In the Aberdeen Group study, 55 percent of the retailers surveyed planned to implement a digital gifting program in the next 12 months to 18 months. This compares to 42 percent of the retail population that currently offers plastic gift cards or plans to offer physical cards in the next 18 months. It is interesting to note that during the recent holiday season (November-December 2012), Mercator Advisory Group estimated $330 million virtual gift cards were sold in the United States. This is a significant percentage of the two-month total of $3 billion in total gift card sales. Mercator further projects the 2013 holiday volume of digital gifting will exceed $1 billion. CEB TowerGroup predicts virtual gift card volume will approximate $8 billion for the year 2013 and grow to $11 billion in 2014. These figures represent a momentous shift in volume within the overall gift card marketplace ($110 billion).  While the bulk of the promotion of virtual gift cards are attributable to social media sites, such as Facebook and Twitter, that direct users to online digital card sales, many hospitality brands are also recognized as major influencers in the 2012 transition from traditional plastic to digital gifting.
 
Digital Gifting
Target Corporation is credited with launching the first virtual gift card in 2010 at all its stores. Target sells virtual gift cards at the same stand it sells plastic gift cards but uses a QR code to enable the buyer to enter the recipient’s mobile phone number or email address. The evolution of digital gifting, also called e-gifting, m-gifting or virtual gifting, is a recent phenomenon that is gaining significant momentum within the hospitality industry. While digital gifting may not overtake or completely replace classic plastic cards, there is a lot of activity to support expanded offerings. Part of the concern is that while gift cards often are thought of as lazy shopping by those who don’t give serious consideration to gift giving, digital gifting implies even less premeditated planning since a virtual card is emailed, not mailed, and carried in a mobile device or PC, not a physical wallet or purse. Data mining analysis compiled by Target reveals that virtual givers tend to be male and average a younger age than physical gift card buyers.

The virtual formatting of digital gift cards requires that the actual value and brand of the card be downloaded for storage and eventual redemption. Often there is the availability of monitoring software designed to maintain control over a digital gift card library, track expiration dates, compute real-time balances and work cooperatively with location-based services that may notify the cardholder when in proximity of a retailer location accepting a stored virtual gift. For these reasons, most digital gift recipients favor m-commerce. Similar to physical gift cards, digital gifts can be customized and/or personalized by linking them to photos, logos, messages and/or video streaming.  Plus, virtual gifting is a green (environmentally friendly) practice compared to a manufactured plastic card requiring hard copy account statements, transaction receipts and the like.

Interestingly, Business News Daily reported that in a recent study by Affinion Loyalty Group (ALG) researchers found when given a choice between a physical gift card and a virtual equivalent, 70 percent of consumers chose the digital gifting option. Of those preferring a digital gifting format, 76 percent opted for a virtual gift card sent via email; surprisingly, few preferred gifting via text messaging. Additionally, 66 percent of the respondents commented on the ease of digital gift redemption as opposed to physical gift card usage. As a matter of fact, a mainstay in digital gifting relates to loyalty and incentive programs wherein consumers accrue loyalty points and then go online to request a virtual gift as a reward; this may represent the ultimate in simplistic redemption.

A recent Mercator Advisory Group Survey of Payment Industry Professionals indicated predictions that 41 percent of gift cards will remain plastic while 59 percent will be digital (26 percent mobile-based and 33 percent virtual format). This statistic should prove that hospitality management  needs to move into digital gifting.

Legacy Couponing
Paper coupons, in the form of cutouts, printouts, giveaways and bulk clipouts have long been popular as discount currency. Historically, coupons have been highly successful in driving revenues and building loyalty while requiring that consumers remain vigilant in monitoring newsprint, mailings, publications and Web offerings, not necessarily purchasing convenience. The advent of virtual gifting, which does not require media monitoring, has become a preferred replacement for legacy couponing. A virtual gift card, or e-gift card, is similar to a plastic gift card except it is delivered and carried electronically. Once a gift card is selected and personalized, it can be emailed to the recipient almost immediately, enabling the receiver to claim the virtual gift almost as soon as it is created. Generally, a digital gift can be redeemed online and offline. A virtual gift provides an easy and memorable gift idea, especially for those who shop online, over the phone or through mail order. Virtual gift card amounts can be purchased for dollar amounts ranging from $20 to $200 and may be accompanied by a processing fee.  

Implications for Hospitality
There are two reasons to consider digital gifting: first, for the convenience and the ease of being able to buy and send a gift to anyone, anywhere at any time; and second for the personalization and ability to make the gifting experience as special, memorable and personal as possible. In addition, digital gifting is rapidly emerging and progressive hospitality management needs to have an offering or guests will shop elsewhere. As a matter of record, digital gifting purchasers tend to be technologically savvy so a weak offering will detract from the hotel or restaurant brand identity and may even restrict sales and future opportunities. From an ongoing business standpoint, emerging channels are important to monitor and test. Perhaps a robust online offering would be a wise first step. Hospitality management should remain mindful of the potential for virtual gifting fraud and implement strong risk mitigation/transaction security processes. Management would be wise to consider digital gifting as a platform, not a single product. Some related consumer m-commerce facts include:

• 59 percent are interested in using mobile as a form of payment
• 50 percent of U.S. consumers shop with mobile devices
• 61 percent are interested in checking balances
• 59 percent are interested in organizing and tracking gift cards and loyalty via mobile
• 76 percent want an alternative to carrying everything in their wallets
• 12 percent of mobile U.S. subscribers who receive a text message (SMS) advertisement  tend to respond quickly; practitioners claim that offers sent via SMS convert 10 times to 20 times higher than either email or direct mail deals.

Hurdles to Growth
It can be argued that a virtual gift provides a convenient and memorable gift idea, especially for those who shop online, over the phone, or through mail order. Despite the fact research indicates 70 percent of consumers will choose an online gift card if given the option, there appear to be some hurdles to digital gifting expansion.

These hurdles include:

1 Virtual gifts are not considered gifts but rather last-minute throw-aways (solution: purchase a personalized e-gift that reflects the recipient (name, photo, theme, etc.), implying prior planning and thoughtfulness). Personalization is associated with creating an emotional involvement that goes beyond the capabilities of a plastic gift card.

2 There is a lack of widespread availability of virtual gift cards compared to plastic cards that seem to be available in many places for small, medium and large business entities. Claims are that small and mid-sized merchants do not have the technological or marketing resources.

3 The absence of a bar code reader and/or an accurately calibrated reader can impede accurate POS scanning when deciphering a gift code displayed on the screen of a mobile device (with or without a screen protector) or printed on paper from a sponsoring website.

4 The popularity of physical gift cards that can be unwrapped make it appear that they may never be replaced entirely by virtual gift cards. Many industry observers claim that virtual giving has created a new market, not cannibalized the plastic card space, perhaps not one format versus the other but a mix of both products.

5 Typically a virtual gift card can be purchased for any dollar amount between $20 and $200 and may be accompanied by a processing fee (2.75 percent or a fixed fee). This hidden cost usually exceeds the cost of physical gifting.

Bar and QR Codes
Many financial transaction analysts are impressed by the high-level volume generated by hotel and foodservice companies. An unexpected benefit of virtual gift cards is the superior data captured during the sales transaction (email and/or cell phone number of sender and recipient). This data can be used in future promotional campaigns (offers, discounts and rewards). Restaurant virtual gift cards vary based on the capabilities of the operation’s POS system and its gift service provider. Consider a family-style restaurant with advanced in-store technology capable of processing bar codes. When a guest presents a gift card represented by a printed (PC-based) or displayed bar code (smartphone), the in-store system can decipher the code into a dollar value. Depending on the style of service, some eateries may elect to have the service staff capture the bar code digits and manually enter them into a POS terminal for settlement. In either case, the redemption value is reconciled against the outstanding guest check balance. It is important to note that the gift card service provider must correlate the in-store bar code reader with the format of the virtual gift card to ensure authorized acceptance.

Recently, digital gifts became redeemable at qualified point-of-sale terminals capable of scanning a Quick Response (QR) code. This feature rendered virtual gifts as redeemable by select e-wallet, passbook or printed version.

Physical GC Monitoring
Purchasing gift cards or tracking balances on used gift cards, as well as keeping track of the physical card itself, can be tedious and confusing. The recent availability of the SWAGG mobile phone application is designed to help maintain accurate account balances for gift money, thereby eliminating the need to retain plastic gift cards. SWAGG allows users to import gift card information to a smartphone and helps track balances and expiration dates. Through this application users are able to procure and exchange gift cards from more than 250 retailers. The application also alerts the cardholder to deals that can be used either instore or online. SWAGG is a free application available at both the App Store and Android™ Market.

Social Gifting
What the most successful virtual gifting applications have in common are sending e-gifts to recipients through social media or mobile sharing and are all geared toward a B2C or C2C audience. There are several new services that apply Web-based technologies to selecting, purchasing and delivering digital presents. Once a user downloads a required app to a smartphone, there is an option to connect with Facebook and access data from the social network to gain important events, activities or commemorative timelines. The downloaded app may then suggest an appropriate design format as well as a gift idea. Once a purchase is made, the recipient receives an email or text message relative to the existence of the virtual gift. The five most powerful social gifting virtual gifting platforms are Karma, JustGiftIt, Wrapp, Treater and Boomerang.

Giftly: A Different Approach
Trying to purchase a virtual gift card, or any gift card, to a hotel or restaurant that does not offer gift cards is not a problem for an innovative service called Giftly. Giftly works by appending value to a recipient’s own credit or debit card; there is no need to create a new retail-based card. Instead, the purchaser determines the amount of the gift and contacts Giftly with the recipient’s email address. Giftly in turn, emails the recipient that a gift card has been purchased on their behalf. The recipient clicks on a link in the message that enables the recipient to register his or her credit or debit card number. The value of the gift is then transferred to the recipient’s card or account. This concept has been deemed successful, as it enables a gifting platform for any retail outlet, regardless of whether or not the retailer provides a gifting service. The Giftly email notification includes a feature that enables the recipient to send a thank-you message to the purchaser; including a photo of the event the gift helped fund. Giftly sites this feature as its competitive advantage since it enables an emotional attachment to an otherwise unemotional (virtual) gift. Giftly, which promotes its services primarily through search engines and mobile app searches, has 40,000 registered users and claims to have sold $125,000 in value on Christmas Eve day 2012.

The Giftango Mobile Wallet Conversion Platform allows the conversion of traditional plastic gift cards into a virtual value that can be stored and used on a smartphone. This allows gift card merchants to add a secure Quick Response (QR) code to a gift card. Cardholders can scan the QR code with a smartphone camera, capturing the gift card value onto the phone’s mobile wallet. The virtual value is then redeemable on or offline.  In order to use this feature, the physical gift card printer needs to create a coordinated and secure QR code. This feature also helps promote the adoption of a mobile wallet. The company advises that high-level security elements (PCI Level 1 Certification) are built into its core processes. Users can add the virtual gift card to a mobile wallet or re-gift the card to another individual.

Burger King Experiments with Giftango
In 2012, Giftango Corporation formed a partnership with Burger King to launch the BK digital gift card program. This program was unique in that it allowed customers to redeem BK Crown Cards from Web-enabled mobile devices. Digital gift cards, referred to as BK eGifts, are available both at retail outlets and online at BK.com. Once purchased, the e-gifts are delivered to the recipient through email, SMS text or as a Facebook wall post. Purchasers can elect to have a digital gift delivered instantly or on a specified date. Digital cards may be displayed on a mobile device or printed and redeemed as a physical version of the digital card.

Other Recent Examples
Dunkin’ Donuts, Applebee’s and Starbucks are credited as major influencers in the 2012 transition from traditional plastic to digital gifting.  The e-gift service from Starbucks allows customers to buy, transmit and redeem gift cards via mobile phone or the Internet. The Starbucks service is especially popular with last-minute gift givers. Starbucks reported that during the 2012 holiday season, nearly 33 percent of gift card sales were attributable to virtual gifting, with a slightly higher amount (40 percent) on Christmas Day. Dunkin’ Donuts offers virtual gifts from $2 to $100 in its mGift program. These virtual gifts can be sent via email, text message or Facebook posting. Sales of the email option have been the most popular. Perhaps the most widely used application is the Starbucks eGift for the iPhone^®, available through the app store. The Starbucks’ program allows the buyer to create and send a virtual gift through a platform termed My Starbucks. One of the unique features with this application is that it enables the sender to create a customized drink and then share it with friends via Facebook or email.

Restaurant.com makes it easy to purchase and send restaurant e-gift cards online at discounted prices. Virtual gift cards are customizable and can be emailed for instant delivery. Restaurant.com e-gift cards never expire and are sold at a discount, for example, a $100 value for $40 or a $250 value for $100.

Paytronix.com offers physical, virtual and third-party channel options backed by POS-integrated software, and leads to increased gift card sales. Paytronix products are aimed at boosting sales with unique promotions while accurately tracking discounts, comps, money movement, escheatment and more. Additionally, the company’s POS-integrated iPhone^® and Android™ apps enable guests to receive push notifications, maintain an account, check account balances and use location-based social media (e.g., Foursquare check-in) on a non-card platform.

Recent Developments
In early 2013, Facebook introduced an innovative, reusable virtual gift card capable of maintaining multiple balances from a variety of retailers. This new format is termed the Facebook Card, or FB Card. The FB Card is a new form of social gifting that can monitor and track multiple prepaid balances from a variety of retailers and retail locations. FB cardholders can manage digital gifts from multiple retailers on a single card. For example, a consumer decides to give a virtual gift to a Facebook friend, perhaps $100 to Marriott Hotels. After paying for the virtual gift online at Marriott.com, the Facebook recipient is immediately notified of the gift, and will receive a FB Card in the mail within a few days. He can then redeem the gift card at a Marriott property.  Subsequently, a buyer can purchase a digital gift from Olive Garden or Jamba Juice, and have those amounts loaded onto the same physical card as the Marriott purchase. The FB Card will then track account balances for all retailers from the recipient’s Facebook timeline. An advantage of the FB card is that it can carry several retailer balances on a single media and all gift account balances are viewable on Facebook. In addition, Facebook pushes notifications to alert users when retailer balances change. The ability to send and use a FB Card is now available in the United States.

Skype Gifting
Microsoft-owned Skype has a PC/Mac application that enables Skype users to send each other gifts in the form of Skype Gift Cards. Gift givers select from among a set of artistic virtual gift cards, opt to personalize the message and specify a dollar amount. The digital gift is delivered to the?recipient?via email, who can then redeem the gift. The Skype application includes a link to Facebook. When invoking the Facebook option, the sender simply identifies the receiver through his or her FB page and the recipient receives an alert that a virtual gift has been received.

Michael Kasavana, PH.D., NCE5, CHTP, is a NAMA professor in Hospitality Business for the School of Hospitality Business at the Michigan State University. He can be reached at kasavana@msu.edu.