The Economic Significance of Gift Giving
Gift purchasing and gift giving have developed over the last decades into a huge business, generating good profits to a large array of manufacturers and vendors. The economic importance of the “giftable” products sector is gaining weight in the context of international commerce, requiring a more thorough understanding and analysis. In the United States alone, consumers spend more than $280 billion in buying gifts/year, amounting up to approximately 10% of the entire retail market ($2.8 trillion in 2005) (Research and Markets, 2006).
There are an estimated 36,000 specialty gift retailers in the US, most of them financially dependent upon the gift-purchasing behavior of consumers. But there is much more to the industry, that includes numerous retail sectors, from recreation and entertainment products, to the more traditional clothing and fashion accessories, to more luxury products such as watches or jewelry. Strategic planning in all these fields has to take into consideration the gift shopping pattern and needs emerging in the marketplace.
Equally dependent on the gift giving habit are the largest discount department stores, a distribution channel that has ranked among the top preferred gift-shopping destinations over the last years. Furthermore, an entire market of experiential gift providers has been constantly developing, enlarging the array of gift choices with original ideas and packages (from restaurants to spas, basing their marketing largely on gift certificate programs, a topic that will be analyzed subsequently).
Getting in depth insights into the gift shopping experience and preferences of consumers should be the starting point of any effective brand building strategy of many retailers, manufacturers and experiential gift providers. This is where marketing research comes in and gains increasing importance in the planning process. It is vital to get to know the consumers and be able to understand their desires, thus assuring a premise of success to the revenue-generating strategies implemented within a company in the field.
As seen from the heterogeneous character of the gifting market, there is more than one kind of competition pressing companies. Brand competitors are one category of competitors, offering the same kind of services to the same target. This is direct competition. But there are also indirect forms of competition. Companies compete for satisfying the same need. Also, companies compete for the same resources. The customer has a finite income, and virtually all products compete for it. There is a harsh battle among companies from the above mentioned fields to gain access to a share of the gifting budgets. The purchase priorities are set on psychological and sociological criteria (the Maslow pyramid is one theoretical model that suggests a hierarchy of human needs: situated at the base of the pyramid - the vital needs such as food or sleep represent the most important ones, followed by psychological needs, safety, belongingness and love, need to know and understand, aesthetic needs, self-actualization and transcendence).
One of the first objectives of this paper is to throw a glimpse into the market, to identify gift purchasing and giving motivations, buying patterns and perceptions of the habit from social and economical perspectives. Although at its root an inquiry of anthropological nature, the analysis of gift giving unfolds into many facets, all of which can be considered from a multiple perspective. The matter that is of more interest here connects to the implications of gift giving on marketing practice, determining different choices of strategy.
Forecast is one of the major strategic marketing functions. It is definitely the most important one for companies that operate in a changing business environment like the gifting industry. Good forecasts help marketers asses risks and develop long-term strategies. Although Earth doesn't spin faster around the Sun, everything on the planet has picked up speed. Nothing stays the same for long. The business world has changed dramatically over the last couple of decades, in ways that many couldn’t foresee. The ones who did manage are now in the top of all classifications. This states the importance of good predictions.
Gift Purchasing and Gift Giving - A major marketing opportunity
For all stakeholders of the industry, and especially retailers and marketing decision-makers, gifting represents a double opportunity: to relate to two different markets with one lucky shot (buyers and receivers). From this perspective, gifting has been called “an exponential marketing opportunity” (Research and Markets, 2006). The nature of the gifting industry presents extraordinary advantages from a marketer's perspective, combining the efficiency of sampling with the credibility of word-of-mouth, thus intensifying the persuasive effect upon both purchasers and receivers.
Throughly understanding the dynamics of gift shopping, selection and giving is a fundamental prerequisite of a proficient marketing initiative in this market. Gift shopping is not limited to the holiday season, but it goes on all throughout the year (due to the numerous occasions suitable for gift giving). US statistical data shows that 60% of the gifting budget of the average consumer (amounting to approximately $2,062) is spent during the first ten months of the year, and only 40% is concentrated around Christmas (Research and Markets, 2006).
The main reason for which people buy and offer gifts is to enforce a connection, to strengthen a relationship. It is a socially and economically driven action. Gifting represents a means to an end. But it can also be considered a means to achieve personal satisfaction. Marketers have previously focused all of their efforts on developing new products, merchandising them more effectively, bringing new twists to old ideas, filling up stores with a large array of alternatives, in a few words improving the product. But a new paradigm is gaining a lot of attention recently - the idea of enhancing the gifting experience, to switch focus from the product to consumer satisfaction.
The Challenge of Understanding Consumer Motivations
Of course that in order to reach its business objectives a company has to identify the needs and desires of their target in order to be able to satisfy them more efficiently than the competition. Customers are different in their needs, preferences and perceptions. The thorough investigation of these differences helps companies improve their marketing approach, by painting a more comprehensive picture of consumer psychology (related to the specific product category) and of the attitudes of consumers toward different alternatives (not only in terms of gift product choices, but also as far as brands are concerned). At the same time, consumer behavior studies also aim at shedding light on how consumers are influenced by their environment, considering all influences that they are exposed to: from cultural factors, to media, family and social connections.
Another area of great interest for the gifting industry marketers is the actual on site behavior of consumers, the way they make different marketing decisions and choices, and their shopping motivations. Analyzing how people choose different gifts, and relating these findings back to the marketing strategies of the providing companies, can shed light on the key points that make the difference between a commercial success and a failure. Gift shopping is all about building and reinforcing relationships, so originality is a key factor. The gifting industry thus depends largely on fashion and social trends, and consumer research is vital.
One essential question that comes to mind regarding the gift shopping behavior is whether rational or emotional marketing appeals are more efficient in hooking the consumer's attention. Depending on the product category, one strategy or the other may prove to be more suitable, generating better results. Usually, the degree of brand awareness is important in the gifting market, whereas the degree of brand loyalty is rather low as far as the decision making process is concerned. People look for the most convenient offer and good rates (proximity is also an important factor). The decision is many times made spontaneously, on the spot, requiring little deliberation. The gift purchase decision is usually individual, but it can also be collective. Given these arguments, I argue that emotional appeals are more likely to solicit a better response from consumers in the gifting industry. Understanding all these factors can help to grasp better consumer behaviour, and thus make more informed marketing decisions.
Environment analysis must be the starting point of any marketing strategy due to the fact that environment changes (both internal and external) can affect a giftable products company's ability to create and maintain pleased, and thus profitable clients. In a changing business environment, marketing management (and marketing research) makes the difference between a top company and an insignificant one.
Although they try to attract the largest share of gifting budget possible, companies cannot serve all customers. Today's society is over-communicated. Too many messages make it difficult for the average consumer to pay any attention. Simplification is used as a defense mechanism, so messages get through only if they transmit something very clearly and easily to understand. Products, on the other hand, are so much alike that the consumer cannot tell them apart unless they see the package. Technological progress has leveled physical qualities of products. This is why it is essential, in nowadays marketing, to identify and promote a point of difference, a new twist, an original claim. Differentiation has become a key concept. Service added based differentiation means bringing competitive advantage to a company through service. In other words, the company we represent is a better choice because it offers the same products/services as the competitors, adding a plus in service.
The concept of ‘positioning’ in the gifting industry basically refers to the importance of stressing a single benefit for each product/service. This is one of the main challenges of nowadays marketing. The consumers’ minds resembles ladders on which they rank products. Each with a single position. To be able to penetrate the ladder a company has to find that one thing about itself that can meet a consumer need or desire at a certain moment in time (Ries and Trout, 2001, p. 14). So, understanding consumer behavior is essential for identifying emerging needs and capitalizing on them. Another possible strategy is to reposition the competition, to relate your own product/service to the competitor’s and show why yours is better. This can be a profitable choice for original or technologically advanced products. The novelty factor is one competitive advantage that can be marketed by opposition with the old and obsolete.
Psycographic Profile of the Gift Shopper
Correctly identifying the market of a giftable products company can be quite a challenge. From the mass of potential customers, each manufacturer, retailer or experiential gifts provider has to find the groups that are willing to exchange something of value in order to satisfy their needs or desires. Segmentation is, hence, a narrowing down process. It means dividing the market into categories based on a number of factors: from geographical, to psychographics or behavioral etc. Customers' psychographic characteristics, behavioral needs and attitudes affect both the product (in terms of features or packaging) and the promotion (what appeals should be used, which are the best channels).
The “Gifting Report 2006: The Who, What, Where, How Much and Why of Gift Giving & Shopping” compiled by Research and Markets in 2006 analyzed the behaviour of gift-shoppers, and identified four key personalities:
The emotional buyer is very involved in both gift buying and giving, loves offering and investing time and expectations in gifts; can be either male or female.
The practical female, in charge of every detail of her life, completely dependent on control, likes to have the final say in everything, including gift shopping. She normally plans her shopping list way ahead of time and reviews it regularly, thus being able to attract envy from friends during shopping season for finishing all of her purchases before Thanksgiving. She does not like to cut expenses when it comes to gift shopping, allowing herself the occasional extravagance.
The gift-challenged male, who is fond of offering gifts but feel a great burden regarding the entire gift shopping experience. He is undecided when it comes to performing a selection, an spends under the average for purchasing gifts.
The normative gift shopper, predominantly male, who enjoys the gift purchasing experience and has pretty clear ideas of what he wants to buy, spending right about the average. He is a last minute shopper, making it just in time to get all the gifts.
Gift Giving Behaviour and Perceptions
The practice of gift giving, and the relative expenditure, vary greatly within the consumer group, being directly affected by demographics, socioeconomic variables, family size, education, ethnicity and the degree of urbanization. The influence of each variable on gift giving can be studies separately. Literature shows that the larger the family size, the lower the probability of gift giving outside the consumer unit. At the same time, a higher level of education usually implies a greater probability of gift shopping and giving. Furthermore, consumers of Anglo-Saxon ethnic roots are more likely to purchase and offer gifts, generally speaking, compared to other ethnicities, for example Afro-Americans. Moreover, consumers living in suburban areas are more likely to buy gifts than the ones from rural areas or cities (Garner and Wagner, 1988, p. 36).
Other research studies on gift giving have revealed important aspects of the practice, especially related to consumer behavior and perceptions. The most popular gift category in the United States has been entertainment and recreational gifts (a category that includes DVDs, books, games, toys etc.). The second most popular purchase were gift cards, a preference that will be analyzed subsequently. As far as retailers are concerned, the most preferred channel was represented by discount department stores.
The average consumer made an expenditure of $2,062 on gifts in 2006, of which 60% were dedicated to holiday gifts, and the remaining 40% to other occasions throughout the year (anniversaries, weddings, birthdays). The two biggest gift giving occasions in term of expenditure are Christmas and birthdays. Other statistical data of relevance to the market show that the majority of gift givers accompany their gift with cards, while the rest are in the habit only occasionally.
Among the most popular giftable products categories are small decorations and personal objects, candles and accessories (category that amounted up to a total of 35 percent of giftable purchasers), scents and oriental fragrances, flowers, plants, all kinds of garden accessories (approximately 32 percent), ornaments (some of seasonal character - reaching 20%), gifts for pets and infants. All these figures are relative to the 2005 expenditure, and offer relevant insights into the buying patterns of gift givers.
The gifting market has slowly shifted from a seller's playground to a consumer-dominated turf. The customer-king has become a reality, taking commercial competition to the next level. The client is the judge and jury in this game, ruling spontaneously, unpredictably and very subjectively. His satisfaction is no longer a task of the sales department, but an organizational goal. This is why the consumer oriented policy has spread quicker than a virus. Research data on consumer behaviour is only the first step in designing a strong and effective marketing strategy. The true challenge is interpreting it accurately, a difficult task due to the heterogeneous nature of the consumer group. The presented findings suggest certain buying patters, that indicate the suitability of different marketing tactics for each product category.
A second step is thoroughly investigating consumers' perceptions on gift giving, the deep beliefs that guide their choices. Studies have shown that consumers end up buying the wrong presents for those they love most. Although the finding may seem unreasonable, it is backed up by solid data. One interpretation of this phenomenon can be based on being overconfident when gift shopping for close friends and family.
Purchasers are many times mislead by their own misconceptions or biases. They embark on a shopping spree for loved ones assuming that, because they understand each other on a deep level, they share the same tastes. So, shoppers end up buying gifts for themselves, or that respond to their own preferences. In the light of these findings, it can thus be asserted that familiarity with the recipient of the gift is not helpful in making a suitable shopping decision or in predicting his/her product attitudes.
These conclusions were drawn from a study made on dating couples, who were asked individually to choose an object from a certain category that would suit the tastes of the partner. Researchers observed that individuals based their decisions more on preconceived notions than on hints about what would appeal to the partner. Pre-stored information thus plays a vital role in the purchase decision regarding gifts for loved ones. The higher the degree of familiarity with the recipient of the gift, the less need a gift buyer has to investigate cues about the other's preferences, or to look for feedback. It was also demonstrated that predicting the attitudes or preferences of an unfamiliar target is much more accurate, as it is generally based on stereotypical information that is diagnostic in many situations. (CBC News 2006).
Considering these arguments, an interesting question that comes to mind is whether gift giving is an altruistic or a selfish practice? The instinctive answer would emphasize the altruistic nature of gift giving, as a way of making other rejoice. But based on personal experience and on the above presented research data, I am inclined to turn my attention to a different perspective - gift giving as a selfish, or, more accurately, a self-centered act, aimed at obtaining personal satisfaction from giving. And, in this perspective, marketing should focus primarily on the gift buyer, and not on the gift, on satisfying the consumer, and not the gift recipient. Thus, the gift sopping experience comes to the spotlight, demanding special attention and specific marketing tactics.
Gift Certificates - The New Marketing Hit
Passing from a general perspective toward a more specific one, I will analyze an emerging trend in gifting - gift certificates. The concept is as simple as it gets: offering pre-printed certificates of defined values, that can be purchased by consumers as gifts for friends and family. Gift certificates are suitable for virtually any occasion, and makes gift shopping easy even for the gift-challenged people who have a hard time making purchase decisions for others.
As last years' experience shows, all businesses that base their profitability on a large customer base should consider gift certificate programs in order to grow their market share and increase customer satisfaction. Although the marketing tactic is not new, it has gained momentum recently, appealing to customers and businesses alike through a series of advantages. First of all, from the consumer's perspective, they offer an easy, time efficient solution for people who don't have the time or the desire to spend gift shopping. Second, from the retailer's perspective, gift certificates offer the real advantage of immediate cash in advance, functioning like an interest free loan. Also, as far as marketing is concerned, certificates represent inexpensive ways to widen the customer base, thus touching both gift givers and gift receivers (Fowler, 2005, p. 19).
Over the last years, gift certificates have been used increasingly, accounting for increasing stakes of major retailers' revenue: Starbucks, for example (gift certificates account for approximately fourteen percent of the US revenue), or Barnes&Noble. But the advantages of gift certificates, as far as businesses are concerned, are not limited to gaining access to cash upfront; retailers also get to keep the entire value of the certificate, whether it is fully redeemed or not (Dash, 2004). And even when gift certificates are fully redeemed, customers usually end up spending more than their pre-defined value.
At the same time, gift certificates offer a lot of hidden value, representing a very efficient marketing information gathering instrument. Gift certificates and cards can be designed to track valuable information like balance, frequency of use and purchased articles, all leading to a better understanding of consumer buying patters and behaviour. Businesses can make the most out of the gathered data, by creating elaborate marketing information systems, than can give helpful insights into consumers' purchasing habits.
However, on the downside, gift certificate programs implementation is not a minor expenditure for a medium size retailer, ranging from one digit to three digit figures expressed in thousands of dollars, an upfront investment that is difficult to sustain (Dash, 2004). Moreover, costs increase in the case of retailers that already have a marketing information system that has to be integrated with the new program. This is one of the main challenges of the analyzed marketing tactic. In order to set up a professional multistore gift certificate program, including data management technology, companies have to thoroughly evaluate its efficiency. And it usually takes a while before such programs show their real value. Implementing a gift certificate program is a risky strategic decision.
In spite of all this, gift cards, certificates, wishlists and other connected instruments have gained momentum, not only in traditional commerce but also in the world of online business. They have recently become the ultimate tactic in viral marketing, due to their highly targeted nature and the increased customer motivation to use them. In the electronic environment, gift certificates offer the same advantages as in traditional commerce, at much lower costs, being all the more attractive to sellers.
There is another reason why gift certificates are so appealing to nowadays marketers - they offer a new point of encounter between companies and customers, a new channel of communication as part of integrated marketing programs. In a changing marketplace like the gifting industry, integrated marketing initiatives are the key to strategic business planning. By using resources from all communication fields, it is easier to understand the attitudes, interests, motivations and lifestyles of the different customer segments. This way forecasts can be more accurate. Information is vital, and the different approaches of advertising, PR or direct marketing can shape more complete perspectives on the customers. Using one another's tools, the disciplines can become stronger. This represents a basis for planning efficient strategies.
The idea behind this marketing approach makes sense. Advertising has the advantage of persistence and control, while PR has greater credibility. Combining the two is a logical move. It saves money and effort by preventing gifting companies from overlapping communications into several departments. Instead, it reinforces a single strategy, leading to increased consistency. The traditional advertising, public relations and marketing disciplines now have to be integrated into an efficient system. This is quite a challenge, as people working in the field are still reluctant to the idea.
However, the traditional way of delivering selling messages to a mass culture of gift buyers through a single medium is now obsolete. The death of advertising and the rise of PR have been proclaimed more and more over the last decade. The borders between various communication disciplines are already thin. The new paradigm of relationship marketing demonstrates it. It is mostly based on strengthening the ties with existing customers, by making them feel good about the company, rather than continually trying to win new customers through advertising. Relationship marketing resembles PR a great deal, as it is centered on customer satisfaction. And it stands at the core of initiatives with great potential, such as gift certificates programs.
There are, however, a number of challenges to consider and pitfalls that have to be avoided when planning an integrated program that includes a sophisticate marketing information system. The major requirement of such a program is strong coordination. This may lead to an increased degree of rigidity that can prevent rapid responses to unexpected situations or emergent opportunities. Because all decisions are centralized, and interconnected, an integrated program cannot respond timely to the changes in the environment. This is one of the main practical weaknesses of the approach. In a competitive environment, the reaction speed can make the difference between winners and losers. While the global trend in organizational structures is toward decentralization and adhocracies, integrated marketing programs creates new ways of increasing control at a central level. And retailers in the gifting industry should be aware of these risks.
All in all, gift certificates, as part of larger integrated marketing initiatives, are a clear trend in nowadays marketing. They presents great theoretical benefits, but also practical vulnerabilities. They don't represent a foolproof recipe for success, but merely a possible way to reach business objectives. Such programs can be developed internally, by the communication and IT departments of companies, or (most of the times) externally, by consultants. Whoever holds the expertise gets the responsibility and the money. The only thing that counts in the end is success.
To sum up, I can say that gift purchasing and gift giving are real opportunities for marketers, representing an industry with great potential for the future. Consumers, and especially the ones brought up in Western materialistic cultures, are prone to buy and offer gifts increasingly, as a way of reinforcing relationships. In this context, marketers should focus their efforts on understanding thoroughly the buying behavior of consumers, and the motivations that determine them, in order to accurately predict further developments of the market and to effectively stimulate its growth. Being an industry that is highly influenced by social and technological trends, consumers show a developed appetite for innovations and original ideas. Hence marketing research is essential, and due to the heterogeneous nature of the gifting industry, it becomes a real challenge.
Recent developments of the industry have brought to the spotlight a new consumer preference for gift certificates. This marketing tactic has gained momentum due to the great advantages it brings to consumers and businesses alike. Further increases in the use of gift certificates are estimated for the following year, in spite of the high implementation costs for retailers.
Fowler, M. (2005) 'How to build excitement around a gift card programme', The Wise Marketer, 5, 17-21.
Dash, E. (2004) 'The gift that keeps giving', INC.
Garner, T. I. and Wagner, J. (1988) 'Gift-Giving Behavior: An Economic Perspective', Monthly Labor Review, 8, 34-37.
Ries, A. and Trout, J.(2001), Positioning: The Battle for Your Mind, New York: McGraw-Hill.
--- (2006). 'Gifting Report 2006: The Who, What, Where, How Much and Why of Gift Giving & Shopping', Research and Markets.
--- (2006). 'Researchers explain the science behind bas gift giving', CBC News.