFICATE

1. Buy $100 Certificate, and you get 1000 points.
2. Use that Certificate yourself and you gain another 1000 points....
3. Congrats, you gained 2000 points from a $100 purchase. Gamed the system.

Ok, so I propose we remove point reward from Gift Cert. purchase.


This leads to :

A – NO POINTS GAINED FROM PURCHASING GIFT CERTIFICATE

1.   Customer buys $100 Certificate for their friend. No points gained.
2.   Problem solved?

Not quite. People who spent their money didn’t get rewarded.
Honest customers who wanted to buy their friends gifts did not get rewarded when they went the gift certificate route. It makes the feature unattractive. Their friends do gain the points, though.

B – FULL DISCOUNT WITH CERTIFICATE

1.   Customer buys $100 Certificate
2.   Customer purchases $50 worth of goods with $100 Certificate
3.   The account system tracks the spending and deducts $50 from the gift certificate balance. No charge to their bank account.

Problem? They get no points since the program declares they spent ZERO dollars. 0 x 10 = 0!

C – PARTIAL DISCOUNT WITH CERTIFICATE
1.   Customer buys $100 Certificate
2.   Customer purchases $200 worth of goods with $100 certificate
3.   The account system declares that the customer spent $200 dollars and earned 2000 RP.

There’s nothing wrong with case C since they gained no points from purchasing the Gift Certificate, this might be the optimal solution, but it leads to case B happening.

What's the ideal outcome we want really?

[Quinton]

The most logical thing to me would be that you don't get RP for buying a gift certificate -- you do get RP for every dollar spent on a product, whether it be from a gift certificate or not.

In this model: RP are points for buying *goods* in the store, not for converting cash to a certificate that somebody else can spend.

I can't think of any other sane workaround.  Any model where you get points both for buying and using a GC is going to be difficult to prevent abuse in -- you could assign gift certificates unique IDs and track every GC bought and used and only grant RP if the GC is used by a different account than which bought it, but then you have people playing games with multiple accounts, trying to use GCs to buy GCs to send to other accounts, etc, etc. 

So, basically, I propose you mitigate issue A by carefully wording the gift certificate / reward point process to differentiate purchasing GCs and purchasing actual goods.

[Furiously]

So - if I buy a gift card for $100 and then buy a gift card for $100 with that gift card what happens?

[Ingmar]

It seems to me the sensible thing would be to have the gift certificate the thing that doesn't give points, but maybe there is some reason you don't want to do that?

[Reg]

That makes sense. The intent of the gift certificate is that it be given away to someone else.  So whoever uses the certificate is already getting free stuff and doesn't deserve points on top of it.

[Merusk]

You're missing the intent of having a points system if you reward the gift cert purchase points but not the purchase made with the gift cert.  It's to encourage loyalty and spending of more money down the line.  The person purchasing your gift cert isn't your customer, they're just giving the other person $100 that can't be spent anywhere else.  That person is your customer, not the gift cert purchaser who may not be a regular patron.  Use Hot Topic as an example.. would your 60 year old mother need/ use those points, or would the 13 year old granddaughter the purchase was for?

[Reg]

Well he has to pick one way or the other. Or just get used to having the system gamed by people smart enough to do it.  That might be the way to go really.

[Sheepherder]

The person purchasing your gift cert isn't your customer

 

[Paelos]

The logical thing from a tax accounting perspective is to assign points when cash actually enters into the system. You have claimed the cash at that point for the promise of a future product. That means you have the cash available to spend. Therefore, points should be awarded to the customer generating the revenue, ie - the gift card purchaser.

The person using the gift card is a transferee of the original liability. He provides no revenue to the system, as all he can do is redeem the liability on the books. Therefore, he deserves no point credit as you would be giving him points for no new revenue generated.

[NowhereMan]

But the point of loyalty crap isn't to reward people for spending money, the point is to give people an incentive and encouragement to come back and spend more money with you. The person purchasing a gift card isn't your customer in the sense that they're buying for someone else. The only reason they'd come back to redeem those points is if they're buying another gift (ignoring the cases of people who are regular customers buying for friends). The person redeeming the gift certificate hasn't 'earned' those points but clearly they like the sort of products you offer and you want to give them a reason to come back to you when they're buying them in the future.

Possibly the best option would be to prevent purchasing gift cards with gift cards and just accepting that more savvy customers (that can be bothered) will buy everything with gift cards bought for themselves. Hell if they're doing that they're likely also committing extra money that will give them yet more reason to come back since they'll have unredeemed gift card money plus loyalty points. Otherwise I'd say disable loyalty points for the purchase of gift cards and make it clear that the gift card doesn't constitute purchase of a product from you and so doesn't get points.

[KallDrexx]

But the point of loyalty crap isn't to reward people for spending money, the point is to give people an incentive and encouragement to come back and spend more money with you. The person purchasing a gift card isn't your customer in the sense that they're buying for someone else. The only reason they'd come back to redeem those points is if they're buying another gift (ignoring the cases of people who are regular customers buying for friends). The person redeeming the gift certificate hasn't 'earned' those points but clearly they like the sort of products you offer and you want to give them a reason to come back to you when they're buying them in the future.

Here's how I see it.  If person A is buying a gift card for person B, person B (as you said) is most likely already a customer and already has inclinations to spend money there.  However, if you give person A gift points for purchasing the gift card, they have the possibility to become a customer because they feel the need to spend the points they got, even with their only intent of going to the store in the first place is to buy a gift card for someone else.  This expands your customer base as well as makes people want to buy more gift cards because not only does person B benefit, but person A benefits too by getting points.

Just because I get a gift card to a place doesn't mean I will return without a gift card later.  Anytime I get a gift card I usually spend the least amount I can to use up the gift card and rarely return (that's due to my buying habits though).

The way I see it, person A is just as likely to be loyal and be a real customer if you can bring him in, because he has shown active willingness to give you money.  I would give rewards to him before person B.

[Paelos]

But the point of loyalty crap isn't to reward people for spending money, the point is to give people an incentive and encouragement to come back and spend more money with you. The person purchasing a gift card isn't your customer in the sense that they're buying for someone else.

That's a bad way of looking at it. The person who bought the card gave you money. The person redeeming the card gave you jack shit. Why reward someone who gave you nothing on the chance they might give you more? Instead, you reward the person who gave you the money in the first place because they will be more likely to remember that when they purchase gift cards again later.

[murdoc]

But the point of loyalty crap isn't to reward people for spending money, the point is to give people an incentive and encouragement to come back and spend more money with you. The person purchasing a gift card isn't your customer in the sense that they're buying for someone else.

That's a bad way of looking at it. The person who bought the card gave you money. The person redeeming the card gave you jack shit. Why reward someone who gave you nothing on the chance they might give you more? Instead, you reward the person who gave you the money in the first place because they will be more likely to remember that when they purchase gift cards again later.

Points reward programs are as much about getting casual customers to be more regular as they are about "rewarding" current customers.

[Paelos]

I don't really care about the intent. The logic of this points system is that every dollar spent = 10 points. Guy buying card gave you X dollars. Guy redeeming card gave you zero dollars. Points go to the guy giving you X dollars.

Think of it this way. I'm getting a Best Buy card from my grandmother because she knows I am a Best Buy customer currently. They don't need me to get the points as much as they need my grandmother to get points. My grandmother is more likely to remember she gets a discount on her next card and buy another one, whereas I am going to shop there anyway.

[Sheepherder]

You could do a 50/50 split as well.  But 100/100 is just asking to be abused.

[Sand]

What's the ideal outcome we want really?

For you to tell us which website it is so we can go rack up RP points!

[Lantyssa]

It seems to me the sensible thing would be to have the gift certificate the thing that doesn't give points, but maybe there is some reason you don't want to do that?

This was the first thing I thought of, myself.

The person buying the certificate gets points (and is thus encouraged to buy something else down the line).
The person using the certificate is getting a 'free' item, so they don't need a reward incentive.
Any money spent above the cost of the certificate should award points.  This gives them incentive to return on their own.
If they never use the gift certificate, you already have the money and have already awarded the points, while still having the goods.

Real money is only spent once, and it's rewarded at the time of purchase.

[NiX]

It seems to me the sensible thing would be to have the gift certificate the thing that doesn't give points, but maybe there is some reason you don't want to do that?

This was the first thing I thought of, myself.

The person buying the certificate gets points (and is thus encouraged to buy something else down the line).
The person using the certificate is getting a 'free' item, so they don't need a reward incentive.
Any money spent above the cost of the certificate should award points.  This gives them incentive to return on their own.
If they never use the gift certificate, you already have the money and have already awarded the points, while still having the goods.

Real money is only spent once, and it's rewarded at the time of purchase.

This. I don't see why you skipped over this solution and was surprised it wasn't idea A on your list.

Gift cards are easily transferable, even beyond the person who received it. What if they sell it? Use it to buy a gift for someone else?

[Merusk]

The person purchasing your gift cert isn't your customer

 

Are they the ones who're going to be bitching about your shitty merchandise? No.  They're just the bank in this transaction.  Yes, they're A customer but they're not the end customer. Better? Jackass. 

[Soln]

call Blackhawk
http://www.blackhawknetwork.com/

[Mrbloodworth]

Give the person that bought the card the full points, they bought something. Give the person who uses the card a small portion, just as a taste, and remind them they can get more, by buying items or gift cards.

[Paelos]

The person purchasing your gift cert isn't your customer

 

Are they the ones who're going to be bitching about your shitty merchandise? No.  They're just the bank in this transaction.  Yes, they're A customer but they're not the end customer. Better? Jackass.  

Yeah they are. They gave you money, you gave them a guarantee to deliver goods at a later day, if ever. That's the transaction. The rest of it is just receipt of promised goods. Under no circumstances is the person picking up the goods your customer if they decide to give the card to someone else.

[MuffinMan]

Under no circumstances is the person picking up the goods your customer if they decide to give the card to someone else.

Except for the 9 out of 10 people with gift cards that buy more than the card value and then have to spend their own money. 

[Lantyssa]

Which is why I said any amount in excess of the gift card should give reward points.  Then you've got TWO people with points to burn.

[UnSub]

Split the points 50/50 - half for the existing customer who bought the certificate, half for the potential new customer who you want to tie in (if they sign up). Or 50 / hold 25 / 25, so that the giver gets 50% of the points for buying the gift, then an additional 25% if the receiver signs up while the receiver also gets a bonus for signing up.

It's a little hard to work out in abstract.

Of course, my big questions would be "how much are these points actually worth? Are they actually financial viable? What's the ROI?". Some loyalty schemes actually cost more in implementation than they deliver in results.

[dusematic]

This is like your 3rd post asking people to help you do your job/fix your email/construct a homemade flesh-light in 3 days.  Pretty sweet imo.

[Azazel]

Give the person that bought the card the full points, they bought something. Give the person who uses the card a small portion, just as a taste, and remind them they can get more, by buying items or gift cards.

This. Give the gift card buyer 100points, give the receiver 20 points. Gift cards may not be used to purchase additional gift cards.

[Paelos]

Y'all are missing the point. If they give the receivers 20%, they mess up the system. All people have to do is walk in to buy a suit, buy $600 worth of cards, buy the suit, and suddenly they are sitting on 720 points.

That may not seem like a big deal until you start realizing that points have a value and you're giving them out for free to one customer. That was the initial problem.

[MahrinSkel]

The question you've failed to ask is "Do we really have a problem?"  Somebody spent $100 with you.  If they hadn't gotten the extra 1000 points, maybe they wouldn't have.  Is the amount of money you lose from anyone who decides not to spend $100 at all worth the "savings" from stopping the double-dipping?  How much do those points actually cost you?

You thought those double points were worth awarding when they went to two different people.  Why not let the people gaming the system keep thinking they're getting over on you, while they give you money?

--Dave

[MuffinMan]

Many systems can be exploited like that but the benefits of hooking in new business could still outweigh the negatives of those few people that game the system. Profit margin could be so high that the extra 20% wouldn't matter anyway.

FAKEDIT: Heh must have been sharing brain waves with you while I was typing, Dave.

[Azazel]

Paelos. You're missing the point of several of us. Dave has outlined it well. What is 100 reward points actually worth, anyway? Like $1? $2?

[Sheepherder]

Are they the ones who're going to be bitching about your shitty merchandise? No.  They're just the bank in this transaction.  Yes, they're A customer but they're not the end customer. Better? Jackass.  

The person that bought the card came to your store when they thought they needed to buy a gift for someone.  It's entirely conceivable that the next time they need to buy someone a gift, that they're going to return to your store for another card.  It's even better if you can only buy an item if you have the whole value of said item in points, or the points buy you exclusive things, because then the person buying cards may never achieve enough to actually buy something they want but are nonetheless incentivized to give money to you on the off-chance they do eventually achieve that number.  Topping it all off, the guys using the card tend to spend more than the card's value, or spend less than the card's value and toss it.

[Paelos]

Paelos. You're missing the point of several of us. Dave has outlined it well. What is 100 reward points actually worth, anyway? Like $1? $2?

Depends. We don't really know in this case. If 10000 points accrued = a $100 gift card, then an extra 1000 points is worth $10 in merchandise when redeemed.

If you tell me I'm basically losing $12 on every suit purchase in promo fees that I otherwise wouldn't lose, I'm going to be pissed. You need to define the parameters of the system and stick with them for maximum benefit of both retention and tracking. Let's be real about these programs, they are as much about retention as they are market research.

[Azazel]

Paelos. You're missing the point of several of us. Dave has outlined it well. What is 100 reward points actually worth, anyway? Like $1? $2?

Depends. We don't really know in this case. If 10000 points accrued = a $100 gift card, then an extra 1000 points is worth $10 in merchandise when redeemed.

If you tell me I'm basically losing $12 on every suit purchase in promo fees that I otherwise wouldn't lose, I'm going to be pissed. You need to define the parameters of the system and stick with them for maximum benefit of both retention and tracking. Let's be real about these programs, they are as much about retention as they are market research.

True, we don't know. Though in your example, 100 points is indeed worth $1, making it a 1% reward point if redeemed. Let's face it, you'd have to be a pretty regular customer to give a flying sideways shit about $1 back for every $100 spent. And if you're spending enough on suits etc to make it a worthwhile amount enough to care, then you probably don't care that much about the $10 savings (!!WOW!!) you'll make from $1000 spent.

So your first bit is the most relevant.

[Paelos]

I think you might want to check the math. In my example I'm still using the situation that $1=10 points granted. That's the situation we were given at the start. A $500 suit would get you 5000 points. Buying it with gift cards and granting someone 20% more on top of that is another 1000 points.

In my scenario of 10000 = $100, I'm assuming a 10% conversion rate backwards (ie. $1 spent = 10 points, but 100 points = $1 earned). In that case, you lose $10 to the same guy for buying the $500 suit with gift cards first and grabbing the 20% for nothing.

Granted I'm no expert on what the COGS is on a suit, but I certainly don't want to take on an extra 2% cost to my sales because my system is stupid. After doing a lot of financials in my life, I don't think you fully grasp how important that 2% is when it's an avoidable cost coming from a loophole.