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Gift certificates still work

If you don't have a gift certificate program, you're passing up free money. By most estimates, only 60 percent of certificates purchased are actually redeemed. But there's more to an effective program than that.

"It builds traffic, it gives you cash flow opportunities up front, and it's a great way to build a frequent guest program," says consultant Gregg Rapp. "It's a key connection to a lot of ways to make your restaurant successful."

Smart operators are also moving beyond the paper coupon book to new-generation gift cards, which can be an effective way of building traffic and providing you with valuable intelligence for a multi-pronged marketing approach.

A gift card offers everything that the old paper coupons provided, but they also can easily become a loyalty card, with dollar amounts added as rewards. Taking the idea one step further, some loyalty card programs can keep track of how often customers visit, what they order and how much they spend, information that can be used to fine-tune your email and direct-mail programs. "[This kind of] system is more complex to integrate, but it lets you find out as much about your customers as you possibly can," says Patrick Brown of Gixex, a card management company. "If you can start with a gift card and build it into this kind of a loyalty program, you're way ahead of the game."

That's what Mike Binninger had in mind when he launched a card program two years ago. Binninger, CEO of Java Detour, a chain of 17 coffee shops based in California, wanted to improve on the stamp cards his stores passed out to frequent customers. They shopped around for a year before settling on a single-card system that combines gift and loyalty functions. "Having just one card makes it more convenient for the consumer, but we also liked how easy it was to integrate into our existing POS system," Binninger says.

Java Detour spent about $20,000 to launch the program, including the cost of the cards and various setup fees. Customers can buy the cards at the register or on the company's Website, with the stored value ranging from $10 to $100. To activate the cards, recipients register online, where they can also reload the cards and monitor their balances. The monthly per store cost to run the program is about $1,200 to $1,400, Binninger says.

He wanted three things out of the card: increased loyalty, increased frequency and shorter transaction times. Binninger got them all—"the cards became cost-effective almost immediately," he says—and discovered that their gift potential was even greater than he'd imagined. "We did a big push around Mother's Day, and one of our stores sold $8,000 of the cards."

While Binninger allows that the cost of such a program could be prohibitive for a smaller operator, he also thinks it's money well spent for an outfit like Java Detour. "We're about to start working on phase two, where we use all this great information that we're getting about customers to improve how we communicate with that customer base," he says. "With a program like this, there's a ton of potential out there."

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