Gifting: Cash that is Left on the Floor

A guest article by Ari Yahalom, VP BizDev of Gift Wizard, a startup revolutionizing the eCommerce gifting experience. They provide online stores an alternative, data-driven, gift purchasing experience. Smart profiling of both sender and receiver results in the elimination of most product returns, and new sales generation through relevant and targeted marketing.

For most eCommerce shops, gifting is something that happens in the background and is ignored most of the time. The truth is that gifts make revenues rise while margins fall.

eCommerce retailers, from mom and pop stores to big companies, view gifting as a side income, ignoring it for most of the year, then gearing up to days they deem “gift-friendly” with a mixture of dread and anticipation.

This paradigm is consistent amongst all types of retailers and it is the reason that retailers are not living up to their gifting potential, which, in laymen's terms, mean that they are leaving money on the floor.

Experts usually attribute this behavior to the fact that the revenues eCommerce businesses make from gifts often comes with a whole slew of hidden drawbacks. Those drawbacks can reduce the business’ margins and even leave it with a loss.

Bad customer experience

Online stores are not gifting friendly. Even if a customer enters the store with the intent of buying a gift, when they purchase an item there is no way to automatically designate it as a gift, so the customer has to contact the store and explain, wasting both the customer support team’s time and their own.

Moreover, buying gifts is risky business. Ideally, gift buyers would like to buy a thoughtful gift that will show how well they know the Gift recipient and that they have spent time thinking about what they would like/need. But the reality is that most of the time, we don’t really know our loved ones well enough to remember if their favorite color is red or blue, if they live in 16 Pal drive or maybe 34 Heritage boulevard, if they would really like this Hoverboard or maybe they would have preferred running shoes.

What ends up happening is that the gift buyer stares helplessly into the screen for a few moments, then leaves the store, which is why gift buyers have the highest cart abandonment rates.

Returns eat profit margins

The main factor that kills eCommerce profit margin on gifts is returns. Free returns are increasingly becoming expected. Half of today’s retailers offer them, and those businesses see a boost in sales of 58-357%. Nobody wants to buy their friend or relative a present online, only for it to turn out to be the wrong color/size/version and for the gift receiver to be stuck with it. But for a retailer, a returned item represents a loss. The business has to eat the costs of shipping, both ways, and repackaging. Some of the bigger businesses don’t even take returned items back but route them to an auction house to be sold for pennies on the dollar. Smaller businesses typically don’t have the scale to do that, so they just have to absorb the loss.  

What makes this especially painful with gifts is that the loss is typically not the fault of the business. There was nothing that business could have done to make sure that the customer remembered the gift recipient’s size or other preference. For example, when I bought my dad a pair of running shoes for New Year’s online and they were the wrong size, the shop had to pay to ship the shoes back to its warehouse, and then pay again to ship the right pair to my dad!

Gift buyers have lower lifetime value on average

Since eCommerce businesses have to pay to acquire their customers through advertising and promotions, it’s essential for them to maximize each customer’s lifetime purchases. There are whole books written on how to do that, but basically, it amounts to upselling and remarketing. That is to say that when I buy something for myself from an eCommerce site, say, a leash for my dog, the site will try to sell me a collar and a bowl to go with the leash. It will then use the email I leave to remarket to me periodically, sending me emails and showing me ads on Facebook, Google, etc. for dog food, dog toenail clippers, etc. This way, the business can maximize its profits from me.

But with gifts, upselling and remarketing possibilities are much more limited. I’m buying those shoes as a gift for dad to check him off the list. I am not very open to upselling offers of more shoes, socks, etc. And as for remarketing, forget about it. I don’t want anything the store has to offer-I don’t even like running. So emails and ads from the store targeting me are wasted. And as for dad, I probably didn’t leave his email or phone number, and in any case, he hasn’t given permission for the store to contact him. That’s assuming he even likes what the store has to offer.

With all those drawbacks staring shop owners in the face, it’s no wonder gift giving has taken a backseat in the eCommerce world, but this kind of thinking ignores the immense value the gifting world has to offer.

It provides free marketing

Ask every marketing manager worth their salt and they’ll tell you that the most effective way of marketing is word of mouth. We live in a world in which every potential customer is being bombarded by ads and promotions, making it increasingly harder to draw new customers to your store.

Gift giving is the perfect tool to do just that. It tells the gift recipient “look at this cool product I found” enticing him/her to go and check out the store. With every gift, the store gains a potential customer for free!

In a world where stores spend up to 40% of their budget on marketing, this kind of result is hard to come by.

Utilizing that happy moment

Buying a gift is a way to tell the important people in your life how you feel about them. Making the moment of gift purchase a special one.

Smart store owners give gift buyers an easy way to share the fact that they bought a gift from the store on their social network, helping the customer express their love and getting a free social bump in the process.

This approach enables stores to reach new audiences that were previously unknown, making a great first impression in the form of social proof.

What about gift cards?

The great thing about gift cards is that the gift recipient now becomes an active participant in the gifting process. Dad now picks out the shoes he wants from the store’s catalog, solving the problem of returns for size and color mismatch. The time pressure is off, since it’s unlikely that he’ll pay the premium for expedited delivery-and he got my gift, the card, on New Year’s, without the store having to ship anything. And in the process of redeeming the card, he will be open to upselling and bundling. He will also leave a phone number or email and give us permission for retargeting.

These advantages are the reason gift cards make up approximately half of gifting sales. On the other hand, gift cards have one major drawback; they are impersonal. When I bought those shoes for dad, it was because I wanted him to know that I’d put some thought into the gift, and think of me whenever he put them on. With a gift card, the personal factor goes out the window cursing the majority of gift buyers to avoid buying them altogether.

The main challenge for stores today is bridging the psychological gap between the buyer’s desire to buy something thoughtful, and the recipient's desire to get a product they really love.

What’s next?

Our startup, Gift Wizard, created a way to combine the best of both worlds,  the personal touch and excitement of a real gift, and the flexibility of a gift card. Our app gives the gift buyer an easy way of sending any product as a gift, combining it with a beautiful greeting card to increase the personal touch.

Check us out at our site, and let us know what you think.


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