The Gift Card Sector Comes of Age. Part 2 of 5: The Business, Social and Technology Trends Driving E-Gift Card Adoption, Innovation and Investment

In Part One of our look at the gift card sector, we provided an overview of the accelerated activity characterizing the sector over the past 4 years. Now in Part Two, we will examine some of the drivers behind the segment’s growth.
The Investment Perspective
FinTech in general is hot. And Square’s meteoric rise, led by Twitter CEO Jack Dorsey, made retail POS – and payments in general — sexy in that “ripe for innovation” kind of way. As a segment within the FinTech category that correlates closely with the growth of mobile payment technologies, e-gift cards are understandably an area of interest. And an area that is not yet saturated or highly visible (relative to say, the post-Square POS me-too frenzy), enabling even smaller funds to get in on a good deal.
Mobile Device and App Proliferation
The ubiquity of smart phones and the emerging use of mobile wallets makes e-gift card transactions a logical next step in ecommerce adoption for early adopter/tech savvy consumers. And for the underbanked, who are increasingly mobilized, e-gift apps can be the first and/or are the only step available to them for participating in the electronic purchase of goods and services.
Consumer Migration To All Things Digital
U.S. consumers are clearly weary of the physical store. This season’s unprecedented boycott of in-store Black Friday by some major retailers like REI and consumers’ growing weariness with, and wariness of the physical retail store experience this year reached an inflection point, morphing from mere disenchantment to angry action, with growing support for the consumer boycotting of Black Friday.
Rather than abandoning the retailers, consumers continued to engage with their favored brands online, with REI experiencing a 10-26% rise in online sales during the Thanksgiving holiday, according to digital analytics company SimilarWeb. Other retailers saw even more dramatic increases in online sales, with GameStop and Staples experiencing a one-day rise of 120%+, PetSmart a rise of 69% and Nordstrom and Pier1 both reporting a 54% one-day rise in web traffic. Overall, Black Friday in-store sales dropped by more than $1 billion – or 10% from previous year holiday sales while online sales increased. In fact, a National Retail Federation (NRF) survey found that indeed more people shopped online (103 million) than at the store (102 million) during the Thanksgiving/Black Friday period.
Gift cards are playing a part in this migration online, with consumer attitudes about gift cards changing as the sector provides more value-added features that increase the level of both physical and e-gift card personalization available to consumers, and that provide the convenience of allowing users to add value, store and transact with the cards anytime, anywhere. Moreover, marketplaces like Raise, Cardpool and Giftcards.com are enabling people to buy gift cards online for a discount, making gift cards even more appealing in some cases than the purchase of a discounted physical good as you could theoretically double dip – use the full value of a discounted card to buy a wanted item when it goes on sale.
At the same time, in both the U.S. and Canada, e-gift cards are not only viewed as acceptable, but increasingly as the preferred way to show gift appreciation.
In the next Part Three of this series about the gift card sector, we’ll look at how the growth of gift card business model and technology innovation is not just about the convenience of the pre-paid card, but about a larger trend towards the de-centralization of consumer finances, driven by such factors as millennial distrust of the bank as the sole institution for housing one’s money, and the broadening ranks of the under-banked.

The insurance industry challenged by technology change

 
Insurance is notorious for being among the sleepiest and most conservative of industries, but it is also one of the products most frequently sold online. Not only is technology poised to change many aspects of the business, but new research shows just how strong the correlation is between advanced tech use and top financial performance within the vertical. All together, insurance is a more interesting vertical case study than it outwardly appears.
Tech use among the industry leaders
IBM has found stark differences between industry leaders and nonleaders in their awareness of consumer changes in the sector. In a study based on interviews with executives at 80 insurers, IBM defined leaders as those firms that led in both profit and growth, with ROI in the top half of firms over a three-year period, and CAGR at least five points higher than market CAGR in that timeframe.  Although 88% of the leaders ranked changes in consumer behavior as important or very important, only 33% of the non-leaders gave the same response. IBM reports that “about 90% of insurance leaders are investing in customer support and 94% are funding new products and services, compared with 79% and 76% of non-leaders, respectively.”
Disruptive new entrants?
Along with online marketers of insurance products (e.g., einsurance.com and ehealthinsurance.com), large Internet companies have become potentially significant challengers in the sector. One pioneering new entrant into insurance markets has been Rakuten, known as the “Japanese Amazon”. The company is the third-largest e-commerce company worldwide, after Amazon and eBay, and it bought Buy.com in 2010. Rakuten has entered several insurance markets in recent years: offering medical insurance in 2011, and buying Airio Life Insurance Company Ltd., which it promptly rebranded and expanded from agent-based to online sales in 2013. Rakuten also has significant securities, e-money card and banking online businesses (ranking  #1 in Japan for the latter two). In its 2013 annual report, the company listed finance as one of its three strategic businesses, along with e-commerce and digital content.
In the U.S., Overstock.com followed suit this April, teaming with insuritas.com, an insurance private labeling agency, to launch an online residential, business, and auto insurance agency from Overstock’s main retail portal. The company has described it as a natural fit with its home furnishing sales. On the same day, Walmart announced a marketing partnership with the online vehicle insurance provider AutoInsurance.com.
In short, insurance agencies as a distribution channel appear to be going the way of travel agencies. A local, dedicated sales channel is simply being replaced by lower cost and more convenient online outlets. (Notably, Ratuken is also the number two travel agent in Japan.) Of course, established insurance companies also market their products online, with varying degrees of technical proficiency.
A new industry challenge
Forbes.com this week profiled a new online challenge to the insurance sector. The startup Injured Money surveys consumers on their insurance company payout experiences. The resulting data gives consumers new marketing power by rating insurance companies on their payout records—or the delivery on their promised services. This type of turnaround on industry knowledge may contribute to more costs and profits being squeezed out of the system.
An entry from Google?
Not surprisingly, there has also been considerable speculation that Google will enter the insurance industry, as typified by rumination in TechCrunch last month. In March, BCG and Google India released a study that shows insurance ranking among the top five products for Internet-influenced purchases in Europe, at 83%, with Internet influence somewhat less, at 66% of purchases, in the U.S. (For auto insurance, the figure has already reached 75% in the U.S.) From 2008 to 2013, auto, life, health and travel insurance saw 3.7x, 4.5x, 4.5x, and 6.0x increases in online searches, respectively.
The study also finds that U.S. insurers such as Geico and Progressive that have extensive online, but limited traditional, sales channels are significantly more profitable than more traditional firms.  Already Google acquired BeatThatQuote, an online price comparison service in the U.K., in 2011, although the site was disabled in 2013. With the sector’s exceptionally strong and growing online advertising and sales emphasis, will Google be able to resist some type of market entry?
Conclusions
In short, within the constraints of significant state-by-state regulation, the insurance industry is evolving its online presence for greater direct Internet sales. Those companies with a lesser traditional presence are generally doing better than the rest of the industry, and even among traditional providers, those with a greater focus on investing to meet changing customer demands are realizing greater financial success. New online entrants provide a significant marketing cost advantage, and large e-commerce players, with their massive scale and broad cross-selling capabilities, are entering the fray. That’s why as online search, research, and purchasing increases, the specter of Google’s Internet clout looms large in the fear of insurers–whether or not the company would ever consider more than a marketing partnership entry. Consumers may also gain from more symmetric, socially generated, market information.
Although there may be some advantages in hybrid traditional and online sales today, the intangible nature of insurance products make them naturally suited for pure online sales and delivery. Thus, traditional providers will likely find an ability to provide integrated, omnichannel sales and delivery is even less of a defense for them against new competitors than it is for providers of more physical products.

What’s your COI—or ‘cost of ignoring’?

The CMO Council is out with a new report today on the use of social media marketing in the auto industry.

As might be expected, they find that social is broadly used for building engagement, brand awareness, customer loyalty and the like. But it is not yet much used for actual sales, as it is still difficult to identify where prospects and customers are in the sales cycle and a number of auto makers fear missteps if they push product where customers are not looking to be sold.

But they are all deeply involved in engaging customers and enthusiasts online. Youtube and Facebook are the most widely used channels, with Twitter also significant, particularly for branding and redirecting for further information. Cadillac has found value in Instagram, and Kia has an entire site and awards program, KiaKey, that provides incentives for customers to post about their Kia experience online. AutoNation, the country’s largest auto retailer with 266 dealerships, reports having a number of processes and programs for generating customer reviews and seeing that they are posted online. Ford has a successful program inspiring the submission of home-video testimonials for its products.

As Eric Marx, Director of Interactive and Social Media for Nissan USA says, “ROI is still a bit unclear, but I believe there’s significant COI, or cost of ignoring. At Nissan we have well over one million people who have engaged with us across major social channels and said this is how they want to engage with brands now. If you’re not at least swimming in the shallow end of the social pool, I would say you are well behind where you should be.”

Besides some disagreement on the wisdom of using direct sales tools as they emerge for social media, a number of clear trends were found:

  • Consumers tend to seek out information and advice for such a large and, often, emotionally-charged purchase, thus making the market naturally suited for social media.
  • Community influences on social media are strong, and so there is a lot of value and potential in brand management—including engaging with and satisfying the initially dissatisfied. Also, social media monitoring is widely used for tracking brand perceptions.
  • Social media is growing in importance as part of a broader brand and marketing campaign strategy.
  • Although auto sales are often emotionally charged, it is the cars themselves, not softer human interest stories, that generate the most interest and response online.
  • With new sales generated from a customer only every three to five years, there is much need and opportunity to generate loyalty, service sales, and engagement in the period in-between, rather than to simply target and satisfy customers when a new sale approaches.
  • Tools predicting customer behavior and long-term customer value are rapidly improving and becoming available, but like tools enabling auto makers to identify where customers are in the sales cycle, they are not yet mature enough to be a major factor in the segment.
  • Still, bit by bit, the auto makers are becoming more proactive, such as to reach out via social media and provide direct competitor comparisons when it is clear that a prospect is in that stage of the purchase cycle. And, some manufacturers expect the real value to come when individualized sales outreach can reasonably be supported.

Undoubtedly, the marketing officers who are wary of the direct social media sales push are right to be cautious of that angle, particularly with the currently limited sophistication of online sales qualification. Reputation management is critical in this, as in many product sectors—although the blatant promotion of customer testimonials is likely to diminish the positive value to be gained over time.

Costco Automotive, which provides something of a pre-negotiated purchasing service for its members,  encourages its customers to call for information even when they are at the dealership, and Joey Hershel, the SVP of Marketing and Creative Services, envisions value in being able to provide the content of those queries and responses online as a resource for their other members.

This touches on the dynamic of customers using online, in-dealership research on their smartphones to change or disrupt the in-person car sales process. Notably, none of the automobile marketing officers raised this issue, which is a rising trend in other retail sectors. This study, sponsored by a social media marketing company for the auto sector, unfortunately did not address some of these more interesting and potentially challenging dynamics. Only housing (and now possibly healthcare) tends to be a larger consumer purchase than an automobile, and so manufacturers, dealers and consumers have a significant incentive to use technology that might give them an edge in the sales process.

With the increased use of mobile location data to track customers and extend localized offers, one can imagine a car shopper being deluged with coupons from competing dealerships as he or she crosses the threshold into the showroom of another dealer. Or, a prospective buyer might manage an online auction between comparable dealers while there on site. At the very least, a buyer-and-seller pas de deux seems inevitable.

Frequency, size, differentiation, and type of sale are among the factors for an enterprise to consider in crafting their social media strategy. Competitor practices and customer expectations factor in as well. Auto makers are already sophisticated in brand management, and surely some of their experience in social marketing and sales will prove instructive as well.

While data and metrics are still far better for marketing than for sales, both are improving rapidly. But with the current amount of auto marketing online, is it any surprise that up to half of all marketing department hires this year are predicted to be technical?

Why it makes sense for Amazon to open its own stores

Amazon is reportedly preparing to dip its toes into the brick-and-mortar retail market with its first boutique test store in the Seattle area. The move, which could face a lot of challenges, makes sense as Amazon extends its buying experience to retail stores.

Webcomic artist experiments with iBooks Author-created monthly archive

R Stevens, an independent web comic creator who pens Diesel Sweeties, has already created an iBooks edition of his most recent monthly archive that’s available free to read on the iPad. It shows a side of the tool that could catch on with independent artists and creators.

What’s driving the next phase of the e-commerce evolution

The outsize growth in online spending this holiday season suggests that e-commerce as a sector of the economy has passed some kind of tipping point and that factors beyond simply convenience and price — both long-standing hallmarks of online shopping — are propelling the e-commerce sector into a new phase in its evolution.

The opportunities for the Internet and clean power

As the digital world and connected devices take over more and more aspects of people’s lives large Internet companies are becoming more and more conscious of the need to invest in clean power and alternative resources.