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lauren freedmanthe e-tailing group

Proprietary research conducted by the e-tailing groupsponsored by CashStar

September, 2010

whitepaper :: Gifting the e-Way

2 whitepaper:: GIFTING THE E-WAY by Lauren Freedman

A. GIFTING TRENDS 3 eGifting Essentials In Place 3 The Evolution of eGifting 4

B. CONSUMERS EMBRACE eVOLVED SELLING STRATEGIES 5 Why Growth; Why Now? 5 Growth of Social and Mobile Spreads the Word 6

C. MERCHANT ALERT: eGIFTING TIME IS NOW 7

D. EIGHT WAYS TO WORK PERSONALIZED GIFTING AND GIFT CARD MARKETING MAGIC WITH YOUR CUSTOMERS IN 2010 AND BEYOND 8

1. The Right Offer 9 TACTIC #1: BUY ONE/GET ONE 9 TACTIC #2: INCENTING CUSTOMERS WITH GIFT CARDS 10 TACTIC #3: CUSTOMER SERVICE TOOL 10 TACTIC #4: REWARDS PROGRAM—SHOP 4x OVER 12 MONTHS AND GET A FREE eCARD 11 TACTIC #5: WE MISS YOU—$25 eGIFT CARD TO LAPSED CUSTOMERS 11 TACTIC #6: BEHAVIOR MOTIVATION 12 TACTIC #7: B2B CORPORATE GIVING 13 TACTIC #8: REWARDS AND EMPLOYEE INCENTIVES 14 2. The Right Marketing 15 a. Home Page 15 b. Gift Card Page 16 c. Navigation 16 d. Gift Centers 17 e. eMail Campaigns 17 f. Post-Order Communications 18 g. Facebook 19 h. Twitter 19 i. Blogs 20 j. 3rd Party Distribution 20

3. The Right Timing—the e-tailing group/CashStar Digital Gifting Calendar 21

4. The Right Platform—Build Versus Buy 22

E. THE eGIFTING TIPPING POINT 22

F. ABOUT THE COMPANIES 23 About the e-tailing group 23 About CashStar 23

TABLE OF CONTENTS

3the e-tailing group sponsored by CashStar

According to Unity Marketing, by 2006 gifting had already become a $300B business—a retail staple representing 10% of the $3T retail economy. eCommerce continues to grow in importance as well, and 2010 saw first and second quarter sales respectively in at 6% and 9% gains. This pace is expected to continue through 2013, outstripping US retail sales, which are only expected to see 3-4% growth this year.

eGifting brings gifting and eCommerce together, so you might well expect considerable activity in this area. As holiday shopping is upon us, our report, sponsored by CashStar, focuses on the evolving and opportunistic role of eGifting. While this is the most important time of year for gift givers—and certainly a critical period for merchants—we can’t emphasize enough that inspiring gift giving throughout the year is an even bigger opportunity, as occasion-based giving for birthdays, anniversaries, souvenirs and friends garners the greatest dollar impact.

The competition for gifting wallet share is always fierce, and a hard-fought battle is shaping up for 2010. With the limited growth in the economy and consumer confidence mixed at best, merchants are going to have to ratchet up their marketing savvy and employ all the right gifting elements to reap significant revenues. And as more channel shifting takes place, eGifting is likely to play an increasingly important role.

The e-tailing group conducts an Annual Merchant Survey, and this year 152 online merchants of all sizes reported gifting being responsible for at least 15% of their business. Since gifting it is difficult to measure, we believe the percentage is larger, as not all purchases are gift wrapped, sent to a gift recipient or shipped with a gift receipt.

eGifting Essentials in PlaceMerchants have embraced the essential elements of an online gifting experience. Per the chart below, gift cards top the list of today’s standards for the EG100 merchants that were included in our Mystery Shopping last holiday season. Gift centers follow closely with an option to add a gift message, another necessary component of the most basic gifting experience. Lastly, the all-important reminder of holiday shipping deadlines was communicated by three out of four merchants shopped in the 4Q ’09 holiday season; this plays an important role in driving last minute eGifting purchases once shipping cutoffs have been reached—and in fact, can add days to the holiday selling season. The universal acceptance of these basic elements among merchants and consumers alike forms the foundation for evolving effective eGifting strategies.

A. GIFTING TRENDS


The Evolution of eGifting As a category, US online gift card sales are projected to hit $5.86B in 2014 (source: Javelin Strategy & Research). eGift Cards effectively meet the needs of today’s time-starved consumers. In this regard, it is important to note that convenience, not saving money, is continually the #1 reason customers shop online. Gift cards have always played a powerful hand in time-savings, and their evolution as an eGifting staple can be seen through a historical lens. Pre-1990 saw growth of traditional gift cards, while in the late 1990s and early 2000s the plastic gift card was the staple for sellers and shoppers.

As our research and others revealed, eGifting started to take off in 2008-2009. This resulted in a paradigm shift as consumer preference moved away from buying a piece of plastic to purchasing a branded and personalized digital Gift Card that could be sent instantly.

Digital gifting formats are now available from 60% of those EG100 players mystery shopped; this is up from 53% in 4Q ’08, with expectations of significant growth still to come. Other highlights:• Most retailers’ eGift cards are redeemable across numerous channels—in-store as well as online• The ability to customize/personalize cards is being widely adopted, as one in five merchants are embracing consumer interest in an “individualized” experience with embellished cards• When asked, “Based on your experience this past holiday season, what ONE thing will you invest in this year for Holiday 2010?” eGift cards found themselves in good company— right alongside increased merchandise assortments, additional lower-priced items, brands added specially for the holiday season, and inventory management.


B. CONSUMERS EMBRACE eVOLVED SELLING STRATEGIES

So what do consumers have to say about all this? Shop.org’s 2010 holiday research indicated that gift cards were incredibly popular, with more than half of consumers buying at least one, mainly for specific stores like Amazon or Best Buy. Here are some additional findings in this area:

> Not quite half of consumers said that gift cards made up a quarter or less of their total online spending for Holiday ’09 > One-third of consumers spent between $50 and $200 total on gift cards purchased online > Almost two-thirds of gift cards purchased online averaged between $10 and $50 each > 93% of eGift card purchasers would recommend the service to a friend

The top reasons why consumers are embracing eGifting will not come as a surprise. They all add up to “choice” and “convenience,” and include:

> Personalize the gift (the ability to add an image and message) > Ability to choose the amount > Avoid shipping and other related charges > Speed > Ease of use > Security > Notification when sent and received

Why Growth, Why Now?The e-tailing group believes that as a result of the changing market dynamics, that eGifting is poised for exponential growth. From personal pleasures to gifting—where digital goods like iTunes and eGift cards now play an increasing role—Piper Jaffray predicts that sales of digital goods will grow to $6B by 2013. Consumers seek choice, convenience and personalization in every aspect of their shopping behavior, and today’s digital tools include convenience drivers that allow recipients to print-out secure, bar-coded eGift cards for use online or in-store. In addition, many consumers also welcome the “green” aspect of digital buying.

Beyond convenience, consumers have become comfortable with digital transactions. The adoption of alternative payments is a good example; both PayPal and BillMeLater have grown in adoption and are fueling spending across all demographics.

Alternative payments are on the minds of the merchant community, too. 41%of the merchants in our Annual Merchant Survey cited them as a planned initiative to improve Web performance. The e-tailing group’s 4Q ‘09 Mystery Shopping scan of 100 merchants found that 47% had some form of deferred payment (a combination of BillMeLater and house credit options) up from 40% in 2008, while PayPal saw significant growth to 34% penetration up from 23% in 2008.


Growth of Social and Mobile Spreads the WordChoice also centers on channels, and the success of social media destinations such as Facebook and Twitter clearly demonstrates consumers’ unprecedented comfort with these channels. Facebook reports 500 million users worldwide, up from approximately 25M in 2007, and Twitter’s user base is now 190 million users Tweeting 65 million times a day. Of course, this channel growth also enables merchants to extend their promotional reach, and smart merchants are reaping the rewards of all those eyeballs, as well as today’s instant “viral” communications.

And then there’s mobile, still in early adoption phase. As the conduit between Web and store shopping, mobile is gaining traction among merchants, and is likely to fuel additional eGifting growth. Here’s a recent example from Target:

2010 sales via mobile appear to be in the $2-3B range, with Amazon alone reporting $1B. Smart phones now represent 23% of US mobile phone users according to eMarketer, and it is this early adopter audience where digital products and eGifting via mobile vehicles will initially see escalated sales and performance.


Today’s eGift cards fuel opportunities for merchants to build year-round and seasonal programs, supporting the evolution of smart B2C and B2B marketing strategies that leverage the requisite retail marketing trifecta: acquisition, retention and reengagement. They cost-effectively motivate and drive desired customer behavior based on each merchant’s unique marketing methodologies, and with proper planning and superior marketing execution, eGift cards are poised to become standard tools in any retailer’s integrated marketing mix.

Clearly, consumers are taking advantage of the convenience of eGifting, and innovative merchants are embracing the opportunity to capitalize on the powerful dynamics of an emerging trend. Industry learnings show that:

> Online shoppers spend more on eGift cards than traditional cards > 93% of all purchases included a personal message > One-in-seven buyers uploaded a personal photo > 96% chose a delivery date and one out of every five buyers opted to send an eGift card at a later date

Deployed creatively, eGifting can serve as a valuable multi-channel marketing tool, rather than a siloed initiative. eGift cards act as a cross-channel bridge, driving customers into retail stores once again, and have application well beyond simple gift giving. The broad opportunities range from digital marketing programs/promotions that help grow qualified customer email lists to customer satisfaction strategies that elevate brand position and customer preference. Merchants might also use eGifting capabilities to effectively adopt or extend social responsibility.

C. MERCHANT ALERT; eGIFTING TIME IS NOW


D. EIGHT WAYS TO WORK PERSONALIZED GIFTING AND

GIFT CARD MARKETING MAGIC WITH YOUR CUSTOMERS

IN 2010 AND BEYOND

eGift cards can effectively extend your holiday selling season by at least several days— a huge opportunity no retailer would want to miss. But the possibilities for eGifting magic extend beyond the holiday season. In this section we’ll explore current activities and showcase strategies for incorporating year-round digital gifting into your marketing mix. Four key ingredients serve as a starting point, with eight tactics shaping our eGifting brief. We encourage you to evaluate each tactic and assess its potential value to your own business.

But first, the basics! Every successful marketing program begins with the right offer, and creativity is the operative word to ensure customer interest. From there marketing must evaluate a myriad of channels and tactics to position the offer; it pays to make the right choices.

Savvy merchants continue to support traditional online advertising strategies, but now are relying even more on the extended reach and velocity of social media and mobile—the marketer’s new best friends—to power promotional initiatives. Timing is of the essence online so it’s important to have an eGifting platform that delivers desired flexibility in administrative and promotional deployment. For cross-channel merchants that have a significant store presence, tapping into retail point-of-purchase can also be valuable in driving bottom-line performance. Finally, we examine timing with a calendar that suggests when to optimize eGifting strategies. Of course, it’s best to assess the needs of one’s brand, business and customer base, and customize to suit.

Selling and customer care opportunities in digital gifting run the gamut from one-off eGift cards to bulk B2B options. Goals can be delighting new customers or smoothing the ruffled feathers of disgruntled ones. Here are some of the possibilities you might consider for expanding your digital gifting arsenal.

1. Individual Digital Gifting

2. Bulk Digital Gifting

3. Extended Service Contracts

4. Offers & Incentives

5. Customer Engagement and Retention

6. Customer Care

7. Mobile Gifting

8. Social Media Integration


TACTIC #1: BUY ONE / GET ONEIn the current value economy, promotions are fundamental to success. Buy More/Save More strategies are already in place among 27% of the EG100 merchants. This favored consumer tactic is ideal for acquisition new customers gravitate toward a bargain. Existing customers won’t miss an opportunity to embrace such offers either—particularly if your brand is one they frequent, such as CVS Caremark.

1. The Right Offer

CVS’s Give One. Get One (GOGO™) incentive (above) had a high value offer of $5 for every purchase of $25. The company deployed consistent messaging across marketing channels, placing contextually relevant banners and promotional tiles on multiple pages of CVS.com, including the home page, household page, and their Savings Central page.

CVS stores also supported this initiative with promotion via cash register receipts, while email campaigns were in play to their 1M+ subscribers. Influential bloggers picked up on this offer and drove 11.2M social media impressions over just two days, resulting in a ten-fold sales increase. A nice surprise: The CVS eGift card average face value was more than double traditional plastic gift cards.


TACTIC #2: INCENTING CUSTOMERS WITH GIFT CARDS

Merchants are always looking for ways to optimize existing customers and encourage higher order values. eGifting can help accomplish these objectives. This tactic rewards big spenders—typically one’s best customers—to drive repeat business.

In fact, I had such an experience while checking out at H&M recently. When I was handed an unadvertised gift card, it elevated my feelings for the merchant and encouraged a future visit. Imagine the eGifting possibilities of extending that gesture online, particularly given a lack of convenient face-to-face interaction. It can foster customer relationship building and the ability to take advantage of the offer should result in quick re-engagement.

TACTIC #3: CUSTOMER SERVICE TOOL

When faced with a customer service issue, an eGift card can be an immediate solution—and can go a long way towards restoring good will. In addition to being an ideal way to placate an irate customer, the eGift card also encourages them to come back to the store. The Home Depot is currently using this tactic to resolve customer service issues with a personalized, courtesy eGift Card. The result is an exceptional customer service experience throughout the buying cycle—quickly, easily and cost effectively.

eGift Cards can also be used to quickly fulfill warranty, return and refund requests for the purchase price of the item, instead of replacing or repairing the item. Merchants can use the eGift Card to track customer issues, handle distribution and more, delivering a seamless, worry-free experience for their customers.


TACTIC #4: REWARDS PROGRAMS—SHOP 4x OVER 12 MONTHS AND GET A FREE eGIFT CARD

eGifting can stimulate buying and increase visits to your Web and brick-and-mortar locations. Statistically, Rewards Programs are an important part of the retail industry; 56% of EG100 merchants have such a program tied to purchasing and/or credit cards in place. These merchants typically know their average visits and purchasing patterns, so they can model programs to move beyond this threshold.

TACTIC #5: WE MISS YOU—$25 eGIFT CARD TO LAPSED CUSTOMERS

The catalog and retail industries have long sought ways to bring customers back through promotions that center on “we miss you” models. eGifting is a perfect fit here—easy and cost-effective to deploy, and appreciated by customers. This tactic can re-engage one’s customers and be the start of long-term retention efforts capable of driving cross-channel traffic for activation in stores only, with shining results.


TACTIC #6: BEHAVIOR MOTIVATION

Often a retailer has an objective of driving a particular customer behavior. From completed surveys to testing online or in-store tools, an eGift card may be just the push consumers need. Talbot’s successfully deployed this tactic to encourage shoppers to try new pants styles. By rewarding all testers with a $5 gift card they sold 590,000 pairs in nine weeks. From another vantage point, surveys and focus groups are almost always incented, so this kind of approach resonates well with those who like to share their opinions. The instant reward is a plus for shoppers, and merchants gain the benefit of their input.


TACTIC #7: B2B CORPORATE GIFTING

Successful businesses go to great lengths to thank their best customers and partners; in fact, 46% of the EG100 merchants have positioned Corporate Gifting as an initiative that is growing in importance. Large volume, business-to-business gift card purchases can be a powerful income stream for your business. But many companies find buying, managing and distributing plastic gift cards too complex—and too costly.

However, eGift cards allow your corporate customers to “bulk” order digital gift cards that can be personalized and sent to recipients via email immediately by simply importing recipient emails via an Excel spreadsheet or CSV file. The eGift Cards can also be co-branded with the customer’s own logo. The uses are endless and recipient satisfaction is strong. As much of this activity takes place during the harried holiday period, the ability to quickly send to multiple individuals through onsite tools makes for an efficient purchasing and gifting experience.


TACTIC #8: EMPLOYEE REWARDS AND INCENTIVES

eGift cards are often a simple solution when businesses look to reward their best employees for a job well done. The incentive market is significant: $30–70B in the B2B world, including $4.9B in gift cards. According to Prepaid Press, projected annual growth is 25%. Also serving as a wonderful motivator for driving behavior among one’s employees, gift cards perform from both a B2C and B2B perspective.


2. The Right Marketing

Once tactics and offers are prioritized for your business, augmenting these efforts with innovative marketing can propel performance. Consider the following as approaches—and look at the results from merchants who have effectively deployed digital gifting. Ideally, along with online visibility and innovative social strategies, traditional media including print advertising should be employed.

The Container Store embraced eGifting, and in support of their launch online ran a full page ad in the New York Times, a back cover of that publication’s home section, plus an ad in Real Simple Magazine. Their Gift Wrap Winter Wonderland direct mail campaign reinforced availability. This is the kind of robust marketing that virtually ensures a successful campaign!

Onsite VisibilityOnsite visibility lends itself to many locations—starting with the home page, followed by gift card page, navigation, gift center, retail store locations, and even customer service. The following examples from last holiday season illustrate how merchants have promoted eGifting and traditional gifting.

a. Home Page :: Provide above-the-fold, homepage placement during key gifting and awareness-building periods.


b. Gift Card Page :: Educates consumers about your eGifting offering with its specific benefits and features.

c. Navigation :: Place an eGift Card link in the main navigation of your site. Makes it easy for consumers to find your offerings. Links should be bold, simple and appear consistently on every page.


d. Gift Centers :: Gift centers are “the” destination for gift givers online, and that’s where optimized merchandising and strong eGifting visibility must be paramount.

Gift Center with “always perfect” gift cards and eGift card promotion

> eMail: 12/22/09 Subject Line: LAST DAY FOR SHIPPING in time for Christmas

> eMail: 12/23/09 Subject Line: The Perfect Last Minute Gift Order By 10 PM 12/24 for Same Day Delivery

e. eMail Campaigns :: eMails are ideal for urgency, and both of these examples should resonate with procrastinators.


f. Post-Order Communications :: Merchants like Williams-Sonoma are wisely taking advantage of post-order communication to reinforce their gifting goals.

Social Media Since personalization is key to satisfying your customers and expanding their relationship with your brand, it’s easy to see how the highly personal realm of social media— Facebook™ Twitter™, blogs and other networking sites—can support a successful eGift Card and loyalty program. When done right, a social media marketing strategy can drive sales and increase repeat use of your eGift Card program, making a substantial impact on your marketing ROI.

Smart merchants are working hard at developing a presence in the social media realm and discovering just how much social media marketing, together with the right eGifting platform, can do for their brand and their bottom line. Every merchant should develop a social media strategy for eGift Cards that makes it easy for them to access their customers—anywhere, anytime and anyplace.

eMail: 11/2/09Subject Line: Order Confirmation…Gift card promotion at bottom of page


g. Facebook :: There are many things merchants can do on Facebook to virally build awareness of their eGift Cards while building brand. One of Facebook’s most utilized and successful interface components is the tab. Merchants should create an eGifting tab on their Facebook profile page with a link to their eGift card page. Encourage fans to socialize (broadcast) their gifting experiences with their friends using the “Like Button.” When a user ‘Likes” your eGift card, a story will appear in all of his friends (social graph) News Feed with a link back to your gift card page.

h. Twitter :: Discounts and promotions, exclusive content and early information are the biggest drivers in attracting Twitter followers. Discounts and promotions, exclusive content and early information are the biggest drivers in attracting Twitter followers.


i. Blogs :: Develop an extensive community of bloggers. Identify a group of specialized content creators who live to serve your product category and brand to prefect your fan marketing across social media.

j. 3rd Party Distribution :: Distribute your eGift card to 3rd party aggregators and businesses to broaden distribution.


3. The Right Timing—the e-tailing group/CashStar Digital Gifting Calendar

Smart merchants rely on promotional calendars, so we thought it would be helpful to create one that suggests the ideal timing for eGifting deployment. All opportunities should be seized from early planning to last minute gifting and even January gift card redemption. As a point-of-reference, top online revenue producing days are included; be sure to take advantage of this timing.

Results from a recent Javelin Research and Strategy of the US gift card market showed that almost half of those who bought gift cards in the last year say they tend to shop for gifts at the last minute. Not surprisingly, last minute eGifting spikes between 12/15–12/24, so it will be these times in particular that will best deliver to the bottom line.


4. The Right Platform

Merchants must continually make decisions about whether to build or buy. The technological complexity and demands of eGifting, as well as insights from merchants we have surveyed, suggest that it makes the most sense to take advantage of existing platforms under a software-as-a-service (SaaS) model.

Innovative, timely offers—while highly effective at generating business—can put complex demands on evolving delivery technology. Platform improvements and feature enhancements tend to drive success, but merchants are unlikely to make the necessary level of investment on their own unless it is core to their value proposition. Be aware of the complexity if you decide to build this functionality in-house. Do your homework, and make certain that your eGifting goals can be achieved in a cost-effective fashion.

Flexibility and a robust, template-driven solution can jumpstart eGifting efforts and put controls in the hands of the merchant. Under such a model, merchants have the ability to personalize offers based on the unique needs of their business and their brand. Dashboard management tools add efficiency to analyze the results of each campaign.

E. THE eGIFTING TIPPING POINT

Here’s the outlook. Merchants will increasingly make use of digital currencies and gift cards to motivate customers. The stage has been set; time-starved shoppers seeking convenience are already strongly influencing gifting behavior. Merchant adoption is growing and we believe this holiday season, when all things digital grow in popularity, there will be a tipping point for eGifting.

But even more important, eGifting is a year-round opportunity. Merchants have to decide how they can optimize this powerful marketing and selling tool now and into 2011 and beyond. It pays to get on board early, or you could get left behind.

eGifting applications are limited only by the imagination of savvy merchants, and the technology will continue to evolve to meet merchant needs. Promotional visibility will elevate sales and exposure to a new way of gifting that consumers readily embrace will extend opportunity. Merchants will realize gains through increased customer acquisition, greater retention, and more effectively engaging customers with their brands.


F. ABOUT THE COMPANIES

About the e-tailing group

the e-tailing group is a niche e-commerce consultancy that helps merchants deliver the right customer experience on their websites and across all of their channels while adeptly assisting technology companies to create and execute go-to-market strategies that simultaneously educate the retail community and deliver cost-effective thought leadership and lead generation.

About CashStar

CashStar is the digital gifting and incentives company that easily and securely integrates smart, powerful digital gifting strategies into retail marketing and engagement programs that drive incremental sales, increase retention and boost profitability. CashStar’s powerful platform enables all the digital gifting and multi-channel marketing strategies of smart, innovative retailers including individual and bulk gifting, customer engagement and retention, customer care and extended service contracts. CashStar’s roster of clients includes more than 75 leading retail brands including Brinker International Restaurants, Casual Male, Hot Topic, Torrid, The Cheesecake Factory, The Container Store, CVS/pharmacy, The Home Depot, Landry’s Restaurants, Regal Cinema, Staples and Travelocity.

E: [email protected]: 773.975.7280 1444 W. Altgeld StreetChicago, IL 60614www.e-tailing.com

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