For CEO Michael Ahern and the 130 “certifiably gifted” members of GiftCertificates.com, this is the season to be jolly. The six-year-old company was recently named one of the fastest growing in the nation, ranked 137 on the 2003 Deloitte Technology Fast 500. And the gifts of this emarketer’s good fortune don’t end there. GiftCertificates continues to expand its sales and profit picture incrementally, a major portion of its proceeds being generated in the last 30 days of the year. (Depending on when you read this, there’s still time to do your last-minute shopping at GiftCertificates.com and purchase the company’s best-selling SuperCertificate® , a universal gift certificate redeemable for hundreds of merchants gift cards, including national retailers Eddie Bauer®, Macy’s, and The Sharper Image®; travel services American Airlines® and Marriott® Hotels, Resorts & Suites; personal services Merry Maids; and popular restaurants Red Lobster® and Olive Garden®.)
As part and parcel of its business model, GiftCertificates.com is wrapped up in everything that is both the most exciting and the most nefarious about the Internet. On the upside, it is able to leverage the merchandising power of the Net to continually expand its ever-widening selection of products and services and scale its business in a smooth and regulated fashion. On the dark side, the company is pressed into using state-of-the-art security methods and personnel in an ongoing effort to thwart potential fraud and abuse of its “digital currency.”
As the saying goes, it’s the thought, not just the gift, that counts. Here’s the thinking behind the online marketing. merchandising and operations at GiftCertificates.com.
Seattle24x7: How busy is the holiday time period for GiftCertificates.com? Is there a peak period in December when most gift certificates are sold?
Ahern: We can do almost a third of the whole year’s business in the last 60 days of the year. Typically, most online retail sales seem to peak about 8-10 days before the holiday, generally when shipping stops because they can’t guarantee the gift will make it on time. We follow that same holiday shopping pattern initially, and think we’ll see the peak on December 16th or 17th this year. But then, when a lot of people see a drop off to zero, we start doing a lot of our last minute marketing because of our ability to provide emailable gift certificates to our customers. We’ll see strong sales right up until Christmas eve and last year we even had a surprising number of sales on Christmas day.
Seattle24x7: Your business model is based on a value-added margin we presume?
Ahern: The primary role we play is driving certificate purchasers or recipients to our various merchants. These are typically new customers who spend their certificate dollars at one or more of these merchants. In exchange for that activity, we are able to buy the gift certificates in bulk and we buy them at a discount off of their face value.
Seattle24x7: How would you define your main lines of business and what percentages of business do you do in those categories?
Ahern: We break it down into two main categories, which are essentially consumer sales and corporate sales. Roughly 70% of what we sell on a dollar basis goes into the corporate market and 30% is in the consumer market. Integrating with both of these areas are our merchandising partnerships. GiftCertificates customers are going to spend their money somewhere and it’s our job to promote our merchants. We help guide customers to the merchants that are most appropriate, in tandem with the merchants’ help in many cases.
Seattle24x7: What kind of marketing are you doing to these two segments?
Ahern: In consumer marketing, we’ve found that people really like to learn from their friends and family about what’s good on the Web. We know that our existing customers help spread the word to new customers about their experiences with us. At the same time, people tend to trust their favorite search engines. For example, if you go to Google and type in “gift certificates” we do very well in terms of our placement in their search results. We’ve spent a lot of time and marketing dollars both on buying keywords on search engines and just making sure that our placements on the search engines are good. Our company name certainly helps if you’re looking for gift certificates.
New customers can opt-in for various reminders around the holidays that we might use. We can begin a relationship with them that way. With the recipient of a gift we only take in minimal information. But we will also give that person a chance to opt-in and learn more about the service. A key part of our marketing is trying to build a relationship with recipients and get them to become a customer.
Seattle24x7: Has search marketing proved to be the best return on investment?
Ahern: We’ve achieved a strong ROI with search and paid very close attention to it. Comparing it to other marketing activities, especially when you look at the results, search has turned out to be one of the top things we do on the consumer side.
Seattle24x7: Your Seattle office is both your corporate headquarters and also your mission control center for fraud. What are your biggest concerns and initiatives in the security area?
Ahern: Fraud is an area that we’ve taken very seriously for a number of years. The products we deal with are like financial instruments in many ways. Even more so, because we do things by email. People think there’s a deeper level of anonymity with email and that if they could illicitly obtain a digital gift certificate and use it, we might not be able to find out who they are.
Seattle24x7: How do you harden the system against fraud?
Ahern: We’ve built a set of rules that have evolved over time. What we’ve done is looked at where some of the obvious holes might be, and what people might attempt to do. The number one fraud activity is not counterfeiting numbers or social engineering. It’s basically stolen credit cards numbers and identity theft. That issue is as much as 95% of what the total number of fraud issues are about. So when an order comes in, we run it through a set of rules. It either gets approved automatically or it could get denied automatically. It could also get escalated to one of our consumer transaction people to take a deeper look at it.
We automatically contact the bank for an immediate request for approval, and they either approve it or deny it. That usually catches cards that have not only been stolen but have been reported stolen and some time has gone by. It’s the freshly stolen cards that are the most risky.
Seattle24x7: You’re guarding against a laundering factor there, that someone’s trying to turn a stolen credit card into a gift certificate?
Ahern: Correct. When there’s a transaction inside a store and the credit card was stolen, the bank actually takes care of covering the difference and eating the loss. On the Internet, because the card isn’t present, it’s the merchant, or GiftCertificates.com, in our case, that takes the loss, regardless of what happens. That’s a major risk.
Seattle24x7: What are some of the other risk factors you watch for?
Ahern: There are certain attributes about fraudulent transactions. One example might be when someone has a first order with us and they want to order a large gift certificate. The risk is high there and there’s no history so those go through a but more scrutiny. There’s other things about the order, we do things like address checking. If the IP address doesn’t match the location where the credit card was issued, a flag might be raised. The other rule that’s pretty obvious is if the billing address and the shipping address are different, it raises the score that something might be suspect. We’ll then look at the total score and decide if the order needs more attention.
Seattle24x7: Gift certificates are frequently used as sales incentives and performance rewards by businesses. Do you envision the possibility that gift certificates will become a points-based currency for certain Web activities or behaviors, like adding up credits in a frequent buyer or frequent tryer program?
Ahern: Yes, and I can appreciate that question on a number of levels. A lot of our corporate customers are indeed doing points programs. We’re not always involved in the points accumulation but a client’s participants might be earning points every time they sell a phone subscription, or they might be earning points every time a month goes by on the calendar and gift certificates are the reward option in that equation. We’ve got affiliate partners like UPromise.com, where people are doing things to earn these points. For the most part we’re fulfilling the awards but we’ve also gone down the path of administering some of it. The Internet makes this a very interesting possibility. I think what it comes down to is that people will start to value the points, what they can be used for and what their earning rate is. I think of Frequent Flier Miles and how they get used and I think there is merit to this model as compared to other points systems that are less popular.
In general, gift certificates are a very flexible gift option and we think we have a product that lends itself nicely to consumers looking for the gift of choice. – especially during this busy holiday season.
Seattle24x7: Thanks for talking shop with Seattle24x7.[24×7]
Larry Sivitz is the Managing Editor of Seattle24x7.
