A paperless future?

Giftcards were predicted to storm the market a few years ago, but consumers and the business-to-business sector are both reluctant to let go of the humble paper voucher, says Richard West

It is a widely held view that popular culture and business ideas usually take several months, if not years, to cross from one side of the Atlantic to the other. Even then, for every new product, service or sitcom that survives the crossing, many others simply vanish, apparently lost in translation.

Plastic giftcards, for example, revolutionised the voucher market in the US. Within three years of their introduction they all but replaced paper vouchers and grabbed an 80% share of the market. What’s more, the plastic format proved to be so popular there – with both retailers and consumers – that it triggered a three-fold growth in the size of the voucher market.

Encouraged by this success, the companies behind the giftcards were understandably bullish about their prospects in the UK, where the voucher market was growing, and continues to grow, with impressive speed.

Reality Behind the Hype
However, while giftcards have not lived up to expectations in the UK, sales of paper-based vouchers remain buoyant, and there is little evidence of their predicted demise.

VA (formerly the Voucher Association) director-general Andrew Johnson believes that recent statistics support this analysis. “Voucher sales in 2005 rose to 1.47bn, an increase of about 10% in a year, with paper-based products accounting for most of that growth,” he says. “That is an impressive figure when you consider that giftcards have been around for several years now – though it is true to say that they have only really come on stream more recently.”

Even so, he thinks it would be an oversimplification to say that growth is attributable to one thing alone. “The market is growing so fast because the number of reward mechanisms is increasing and that is also encouraging more companies to sell vouchers. Giftcards have had a significant impact, and their arrival has encouraged many more retailers to offer vouchers. At the same time, a growing number of them are addressing the business-to-business market and that sector is, in turn, also expanding,” he says.

It may be too soon to talk in terms of a “golden age”, but these are certainly boom times for the voucher industry. However, Sarah Earith, marketing manager of Valassis – a company which processes 85% of all UK coupons and vouchers – believes that it was premature to assume giftcards would replace their paper counterparts. “People like to have options, and it is important to give people the choice of how they want to redeem. Paper vouchers feel more like real money and that gives them a real stand-out appeal. There is certainly no sign of any decline in their popularity. Paper coupons are increasing every year and more and more companies are using in-store vouchers to attract customers. Boots, for example, is using quite high value vouchers to encourage more frequent visits to the store – and they are proving to be extremely popular.”

Giftcard industry organisation Giftex chief executive Tony Craddock acknowledges that the uptake of giftcards in the UK has been slower than some had anticipated, but does not accept that it is because the British have a sentimental attachment to paper. “Consumers like what they know, and at the moment most of them know paper vouchers. Once they have experienced the benefits of the plastic giftcard, then attitudes will change,” he says. “Reports coming out of the US made people very excited about giftcards and raised expectations over here. However, there are big differences between the two markets, and a combination of factors probably slowed the adoption of plastic in the UK,” he says.

Their Time has Come
One of the most important reasons was the cost of installing the infrastructure, compounded by unfortunate timing that saw giftcards launched in the UK at the same time as retailers were grappling with the practicalities of chip-and-PIN technology. Craddock explains: “Retailers were sidetracked by chip-and-PIN, but now that has been installed I’m sure the floodgates will open and sales of giftcards will really take off. In July 2005, for example, there were 15 retailers offering them, a year later there were 53. Furthermore, our research has established that 60% of retailers plan to install a giftcard platform in the near future.”

The list of giftcard converts includes some impressive blue-chip names from the high street such as Boots, WH Smith and Laura Ashley, even if some – such as Sainsbury’s – don’t believe their customers are quite ready to turn their backs on paper vouchers just yet.

A Transition Period
Sainsbury’s Business Direct manager Yvonne West says: “It is generally accepted that gift cards are definitely the way forward when it comes to the consumer market, and Sainsbury’s is on track to bring in a consumer gift card next year. However, there will be a transition period and Sainsbury’s is not planning to dispense with paper for some time yet. For one thing, business-to-business customers prefer paper – though even that will probably change within the next couple of years.”

Sainsbury’s approach reflects how many companies are developing their strategies. Most retailers – and other industry players such as motivation and incentive companies – plan to continue offering a mixture of paper and plastic for the foreseeable future.

Plastic giftcards are seen as an evolution from paper that offers real benefits in terms of security, brand building and measurability. At the same time, however, surveys have shown that consumers still like paper vouchers because of their tangibility and trophy value.

Sodexho incentive and motivation director Alexandre Meerson believes that this research should not be overlooked. “While the debate rages over whether plastic is better than paper, the argument has lost sight of what recipients really want and how the consumer behaves. In fact, there are many situations where a card is not suitable or practical. Some of the arguments supporting giftcards seem very heavily weighted in favour of the retailer and in some respects disadvantageous to the consumer. Clearly there are benefits in having both formats, so it is a mistake to talk about replacing one format with the other.”

Euro RSCG Skybridge planning and strategy director Tim Lofts agrees that, while giftcards are growing in popularity in the consumer market, the business-to-business market has its own set of challenges. “The benefit of a plastic over a paper voucher is that it allows consumers the ultimate flexibility over the value they wish to give, and also means that retailers don’t have to stock a range of predetermined values.”

That works well in a consumer environment, but it does not necessarily suit the corporate one – where incentive schemes and internal recognition or reward programmes have a quite different set of requirements. It is true that the problems of switching from paper to plastic are not insurmountable, but that is not the only issue. The driver behind any change will be its acceptability to the recipient. No one will choose reward cards over vouchers if they feel the recipient is not comfortable using them.”

The Third Way
Sodexho has adopted a third-way approach with the launch of its SayShopping paper-voucher scheme. According to Meerson, a plastic card mechanism will be introduced in the near future, providing clients and retailers with a scheme that offers the best of both worlds. He says: “Clients want a choice, which means the right offer has to be in place so vouchers can successfully meet consumer expectations and, at the same time, provide ideal promotional opportunities for marketers. I believe that cards and vouchers can sit side by side in the voucher world for the long term, if not indefinitely.”

However, critics argue that plastic will inevitably dominate the market as retailers and vendors focus their marketing energies behind giftcards.

One major developments is the imminent launch of giftcard centres – display units in supermarkets and other retail outlets which will carry a range of different cards from different suppliers, offering consumers a choice-based gift where they want to buy it.

Buyagift joint managing director Dan Mountain says that his company handles about 300,000 paper-based vouchers and coupons a year, and in the next few months plans to start conducting trials with plastic cards to get a clearer picture of what works most effectively. “There are persuasive arguments on both sides, but unfortunately very little reliable information,” he says.

One thing is for sure: plastic is here to stay. Only time will tell whether paper vouchers have a long-term future.

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