Gift cards, store credit and loyalty points: which to use

The three are easy to confuse because they all end the same way: a customer pays part of an order with a balance instead of money. What differs is where the balance comes from and why it exists.

• A gift card is value someone paid for, usually to give to someone else. Its main job is to bring in a new customer.
• Store credit is value you put on a customer’s account, often instead of a refund. Its main job is to keep the money in your store.
• Loyalty points are a reward you give for buying. Their main job is to make the next order more likely.

A gift card is a prepaid balance with a code. The buyer pays you now, and the recipient spends the balance later, in one order or several. Physical cards suit a shop counter. Digital cards arrive by email and suit last-minute gifts.

Gift cards bring people who have never bought from you, sent by someone who has. When the recipient’s order costs more than the card, they pay the difference, so a card can start a larger first order.

The rules that apply

In the US, the federal Credit CARD Act of 2009 says most gift cards sold to consumers may not expire within five years of when they were issued or last loaded, and it limits inactivity fees. Cards you give away as a promotion follow different rules. Some states go further: California, for example, bans expiration dates on most gift cards. Some states also make you pay out small balances in cash. Rules vary by state. Check the rules where you sell, and print your terms on the card or in the email.

The accounting

Money from a gift card sale is not revenue yet. It is a liability until the card is spent, because you owe the holder the goods. In some states, balances that stay unused for years must be reported as unclaimed property. Ask your accountant how to record both.

Store credit is a balance on a customer’s account that only you can add. The customer spends it at checkout, and it is tied to their account rather than to a code they can pass on.

Common reasons to give it:

• Returns. Offer credit instead of a refund to the card. Some stores add a small bonus to make credit the better choice.
• Goodwill. A late delivery or a damaged item gets an apology with value attached.
• Trade-ins and buy-backs. A customer brings back a used product and gets credit toward a new one.

Credit keeps the sale in your store, where a refund sends the money back to the customer’s bank. Be clear about your policy, though: in many places a customer is entitled to a refund for a faulty product, and credit cannot replace that.

A loyalty program gives customers points for buying and lets them spend the points on a later order. You set two rates: how many points an order earns, and what a point is worth when it is spent.

The two rates together are your real cost. If a customer earns one point per dollar and 100 points are worth one dollar off, you are giving back 1% of what they spend. Double the earn rate during a holiday week and you have run a promotion without a discount code.

Some programs add tiers, where customers who spend more in a year earn points faster. Tiers give regular customers a goal, and they add rules to explain, so start with one simple rate and add tiers later if you need them.

Points work best when customers can see them: on the account page, in the cart and in order emails. A balance nobody remembers changes nobody’s behavior. If points expire, say when, and remind people before they do.

Most stores end up with all three, added in this order:

1. Store credit first. It costs nothing to set up, and it turns refunds into future orders from the day you add it.
2. Gift cards before your busiest gifting season. Have them ready a month ahead, and put them in front of shoppers who could not decide.
3. Loyalty points once you have repeat customers. Points reward behavior that already exists. They rarely create it from nothing.

Decide how they combine at checkout before customers ask. Can a customer pay with a gift card, credit and points on one order? Do points earn on the part paid with a gift card? Write the answers down, and train staff at the register on them.

• Guessable codes. Use long, random gift card codes, and limit how often anyone can check a balance. Short or sequential codes invite people to try them until one works.
• Gift cards as payment for a stranger’s request. Scammers ask people to pay them in gift cards. Train staff to stop and ask when a customer buys several high-value cards in a hurry.
• Points worth too little. If a customer needs a year of orders to earn five dollars, the program is invisible. Pick a value people notice.
• Credit that feels like a trap. Store credit with a short expiry, or offered when the customer asked for a refund, costs more goodwill than it saves.

A balance a customer does not understand is a complaint waiting to happen. Put the rules where customers look:

• Show every balance on the account page, and the amount used on each order.
• Print the expiry date and terms on gift cards and in gift card emails.
• Say in your returns policy when a refund comes back as credit.
• Tell customers how many points an order will earn before they pay.

Staff at the register should give the same answers as the website. A short printed sheet behind the counter is enough.

Check each tool against the job it was given. For gift cards, count how many recipients become customers who order again. For store credit, compare how much returned value stays in your store as credit with how much leaves as refunds. For points, compare how often members and non-members reorder.

Look at the open balances too. Unspent gift cards, credit and points are money you owe in goods, and your accountant will want the totals at year end.