Should retailers honour rivals' gift cards ?

In December, HH Gregg announced that it would honour gift cards sold by it's now bankrupt rival, Circuit City till the Super Bowl weekend (click here). HH Gregg checks the balance on the gift card and the balance can be applied for a 20% discount on merchandise only(click here).

Similarly, Toys'R'Us announced on January 12 that it would honour KB Toys gift cards (click here). They give a 15% discount coupon in return for the KB Toys gift card: "The gift card exchange can be made at Toys"R"Us stores' Guest Service Center. KB Toys Gift Cards must be surrendered at time of purchase, and only one 15% Toys"R"Us coupon will be granted per gift card surrendered. The 15% Toys"R"Us coupon cannot be combined with any other "R"Us offer for the same item and excludes"...certain toy categories with high-value toys. KB Toys had earlier announced that its cards would be honoured only at local toy stores where they were purchased.

The business question is: "Should retailers honour rivals' gift cards?

It seems to make business sense to allow customers to use rivals gift cards, especially if the face value of the card is only allowed for a 15-20% discount.

However there are many disadvantages to an exchange program which does not check the value of the rival gif card and offers a discount on a purchase. These include:

Gift card fraud: As this NRF link (click here) shows, gift card fraud is a big issue. There are various forms of internal fraud (perpetrated by store employees) and external fraud (such as use of fraudulent credit/debit cards, cloning of gift card, etc). Retailers use advanced analytics to recognize patterns in their fraud detection programs. However detecting fraud on a rival's gift card is extremely difficult. Also if the exchange program does not check the value of the card (like Toys "R" Us), expect a flurry of fraudulent activity.

There are many websites which trade gift cards (e.g., the Star Gift Card Exchange ). They buy gift cards at a significant discount to value (click here). I would bet that a lot of fraudulent gift cards get traded in these exchanges. However these exchanges are fairly savvy about not buying cards of bankrupt retailers.

Value to the customer: While the HH Gregg exchange program offers a fair value to the customer (one might consider swapping a $X free item at Circuit City for a $X discount at HH Gregg), the Toys'R'Us program offers no value to a genuine gift card holder. Why would you exchange a $X gift card (which is accepted at a local KB Toys store) for a 15% discount on one toy (from the lower-value categories)?

I would love to hear your thoughts....

A recession strategy for newspapers

On Dec 12, The Tribune Company, which owns iconic newspapers such as the Los Angeles Times, Chicago Tribune, Baltimore Sun, Sun Sentinel, Orlando Sentinel, Hartford Courant, Morning Call and Daily Press, announced that it was seeking bankruptcy protection (click here).

Circulation numbers for US newspapers have declined significantly (Sep'08) compared to last year.


Leading newspaper companies in the US (New York Times, Gannett, and Tribune) have witnessed significant declines in advertising revenue and slow growth/ stagnancy in circulation revenues in Q3 (ending November'08).
Industries that used to drive newspaper advertising (Real estate, Financial Services, Retail, Airlines, Autos) are not doing well. This has led to tremendous pressure on advertising revenues.

I can't help but think: How can newspapers compete (with other media, online players,etc) during this recession?

Here are my suggestions based on my preliminary analysis:

• Put a value on content. For several years, advertising has subsidized the price of a newspaper. Newspapers have even being giving content out free online and over the mobile phone (in the hope that advertising from these exciting new platforms will subsidize the cost of content). Newspapers need to reconsider that. They could consider publishing article extracts free of charge online and charging for entire articles. If the newspaper is against charging for online content, it should at least make readers register with full information (and make themselves available for better online targeting) to access full content.
  

• Optimize newspaper price. As the chart above shows, circulation revenue is reasonably sticky and inelastic. The New York Times has been able to increase circulation revenues even though it has increased its price. As shown below, most newspapers get less than 20% of their total revenues from circulation (NYT and WSJ are exceptions). Newspapers should consider increasing newspaper prices to maximize total revenue.
  
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• Save costs on international coverage: Newspapers (especially local/ community papers) should consider outsourcing international coverage through tie-ups with international papers. There is an interesting news-gathering start-up called GlobalPost that has 65 international correspondents who live in different cities globally and cover international news (click here).
  

• Consolidate national news coverage: Newspaper companies with multiple local/ regional newspapers (e.g., Gannett, McClatchy, New York Times, Tribune) should consider consolidating national news coverage and articles. The local newspaper could have access to all the national news articles written for the newspaper group and could focus on gathering and reporting local news.

• Divest unrelated unprofitable assets: I know this is a touchy topic.... But the Boston Red Sox, About.com, and some TV stations would qualify under this category.
  

I would love to hear your thoughts ...