MTA Gift Vouchers: What’s in it for you?
Many members say, MTA makes a fortune out of us retailers buying gift vouchers, especially those members who don’t get returns. They are cumbersome to administer on our sites, we make no money out of them and in general terms, they provide no value to us what so ever. Yes, the MTA Board has heard it loud and clear. But is this really the case?
MTA Gift Vouchers have been around for over 40 years and were originally designed to keep customer spend within our member network. It is also a valuable branding tool for MTA with each voucher having a bold brand in a prominent position. Have a read on page 56 of the May 2010 issue of Radiator to refresh your memory on the history of this iconic product.
I would like to try and dispel some myths about Gift Vouchers.
Myth – MTA trades vouchers dollar for dollar, so the only gain is the vouchers that are never redeemed.
Have you ever considered the cost to MTA for operating the gift voucher scheme? Did you realise the average cost of running the gift voucher programme is several hundred thousand dollars a year, with a sizeable portion of that going towards printing of vouchers. This also includes courier charges, secure offsite storage, insurance, staff to issue and redeem vouchers, software to redeem vouchers, tax compliance and so on. This is for a voucher that is purchased for $10.00 from MTA and then redeemed for $10.00 to MTA.
Myth – MTA makes a fortune on the interest made off the outstanding gift vouchers.
This is partly correct. MTA earns interest off the voucher from the point at which the selling site pays MTA for the voucher, to the point at which it is redeemed. This interest is necessary to run the cost of the scheme as mentioned previously. This ‘fortune’ is dependent upon interest rates and the amount of time vouchers spend in the market prior to being redeemed. Unfortunately, in 2010 we not only had low interest rates, we redeemed more than we sold, producing a worst case scenario.
Myth –But not all vouchers get returned, so isn’t it money for jam?
Although not all vouchers are returned, the money needs to be available in case they all return. In 2010, we had a nett outflow (meaning we redeemed more than we sold) to the tune of $740k. In addition to this, IRD has now ruled in the MTA accounts that since some vouchers will never be returned, this becomes taxable income. To achieve this, IRD have required MTA install Prismac GVR software and the MICR Voucher Reader Machines at a cost of $170k to monitor and report on the number of vouchers that have not been returned. The full picture won’t be available for some years to come , so this year an assumption was made and hence tax will be paid on the equivalent of tens of thousands of vouchers not being returned. So as you can see, it is not as straight forward as it may seem.
Myth – There's nothing in it for me.
The underlying reason for the scheme is still relevant. People want to buy gift vouchers and use them at stores that will accept them. They bring people into the store which will hopefully turn into a sale. To achieve this, we need to have a network of stockists with sufficient coverage to make it easy for customers to access Gift Vouchers. We need you to have them available or the scheme will fade away. The modern consumer doesn’t have the patience to go searching for the product.
The key benefit for us retailers is determined by whether we are:
- A nett seller – sell more than we redeem and hence regularly buy vouchers to maintain our stocks; or
- A nett redeemer – take in more than we sell and hence are regularly submitting vouchers for redemption by MTA.
I am fortunate to have a site that falls into each category so I have had plenty of time and experience to consider the implications.
In the case of a nett seller, the clear advantage is that we get to enjoy the cashflow provided. We buy them in at anytime during the month and are not required to pay for them until the 20th of the month following. The money is in our bank earning interest over that whole time. Aside from our admin, there is no cost to get them sent to us. As with any stock there is a holding cost and this is where it comes down to good management, ie not carrying over many at the end of the month. Now back to the admin costs at the site. We all have our own systems and procedures for managing our business, but all too often I hear of complicated systems for managing gift vouchers. These methods include locking them in safes or cupboards with only the manager having ability to access them. They record serial numbers, which is logged out when a voucher is dispensed. At my sites, I treat them like any other form of cash. I keep minimal in my till, but enough to satisfy most customers’ needs. I don’t record serial numbers, because I don’t do that with my $10.00 notes and I can’t see the point. I stocktake them daily which takes a matter of seconds. I take the chance on losing the odd voucher, but then how often have we lost the odd $10.00 note and still we let them come and go unchecked. Nice and simple.
The nett redeemer makes the profit off the voucher when that voucher is presented and a product is sold. Again, we treat the vouchers just like cash - count and balance them daily. As a nett redeemer, the only additional cost over cash I can see is the cost of returning them by courier to be redeemed by MTA.
Depending how this is done and the frequency of redemption, the cost is not high. As a nett redeemer, if the voucher is in good condition and our selling stock low, we recycle the voucher to send it back out to work. This provides our member network another profit on products sold when the voucher is presented again, saves on the cost of sending it back to Wellington and saves MTA having to spend the money on another print run prematurely. An additional benefit is gained for those sites whose banking arrangements require them to pay cash handling fees. In fact, have you ever considered how much it costs you to handle cash with counting, balancing, theft, fees, etc?
So in summary, vouchers are not a ’money tree’ for MTA and in fact pose some financial risk. The scheme is ticking along, but to really grow and promote it to gain even more benefit for MTA and our members, we need a consistent and reliable network of stockists. For us sellers and redeemers, there is some real value if we stand back, take another look and ask ourselves: are we making the most of the opportunities MTA Gift Vouchers present us and are we managing them in the most efficient way?