Gift Cards - The talking point in Organized Retail

Retailers in India have already started the concept of co-branded credit cards. A current example would be the aggressive salesperson in any Spencer’s store showcasing the HSBC-Spencer’s offering.

Another vivid example would be the Future Group credit card which had TV ads across channels for quite some time. The response though had been lukewarm.

With organized retail sales looking downward over the last year, especially in Q3 and Q4 of 2008-09, these offering had disappeared from the table. But, Q1 & Q2 of 2009-10 have been particularly good, with around 15% growth in the sector on the back of a successful festive season.

The new buzz word that is coming up in Retail circles is the Gift card, which is basically gift vouchers/certificates in the form of smart cards.

They will be profitable for retailers as it will breed loyalty through repeat purchases. There will also be a significant portion of card value (10% in America: Economist) which are never redeemed.

Retailers in India are still nascent when it comes to maintaining a comprehensive customer database, and this will be a small, yet significant step towards the same.

The future for gift cards will yield many innovatively packaged offerings similar to the trends in America.

A few examples from the Economist:

1) Target: Gift cards that double as wind-up toys

2) Gift cards through email

3) Best Buy: multiple people can contribute small amounts for an expensive gift card to be created

4) Time based gift cards during the day. E.g. Happy hour shopping times for Gift card redeemers

Expiry dates in gift cards will foster consumers to buy within a specified period and this will always help the retailer waiting on the other end. If not redeemed this goes directly into the company’s kitty. But a lot depends on how the retailer will handle consumers who arrive at their store with expired gift cards. A balanced act will go a long way in establishing the customer friendly side of a retailer.

Another interesting trend in America would be the auctioning of such gift cards online. E-bay is estimated to sell 100,000 gift cards every month through the second-hand route. Consumers give up gift cards that they are unable to redeem online at almost half their price.

All this leads to a overall healthy trend for the gift card concept.

Manufacturers are already present in India for smart cards, who are currently in advanced talks with retail biggies.

The advantage for consumers is pretty obvious; a gift card would be the ideal choice for any wedding, birthday and other such occasions.

Indian retail market to touch Rs.18.1 tn by 2010: report

(IANS) The country’s retail market will grow to Rs.18.1 trillion ($395 billion) by 2010 as organised retail is expected to be 13 percent of the total market, according to a report.”The organised retail market, which is expected to grow at 45 percent, will be worth Rs.230,000 crore (Rs.2.3 trillion) by 2012,” said the India Retail Report 2009, released by the New Delhi-based research group Images F&R Research.

“This will require investments in real estate alone of over $50 billion, much of which will be FDI spurring the balance of the trade,” it added.

“The consumer spending in India has increased by an impressive 75 percent in the last four years and will quadruple in the next 20 years, even when this quarter has seen some decline in spending on account of inflation,” the report added.

This will trigger the growth of this sector.

Food and grocery dominated the retail segment with 59.5 percent share valued at Rs.7.92 trillion, followed by clothing and accessories with a 9.9 percent share at Rs.1.31 trillion.

However, the report said the market for specialised retail, especially the luxury retail, will grow significantly in the next few years.

“Even when the metros and tier II cities will get the major share of organised retail, emerging cities like Chandigarh and Jaipur, which have a growing cosmopolitan population and high purchasing power, will emerge as new centres for the global luxury brands,” it added.

The report has contributions from over 100 think tanks in the retail industry.

“However, to enable this sector to realise its full potential FDI restrictions will have to be relaxed further and retail rentals will need to go some degree of rationalisation,” it added.

Commenting on the report, Commerce and Industry Minister Kamal Nath said: “India retail model needs to go beyond the urban shopping malls and create an attractive retail environment where a large number of rural population can also find products and services.”

Consumers’ Paradigms: A Challenge for Retailers

Source: Booz Allen Hamilton: Retail Innovation in Latin America

Consumers know that they can’t have it all, in terms of getting the best of everything, all the time. Most purchasing decisions involve some form of trade-off in light of constraints such as price, distance, time to shop, or credit.

Our study revealed that consumers have preconceived notions of how to address these trade-offs in the retail world. Whether these notions reflect negative experiences or simply consumers’ perceptions, they often hide frustrations and desires in equal measure. We call these preconceived notions “consumers’ paradigms” and they are associated with the trade-offs that need to be made with respect to products, services, design, quality, assortment, and location.
Although not exhaustive, the following paradigms are based on our fieldwork and reflect the most relevant information at the time of this research. While the concept of trade-offs is applicable to most income classes, our analysis and examples are focused on emerging consumers.

1. “Access to high-ticket items requires a long term-sacrifice.” As shown in our previous study, emerging consumers dedicate a proportionally higher portion of their income to household purchases: In Latin America, they spend approximately 50 percent to 75 percent of their budget on consumer products.

As a general rule, daily needs are the top priority for emerging consumers, followed by emergency purchases and large purchases to stock up. As a result, savings are very limited and so is the emerging consumer’s ability to acquire high-ticket items, such as cars, computers, and household appliances like freezers and microwaves. As an illustration, a 42-inch plasma TV can cost as much as 20 percent to 25 percent of the annual salary of an emerging consumer in Brazil.

The purchase of high-ticket items is made even more challenging for emerging consumers as access to financing is limited. The primary reason for this limitation is clear: Only about 45 percent4 of emerging consumers possess bank accounts in Brazil, for example. Yet even for the “bankable” consumers, obtaining credit can be a challenge, since financial institutions require extensive documentation, such as proof of income, which the vast majority of emerging consumers do not have. Furthermore, even when consumers are able to obtain credit, there is little or no room for debt renegotiating, which impacts the consumers’ credit history,
another important factor in the financial institutions’ decision to grant credit.
In the context of their limited savings capability and financing options, the key question for emerging consumers is, “Can I possibly buy a personal computer or a car?” Our discussion groups indicate that emerging consumers do not believe this is the case, unless they are willing to make a long-term sacrifice: They have to save for an extended period of time and pay relatively high installments, thus giving up on shorter-term consumption. A C-class consumer in Mexico characterizes this situation very well: “Before Elektra, I remember how hard it was to have the discipline and the sacrifice to save to get us our first color TV.”

2. “Better quality must be more expensive.”
“Can I find trendy, quality furniture at a reasonable price? Are my choices limited to traditional, unfashionable staple products if my budget is limited? Can I get higher-quality products at competitive prices?” In the minds of emerging consumers, the answers to these questions are, “No, yes, and no.” They believe superior quality, which they generally associate with intermediate or leading brands, carries a premium in price. This belief can drive the purchasing process to the point where emerging consumers don’t even compare prices and limit the number and type of stores that they visit. A D-class consumer in Chile stated, “I buy my clothes in La Polar or in Lider, because Falabella is not for me.” The same belief holds when emerging consumers shop for other products, such as furniture and electronics.

3. “If a store is nice and trendy, its products must be expensive.”
Emerging consumers take for granted that a modern, trendy shopping environment, carrying
stylish products, also carries a premium price. “C&A stores are really nice and chic; it is not for people like me,” stated a Brazilian C-class consumer. Alternatively, as a B-class Mexican consumer said, “Palacio is expensive, but you find better things, more modern, exclusive; they get the products before other stores, and they run the best brands.” The perception is clear: If a store is trendy, the products must be trendy as well, and therefore expensive.

4. “If the store is small, the assortment must be very limited.”
Emerging consumers believe the store area is an indication of the available assortment. Consequently, they believe that if the store is small, one has to shop around in many other stores or commute to a larger store to access greater variety and, in certain cases, feel comfortable about making the “right choice.”
It is important to note that emerging consumers have often stated their preference for shopping at small stores nearby, as going to larger stores a distance
away requires more time and more expensive transportation, which is significant in the context of their limited budgets.
In the case of mid- to high-ticket items, this paradigm of a clear trade-off between store size and assortment has a much greater impact, as lower-income consumers usually do more research to purchase. As a D-class consumer in a small town in Brazil said: “I bought a new washing machine last month to replace the old one. But it took me five months to have my husband take me to Campinas, where there was a store with broad variety.”

5. “Better service and sales assistance must be more expensive.”
Our study identified service as a highly valued attribute for emerging consumers.
Nonetheless, they usually do not have positive experiences in this respect. It is common for them to find sales assistants too “sophisticated” to understand lower-income consumers, or believe that assistants have a cold and snobbish attitude toward them.

Accustomed to not having technical assistance and good service, emerging consumers believe that complimentary services can only be obtained with higher prices. When one C-class consumer in Colombia commented, “I like K-tronix; they have good products, nice people to help, and they even installed the refrigerator I bought for free,” another consumer responded, ”Nothing is for free, my friend. The cost is somewhere inside the price you paid.”